Skip to content

Reshoring Production and Restoring American Prosperity: A Practical Policy Agenda

The Covid-19 pandemic has made one thing absolutely clear: China is the workshop of the world. This has significant strategic and geopolitical implications. By playing its initially weak hand to perfec­tion, China transformed its position of dependence into one of dominance during the last several decades. The highly touted inter­dependence of countries in manu­facturing processes is, in fact, asym­metrical. The United States and Europe are reliant on China for in­puts of intermediate goods used for manufacturing output; China is not reliant on either. This asymmetry is intensifying. China’s value-add in manufacturing has been increasing, while its use of U.S. inputs is decreasing.1

The Covid-19 crisis, and the inability of the United States to produce even the simplest of medical goods, illustrated the feebleness of American manufacturing. It also illustrated the fragility of Ameri­can society. Both are long-term trends, and likely connected.

As the pandemic has made obvious, production is itself a critical activity. It is necessary for future American prosperity and geopolitical and military security. Catchphrases about the efficiency and resili­ency of current supply networks do not address the long-term devel­opmental and security issues that stem from deindustrialization. The reshoring debate is now over. Any argument that the current status quo is somehow good for America indicates intellectual inertia, hid­den financial incentives, and ultimately bad faith.

None of this means, however, that there has been any successful movement by the United States to reshore: American multinationals and Wall Street are dead set against it. During the height of the pandemic in mid-March, the White House floated a possible executive order calling for the reshoring of key medical supply chains to take place at a future point. The reaction of the pharma industry was swift and severe. As reported in the Spectator USA magazine, a draft letter from a pharma trade association, with forty additional signatories, held that any such order would “undermine the complex arrange­ments between firms that allow for efficient delivery of medicines to patients.” The executive order was quickly and quietly dropped.2

Later in the summer, the White House did proceed with an “Exec­utive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States.”3 But there is more talk than action when it comes to reshoring. There is no evi­dence whatsoever that reshoring to the United States is taking place on a widespread scale. Instead, some firms are moving production to China-adjacent countries such as Vietnam. And many other multinational corporations, such as Toyota, have publicly announced that they have no plans to diversify their supply chains away from China.4

Offshoring is how American multinationals and the tech industry make things. They and Wall Street profit immensely from this system. For both groups, offshoring has become the American way. U.S. production capabilities and skills have deteriorated and become de­crepit as a result. The country now faces formidable obstacles to reshoring and, consequently, in its ability to innovate. Those obsta­cles are now so significant that we should not expect private market solutions, nor can we assume that any individual CEO can solve them. The failings are systemic and collective. The time for incremental solutions has passed. More radical interventions are required.

Our article on reshoring in the Summer 2020 issue of this journal gave an overview of the financial incentives and ideology that led to so much offshoring in the first place. Its focus was on the need for more demand-side solutions. Without stable demand for domestically produced products and components, no company will invest in build­ing up production capacity, and no worker, manager, or investor will invest in acquiring and honing the necessary skills. Trade-related levers could certainly help drive domestic demand—such as the selec­tive use of tariffs, as well as measures addressing currency manipulation, forced technology transfer, and dumping—but these are already well known and often hard to implement. Instead, we argued that “made in America” requirements for government purchases, including tight­ening the loopholes in existing executive orders, should form the core of policies to ensure stable demand.

This second article on reshoring complements the earlier piece by primarily focusing on the supply side. The United States needs to re­build its production capabilities and reintroduce market competition in ways that support domestic production. Rather than waging a costly and ultimately unproductive cold war with China, the United States should learn from China, and build the needed institutions and related policies that are now standard in every other major country in the world. These polices have been proven to work. Yet they are largely missing from U.S. policy discussions about how to revive prosperity and production.

Before we start, though, it is necessary to put forth three principles that should guide such policies. Taken together, we believe these prin­ciples can create the conditions needed to foster onshoring and re­shoring. The first principle is competition—that is, all such policies should aim to increase competition. The second principle is correcting market failure in the supply of public and semipublic goods—that state action should be focused toward areas in which we cannot expect the private market to come up with optimal solutions. Our third and last principle stems from our identity as Americans, and the guiding idea of “no taxation without representation”—if taxpayers’ money is used to subsidize private companies, we should ensure that the fruits of such subsidies are shared by all taxpayers and that the voice of all Americans—not only of those with the most expensive lobbyists—is heard with regards to how this money is spent, by whom it is spent, and toward what goals.


Competition brings forth economic growth. This is why real demo­cratic capitalist societies flourish. Such societies ensure competition in two critical spheres: markets and politics. When narrow interests manage to weaken the competitive nature of either, capitalist demo­cracies decline, which is exactly what has been happening to the United States.

For this reason, corporate bailouts, and subsidies in general, need to ensure and enhance competition. The bailouts associated with Covid-19 should come with strings attached in ways that create both competition and reshoring. Instead of viewing such bailouts as a one-time occurrence, intended to support corporations through a “crisis” until “normal times” return, we should realize that corporate bailouts have become the norm and are now a “repeated game.” Whether we like it or not, the reality is that every ten years or so American taxpayers are called on to save the key industries of the day—car manufacturers, airlines, banks and financial services, and more—often from the direct results of their own bad management.

The recent history of the East Asian economic miracles versus the economic catastrophes of Latin America has taught us one critical lesson about this situation: countries that use those repeated corporate bailouts to structure and ensure sustained competition “miracu­lously” grow. Countries that use them to placate investors, stifle competition, and increase concentration “tragically” get caught in a never-ending downward spiral. As a nation, we should admit that we have been engaged in a generous corporate welfare scheme of the classic crony capitalist kind. We need to change this, and use the taxpayers’ money not to bailout, but to reintroduce competition into our economy in a way that incentivizes domestic production as well. There are two broad, successful models of how to accomplish this, one for markets dominated by newly established companies and the other for markets dominated by huge conglomerates.

The East Asian model. Unlike what the popular media has led Westerners to believe, the East Asian model is less about planning and national champions, and more about nurturing strategic long-term competition. The state does not pick winners; it ensures that there is always a set of competitive companies, and then allows market com­petition to weed out losers. Though these economies are intensely competitive, they are in no way libertarian. Markets are merely a means to an end rather than an end in themselves. The goals are domestic production rather than just domestic consumption, in con­trast to the aims of so many U.S. policies.

For instance, in South Korea during the Park Chung-hee era of rapid industrialization, the state offered preferred credit to heavy industries deemed important for economic growth and security. The performance of these firms, however, was closely assessed by the government on the basis of export targets, thus ensuring that local firms had to compete with the world’s best. Further, the state also carefully ensured internal competition. Several firms were always involved in each round of government help, and superior terms were given to the firms that performed relatively better in each round.

Learning from Japan, South Korea was diligent in ensuring that firms, whether politically connected or not, only received access to funding if export targets were met. As Alice Amsden has noted, export targets were useful because they provided an objective and transparent criterion, which countered the South Korean economy’s proclivity for “rent seeking and cyclical liquidity crisis.”5 Today, the terms rent seeking and cyclical liquidity crisis describe the U.S. econ­omy much better than they ever described South Korea’s.

The Israeli model. The role of the Israeli Office of the Chief Scien­tist (OCS, now the Israeli Innovation Authority) in spurring the Israeli high-tech miracle is well documented.6 What we focus on here is the underappreciated fact that the OCS grants were handled as a repeated game in an attempt to foster competition. Israel’s main policy goal was to maximize private business R&D and its positive spillovers within the Israeli economy. To do so, the OCS grants were given to companies for specific projects that aimed to develop export­able new products in all sectors of the economy, without any sectoral targeting. What is less well known is that the unit of analysis was the project, not the company. Hence companies could apply and receive multiple grants for multiple projects from the OCS, with many of the recipients doing so. This created a repeated game in which companies and entrepreneurs had high incentives not only not to cheat (and then forever be excluded from future grants), but also to excel in their R&D and exports.

To ensure that all Israelis benefited from those innovations, in the early period (1970s to 1980s) companies were categorially prohibited from transferring the intellectual property rights (IPR) of OCS-spon­sored projects abroad, hence production had to commence in Israel. As the industry evolved and became more globally competitive, those constraints were relaxed and instead companies seeking to sell the resulting IPR to a foreign company had to pay fines of up to six times the amount of the grants they received. The end result of those and similar policies is one of the most vibrant high-tech ecosystems in the world, based around mostly new SMEs focusing on developing new products that are internationally competitive.

Correcting Market Failures

There are numerous market failures in the current U.S. manufacturing system. Together they constitute bottlenecks that even the biggest and the most promising companies cannot overcome by themselves. There are key missing institutions and institutional approaches that the market on its own has been unable to deliver. We detail two of these and offer possible solutions.

Shared production facilities. When American start-up manufacturers attempt to “scale up,” they inevitably go offshore for production, mostly to China. One reason is that it is too risky for a start-up to build a full scale production facility for an unproven product, even a promising one. Second, it is often beyond the financial capacities of even the most well-financed new companies to build such facilities. There is, however, a solution to this dilemma, an institution commonly found in East Asia but much less commonly in America, which we have termed elsewhere a “shared production facility.”7

Shared production facilities are often cosponsored by the state and pri­vate industry. They serve as a place where multiple entrepreneurs, start-ups, and established companies can experiment with, perfect, and make products utilizing the newest production technologies. As de­mand for those production facilities grows, they can be spun off as contract manufacturing organizations (CMO), or a start-up can build its own facility and share it with other entrepreneurs.

The story of the rise of Taiwan’s semiconductor industry is one based on the strategic use of shared production facilities. Led by the Industrial Technology Research Institute (ITRI), a public research institution, the Taiwanese state not only fostered the development and diffusion of integrated-chip (IC) design skills in Taiwan, but also solved the main bottleneck for those companies to succeed—pro­duction. ITRI first created a small fabrication facility which was open to the industry. It then developed shared solutions for each critical stage in semiconductor production, from masking to final fabrication. These were then spun off as CMOs. Such efforts not only created a highly competitive semiconductor design industry in Taiwan, but also completely transformed the global semiconductor industry. Taiwan opened its market to intense competition in the design and R&D stage, while ensuring that two Taiwanese CMOs, TSMC and UMC (both directly spun out of ITRI), became the linchpin of the global semiconductor manufacturing industry.8

In the United States, the concept of shared production facilities does exist, but hardly at Taiwan’s scale and to only a small extent in manufacturing. Instead, shared facilities are found in food production. Food entrepreneurs who can’t afford their own full bricks-and-mor­tar kitchen can instead rent space in a shared kitchen. These facilities are known as “commissary,” “virtual,” “cloud,” or “ghost” kitchens.9

The United States needs to develop comparable shared production facilities, but in manufacturing. There are a handful of promising examples. The Massachusetts Manufacturing Innovation Initiative (M2I2) provides grants and facilities for prototyping and small-scale production related to four of the Manufacturing USA Institutes locat­ed in the state. It has awarded grants to local colleges to build what it terms LEAPs (Labs for Education and Application Prototypes). Entrepreneurs can use these facilities to manufacture samples. Once they decide to scale, M2I2 directs them to larger manufacturers else­where in the state who will offer shared access to their production facilities.

There are multiple models for government sponsorship of shared production facilities. The best way to think about such funding mod­els is to imagine them on a continuum. At one extreme, the shared facility is fully publicly sponsored, either as a proof-of-concept facili­ty or with an aim toward privatization as a CMO in the Taiwanese vein. At the other, the role of government is limited to lowering risk, by supplying matching funding to a consor­tium of companies that would then own the facility as a joint venture.

Shared production facilities also solve the problem of having to pick a single winner for a new technology. Focusing on one company which uses one specific technology has proved particularly problematic in the case of alternative energy, such as solar power or battery technologies, in the United States. Instead, investing in shared pro­duction facilities fosters competition and experimentation among firms and technologies. It can stimulate the creation of both new firms and technologies.

If the United States hopes to maintain a presence in advanced manufacturing across an array of critical industries—including phar­ma, biotech, telecommunications, electric vehicles, and medical equip­ment—it is crucial that we fix this market failure. If we do not, our entrepreneurs will continue to offshore hardware innovations. Labs in U.S. universities will continue to create research that could be com­mercialized by American firms; but start-ups will instead end up having to outsource all production—and transfer their technologies—to China.

Guangdong style: building supplier networks at the state level. When, in 2012, Apple attempted to assemble its Mac Pro in Texas, it found that it couldn’t locally source a seemingly simple component—a tiny screw. In 2019, it admitted defeat and abandoned its attempt at domestic production.

This would have never happened in the Guang­dong province in China, and not just because the province now has vast supplier networks, deep pools of talent, and widespread cutting-edge manufacturing technology. Instead, it is because provincial and local offi­cials con­tinuously map product supply networks, and actively find ways to close any gaps. This mapping policy is one of the secrets to the success of the Guangdong region, and one reason why it has such a rich supplier network and vibrant production community.

Take for instance the manufacturing of uninterruptible power supply (UPS) technology. UPSs might look bland and unexciting to Silicon Valley VCs. They are, however, critical for the working of a modern economy, from ensuring your computer does not fry to keeping people alive in our hospitals’ intensive care units. Guangdong is now the leading locale in the world for the production of UPSs. The region is wealthy as a result and now has a position of soft power in the global economy, and a platform from which to conquer ever more advanced manufacturing.

Guangdong’s success in this area stems in large part from the fact that provincial officials made certain that local suppliers were in place to make up to 90 percent of the UPS components. As one official explained:

The leading company is located here because of the complete production and supplier networks we have here. It is not that we have only the final UPS companies. We have all the special­ized suppliers they need. For example, there is a coordinating supplier in Tangxia that supplies all three leading UPS manufacturers. So long as we have a complete industry set there is no reason more UPS manufacturers won’t come, and no reason for these that are here to move away.10

As a result of those efforts, Guangdong has become the clear global center of UPS production in less than a decade, and it is actively maintaining this position. Provincial, city, and township officials in Guangdong are constantly engaging with industry, both within and outside the province, to understand needs and trends. They then devise ways to ensure that local suppliers are in place and are also continuously upgrading their technological capabilities to create an edge. Officials help with the financing of the acquisition of the latest capital equipment and assist in offering workforce training or the recruit­ment of talent from elsewhere in China. If there are obvious gaps in production, they stimulate local entrepreneurs to fill them, or engage external companies to relocate to the province.

In contrast to this comprehensive effort to build local supplier networks, in the United States regional and local development is pre­dominantly focused on tax incentives. Yet those R&D tax subsidies have become less and less effective as a tool for local economic growth. The growing loopholes with regards to taxing intellectual property rights have even led OECD countries to sign the new base-erosion profit-sharing (BEPS) tax agreement. BEPS should help coun­tries where corporations already locate significant R&D activities, such as the United States, to foster local economic growth, if applied as part of a comprehensive innovation and industrial policy. Unlike more forward-thinking countries, such as Singapore, the Netherlands, Israel, and Ireland, however, U.S. federal and state governments have done nothing with this new opportunity.11 Aside from employing old and ineffective tax subsidies, at most there might be some interest in novel technology R&D development. There is almost no active sup­ply and demand mapping, and the adoption and diffusion of technology is completely neglected.

While many U.S. regions still have the capacity to match supply and demand, given how decrepit U.S. sub-supplier networks are, a national rather than state effort is required. (The DoD has done some mapping, but this information is not publicly avail­able.) For instance, if Apple had looked beyond Texas to the Midwest, it likely would have found a manufacturer that was capable of producing the needed screws. Yet it is also likely that such a manufacturer, if it were similar to over 90 percent of American SMEs, would employ dated capital equipment and a suboptimally trained workforce.

It is high time that the United States learn from China how to stimulate, develop, and sustain supplier networks. Novel technology development is a wonderful thing, but without ensuring widespread adoption and diffusion of said technology within the United States, American taxpayers will never enjoy the fruits of their investments.

No Taxation without Representation

A basic principle around which our nation was built is that Americans should not be subjected to taxation without representation. But the current situation, in which American taxpayers are called on to save the corporate world from itself every several years, is plainly a case of taxation without representation. Our current economic system has not served most Americans well in the last several decades and, as the recurrence of government bailouts demonstrates, is deeply flawed.

It is clear that ordinary taxpayers lack real representation in our new crony capitalist system of corporate bailout and big finance wel­fare. What then should citizens of a capitalist democracy expect from the state when it uses their money as if there is no tomorrow to bailout the corporate sector?

First and foremost, we pay for security. Thus, we the American people should demand that after all those trillions of stimulus dollars are spent, when the next pandemic comes, we will not be dependent on other nations for the most basic of all necessities to fight it—face masks.

Second, the state’s basic economic function is to ensure a healthy, competitive, and fair market. Not only is the American economy as far as it has ever been from any of the above, but the recent, repeated corporate rescues have only encouraged more concentration. This never-ending repetition of bailouts shows that our basic economic structure is very sick. It goes against everything that is American and everything which a real democratic capitalist economy should strive for. Taxpayers’ money should therefore be used to inject fair market com­petition back into our economy.

Third, taxpayers pay to ensure future prosperity for everyone, not only for those who avoid paying any taxes whatsoever thanks to clever financial advisers. During the current Covid-19 crisis it has become apparent that our definition of critical jobs and the way we compensate them has no correlation to reality. Each and every one of our bailouts has catered only to the interests of CEOs and large investors. Such policies do not pass the minimum bar of the taxation without representation principle.

The reality of the chronically sick American economy means that taxpayers have to continuously bail out corporate America. The only way to ensure that this cycle stops is to use the bailouts to reshape the American economy back into a healthy, competitive, and fair market-based system that actually produces things in the United States. Such an economy would be able to make what it needs to secure itself and its citizens in times of peace and in times of crisis. This would be an economy of onshoring, innovation, and sustained growth. Furthermore, doing so would ensure the future prosperity of all Americans.

Accountability for the Recipients of Bailouts

The three principles we outlined above lead to a clear set of actions and goals. As the never-ending crises and repeated bailouts have shown, offshoring has led to heightened inequality in the United States with a corresponding rise in deaths of despair and a loss of hope in the American dream. This has significant political implications, including a sharp reduction in American soft and hard power. The United States now resembles a developing economy, one built around crony capitalism, concentration of power, rapidly growing inequality, and cyclical liquidity problems.

Accordingly, instead of taxpayers continuously bailing out failing companies, we should learn from more successful economies. We should use our repeated bailouts to foster competition and domestic production, ensuring long-term prosperity and growth. The bailouts of U.S. firms during and after Covid-19 present an opportunity to introduce new governing principles and policy tools that benefit all Americans.

The goals of all bailouts should be to increase competition. At a minimum, this requires the creation or preservation of three or more viable American firms in a given sector. Additionally, taxpayers that pay their taxes in full, instead of using complex schemes to decrease their effective tax rates, should be brought into bailout discussions. One such group is clearly labor. Further, all firms in all sectors that receive American taxpayers’ money should have to commit to not offshoring their workforce (which consists of the taxpayers who are paying for those firms’ bailout).

Because American taxpayers are providing the financing for the bailouts, we need to keep the focus on the corporation’s activities in the United States, including employment and manufacturing. Firms receiving bailouts should be held accountable to produce an ever-higher share of their products in the United States, including local sourcing of components. The end goal should be American firms producing goods and services in the United States and exporting them abroad. Currently, the goal of most American CEOs is effectively the opposite: to import more and more products that are produced abroad. At a minimum, firms that receive federal bailouts should be required to move a significant percentage of their sourcing and pro­duction back to the United States.

Last, but certainly not least, we need to let the market work: bailouts should include the possibility of failure for firms that are not reaching specific targets. American taxpayers should not support cor­porate zombies. Loans are not forever.

Hence metrics need to be developed to assess the onshoring of activities and domestic sourcing of components and services. One way to imagine those metrics would be to view them as internal targets akin to export controls. To ensure real competition, however, these metrics should be wedded to a set of export targets. The final goal—certainly during a period of massive current account deficits—is to increase exports of products and services produced by U.S. firms in America. Those goals should also be accompanied by revived and revised antitrust enforcement.

All of those actions, including trying to emulate any of the examples highlighted in this article, require better measures of what is actually made in the United States. There are several pending Senate bills designed to strengthen America’s domestic medical supply chain by requiring drug makers to provide information about the volume of foreign APIs (active pharmaceutical ingredients) that they use.12 This sort of disclosure should be extended to most other industries.13

Additionally, such disclosures could drive reshoring through demand effects. For industries such as food, cosmetics, and even pet products, consumers’ passion about how and where something is made determines demand as much as price.

Marketers in those sectors understand the power of passion-driven demand. Notice that even the most mundane products you buy to­day, such as toothpaste and spaghetti sauce, carry labels touting such intangibles as sustainable manufacturing practices and transparency on ingredients and sourcing. Consumers care about those things and are willing to pay more. Accordingly, with the right branding, con­sumers would likely be willing to pay premiums for U.S.-sourced and U.S.-made manufactured goods of all types, just as they do for fair trade coffee and cruelty-free cosmetics.

Generic pharmaceuticals are a case in point. Investigative journalist Katherine Eban has chronicled numerous examples of faulty generics produced in China and India, which have endangered the lives of U.S. patients.14 The problems are intrinsic to the system. FDA inspections of foreign factories are announced long in advance, in contrast to the surprise visits in the United States, and there is often only a single FDA agent covering a vast foreign region. A generic manufacturer who manufactures abroad revealed to Eban that “to minimize costs and maximize profit, companies circumvented regulations and resort­ed to fraud: manipulating tests to achieve positive results and conceal­ing or altering data to cover their tracks.”15

Despite the risks to patients, American pharmaceutical companies and hospital purchasing departments prefer foreign APIs due to their lower costs. Disclosing where a generic was manufactured, and the source of the API, is likely to cause a consumer to push back against this risky short-term, cost-cutting behavior. We believe Americans will want more made-in-USA generic drugs, as well as food, tools, cosmetics, pet supplies, and other products once more information about where they are really manufactured is fully disclosed.

ESG for Reshoring?

Another promising way forward is through the tailoring of already existing investment strategies, namely the environmental, social, and governance (ESG) framework, in a way that favors domestic production over offshoring. ESG, which operates at the intersection of dis­closure and investing, is an increasingly dominant investment frame­work used by institutional investors. Today, proponents sell ESG not as environmental activism, or as an asset class, but rather as the ideal framework for investing. Often ESG analysis is integrated across all investment decisions by large asset managers.

Though it would require significant tailoring and revising, ESG is an ideal framework to evaluate bailout, offshoring, and other short-termist choices. Such actions bring with them huge long-term risks to a corporation. These risks can be captured by ESG factors and the data used by investment teams to assess these factors.

In the simplest terms, it is bad for the environment for production to take place far from consumption. It requires the constant shipping of components back and forth, rather than having most production occur in one location.

The governance factor is also highly determinative when it comes to assessing offshoring. Giving up on production means forgoing the next generation of products. By losing current manufacturing capa­bilities, firms lose the ability to develop future products. Therefore, it is poor firm governance to offshore or outsource critical production. It is also poor governance for a corporation to have all of its supply chains centered in one region in the world (China) which can be disrupted by natural disasters like epidemics or war.

Although the “S” or social factor lacks agreed upon criteria, it can also be applied to onshoring and reshoring decisions. A highly paid and highly skilled workforce is a social positive. Similarly, corporate apprenticeship programs are often scored as socially positive. A few large foundations are looking at including apprenticeships into ESG analysis and the same could apply to domestic production in general.

Hence, a revised ESG framework could underscore the importance of a firm retaining domestic production. This has nothing to do with patriotism: it is about improving governance and long-term returns and reducing risks. Applying the ESG framework to reshoring re­quires a new direction, but it is a program easy to implement because it flows readily into a well-established investment framework. Many research firms are already supplying ESG data. These metrics can be expanded to include criteria around the environmental, gov­ernance, and social impact of offshoring versus onshoring. Institutional inves­tors can then integrate this expanded information set and data into their investment decisions.

The Business Case for Onshoring

We believe the policies and principles presented here—increased competition in the economy, the creation of new production institu­tions that are currently missing in the United States, and fair bailouts that take the interests of the American taxpayers as a guiding prin­ciple—can lead to a revitalized domestic economy. It will be an economy that can actually make things as opposed to increasingly offshor­ing production to Greater China, as is currently the case. Additionally, greater disclosure can drive demand for domestic prod­ucts, and ESG can be reimagined to channel investment to U.S. production.

But these arguments alone aren’t going to drive reshoring. Moral suasion has had no effect. There are no mass protest movements around reindustrialization. The business interests and ideology—which are tightly intertwined—in favor of offshoring remain largely unchallenged, even in this period of intense politicization around every other issue. Corporations signal their virtuous intentions in other ways. They face no social media pressure whatsoever to reshore production. Therefore, we feel that what will ultimately drive reshor­ing is the business case for it. Production can be immensely profitable.

The United States needs to ensure stable demand for domestically produced goods, as discussed in our previous article. It also needs revitalized supply capacities—through some of the interventions dis­cussed in this essay. An increase in production resulting from both supply and demand will bring down costs. In addition, because the United States is so far behind in manufacturing, it has the ability to leapfrog competitors by opening state-of-the-art production facilities at scale. Once Americans see that they can make money through pro­duction, production will return.

This article originally appeared in American Affairs Volume IV, Number 4 (Winter 2020): 19–35.

1 Global Value Chains in a Changing World, ed. Deborah K. Elms and Patrick Low (Geneva: WTO Publications, 2013); Richard Baldwin and Rebecca Freeman, “Trade Conflict in the Age of Covid-19,” VoxEU, May 22, 2020.

2 Amber Athey, “Big Pharma and Free Market Orgs Unite Against Trump’s ‘Buy American’ Order,” Spectator USA, March 25, 2020.

3Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States,” Executive Office of the President, August 6, 2020.

4 The Japanese government has offered subsides to companies to diversify supply chains away from China. Toyota issued a statement in response in May: “Toyota has no plans to change our strategy in China or Asia due to the current situation. The auto industry uses a lot of suppliers and operates a vast supply chain and it would be impossible to just switch in an instant. We understand the government’s position, but we have no plans to change our production.” Quoted in Julian Ryall, “Leave China?: No Thanks, Some Japanese Firms Say to Tokyo’s Cash Incentives,” South China Morning Post, May 13, 2020.

5 Quoted in Byung-Kook Kim, “The Leviathan: Economic Bureaucracy under Park,” The Park Chung Hee Era: The Transformation of South Korea, ed. Byung-Kook Kim and Ezra F. Vogel (Cambridge: Harvard University Press, 2011), 218.

6 Dan Breznitz, Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan, and Ireland (New Haven: Yale University Press, 2007); Gil Avnimelech and Morris Tuebal, “Venture Capital Policy in Israel: A Comparative Analysis and Lessons for Other Countries,” Hebrew University School of Business Administration and School of Economics, December 2002.

7 Dan Breznitz and Peter Cowhey, “America’s Two Systems of Innovation: Innovation for Production in Fostering U.S. Growth,” Innovations: Technology, Governance, Globalization 7, no. 3 (July 2012): 127–54; Dan Breznitz and Peter Cowhey, “Reviving America’s Forgotten Innovation System: Fostering US Growth through Incremental Product and Process Innovation,” The Productivity Puzzle: Restoring Economic Dynamism, ed. David E. Adler and Laurence B. Siegel (CFA Institute Research Foundation, 2019); Dan Breznitz, Innovation in Real Places: Strategies for Prospering in an Unforgiving World (Oxford: Oxford University Press, 2021).

8 Breznitz, Innovation and the State.

9 Uber founder Travis Kalanick, with backing from Saudi Arabia’s sovereign wealth fund, has recently launched a start-up focused on “ghost” kitchens, see: Katie Canales, “Ousted Uber Cofounder Travis Kalanick Has Reportedly Spent $130 Million on His Ghost Kitchen Startup. Here’s What It’s Like inside One of the Secretive Locations,” Business Insider, October 20, 2020.

10 Dan Breznitz and Michael Murpree, Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China (New Haven: Yale University Press, 2011), 185.

11 For a full treatment of IPR, local growth and BEPS, see chapter 9 of Breznitz, Innovation in Real Places.

12Rubio, Colleagues Introduce the Strengthening America’s Supply Chain and National Security Act” (press release), Office of Senator Marco Rubio, March 19, 2020.

13 See David Adler and Dan Breznitz, “Reshoring Supply Chains: A Practical Policy Agenda,” American Affairs 4, no. 2 (Summer 2020): 6–17.

14 Katherine Eban, Bottle of Lies: The Inside Story of the Generic Drug Boom(New York: Ecco, 2019).

15 Daniel J. Kevles, “The Scandal of Our Drug Supply,” New York Review of Books, July 23, 2020.

Sorry, PDF downloads are available
to subscribers only.


Already subscribed?
Sign In With Your AAJ Account | Sign In with Blink