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This week's column is adapted from testimony I will give to the Canadian Parliament's
Policies promoting domestic procurement of goods and services are neither new nor unique to
First is politics. Buy American has always been a popular slogan, and in last year's election both our parties supported strong domestic procurement provisions. When the current administration was asked what the difference was between its policy and Trump's, the response was essentially that Trump's didn't work, and Biden's will. The voters the two parties are competing for--largely white, blue-collar workers in traditional manufacturing sectors--believe Buy American is an important policy that will create jobs for them, and
The second reason is the Covid-19 pandemic, which has brought to light gaps in our supply chains that led to shortages of critical personal protective equipment, among other things.
In starting that process, the administration, to its credit, has not proposed autarky and has acknowledged that working with our allies and partners is the best way forward. The extent to which that is lip service remains to be seen.
CSIS has studied this issue in the pharmaceutical sector and has recommended a trusted partner approach as the best way to insure adequate supplies of pharmaceuticals. That, in turn, raises issues of its own, such as who is a trusted partner, how you define trust, and what the obligations of the parties should be, but we believe it is the safest way to proceed.
The result of the pandemic has been to refocus supply chain management on resiliency and redundancy. Managers need not only plan A, but plan B and plan C as well, and all those alternatives will involve more domestic sourcing or nearshoring. They will also involve some movement away from just-in-time manufacturing to rebuilding inventories.
The third reason is related to national security and grows out of our deteriorating relationship with
The debate has moved in two directions: running faster--improving our innovation capabilities in critical technologies to better compete with
All these factors have combined to push companies to restructure their supply chains in ways that favor domestic production. The government has further encouraged that by beginning the process of identifying critical sectors of the economy, where companies in those sectors will be encouraged, probably through tax benefits, to return to
In addition, it appears the government will attempt to change its procurement rules to further favor domestic production. That will be a complicated undertaking, in part because 96 percent of federal procurement is already domestic. However, that number is a bit misleading because we treat some parts and components incorporated into a product as domestic even if they are imported. Changing that methodology will force some manufacturers to adjust their supply chains to include more
There is an irony here. The new percentage of domestically sourced procurement is not likely to be much more than 96 percent. After all, how much higher can you go? It will be a less misleading figure than the current one, but it may prove difficult for the administration to make a convincing case to the public that its efforts have made any difference.
Federal procurement contracts for goods in fiscal year 2019 accounted for
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