Unsanitized: The Emerging Bipartisanship on Supply Chains and China Policy

Plus, government-run pandemic insurance. This is The COVID-19 Daily Report for May 22, 2020.

by

First Response

Yesterday the Alliance for American Manufacturing pulled off the impossible: finding a bipartisan consensus on an issue not involving tax cuts or war authorization. They brought together four Senators—two Democrats and two Republicans—to talk supply chains and China policy. And you could jumble up the quotes and put them in the opposing party members and you wouldn’t be able to tell.

The crisis has triggered a reckoning in circles on the left and right about China policy. We found ourselves unable to produce sufficient supplies of protective equipment and medical devices precisely at the moment they were vitally needed. And that just stood in for a host of products we can no longer manufacture in America. As Bob Kuttner wrote for our latest cover package, “As the crisis revealed, we are not the richest country in the world. The world’s richest country would figure out how to make a cloth mask.”

Senators like Sherrod Brown (D-OH) have been talking about the undermining of American manufacturing for decades. “Why don’t we have enough cotton swabs? U.S. companies lobbied Congress to weaken the rules,” Brown said yesterday. “We have to look at trade policy, look at tax policy, and align it with our national interest.”

What’s new here is that Brown and Tammy Baldwin (D-WI) and other manufacturing-state Democrats are joined, in what could be a marriage of convenience but sounds indistinguishable for now, by conservatives like Marco Rubio (R-FL) and Josh Hawley (R-MO). “We need to be able to sell and trade, but we need to pursue policies internationally that will foster industry in our country and protect vital jobs,” Hawley said. “And this equation in textbooks about trade working if the aggregates are good, it’s not good if it’s captured by a small class on Wall Street.”

Read all of our Unsanitized reports

When you put together ideas from the left and right, you have a panoply of policies to revive domestic manufacturing. You can require Buy America standards, with domestic content requirements. You can provide low-interest financing to onshore plants and jobs. You can address it as a national security issue and mandate certain local supply chains. You can build a coalition to confront China on its unlevel playing field, its subsidies for state-owned enterprises. Hawley has suggested abolishing the World Trade Organization and building enforcement mechanisms directly into the agreement rather than relying on structures that aren’t working. Preventing tech transfer and other policies forced on multinationals who want plants in China is also on the table.

Rubio explained that it was cheaper for companies to source plants abroad where labor is cheap and environmental rules invisible. “Allocation of manufacturing capital to China gives them that… except sometimes the most efficient outcome is not in the national interest of our country,” he said. “And when our national interest diverges, we have an imperative to get involved and address it.” It’s more than that; supply chain concentration introduces hidden risk into the economy, which can explode spectacularly, as we’ve seen this year.

The Trump administration has rhetorically followed this perspective (see U.S. trade rep Robert Lighthizer declaring that the era of offshoring is over), and in some cases acting, signing a four-year agreement to source a generic pharmaceutical producer stateside. But more can be done, as the Economic Policy Institute outlines: ending the gaming of Buy America, for example, or leveraging federal contracts, or addressing currency manipulation, or reversing tax incentives for offshoring.

The China conversation in the wrong hands can tip into stereotypes about race; already anti-China sentiment is rising in America due to the coronavirus outbreak. But as these Senators spoke, China was installing a new national security law on Hong Kong aimed squarely at repression, effectively ending Hong Kong as an autonomous unit. To ignore China’s belligerent actions in human rights as well as mercantilism would follow the same tragic trajectory of the past 20 years.

There are signs that the Senate has reversed course. Yesterday a bill passed that would prevent Chinese companies from listing on domestic stock exchanges without following U.S. auditing rules. And Hawley noted that he’s heard more discussion of bringing back production in the last month than the rest of his (short) tenure. But for the two sides to work together, the most pro-business voices on the right must be ignored. “I'd like to say Republicans are coming around and they are,” said Brown. “But when it comes time to choose between worker interests and corporate interests, their party encourages them to choose corporate interests.”

Odds and Sods

A burn victim injured at work reached out to me with an odd story: his workers’ comp firm was apparently pushing him back into a surgery schedule that was paused during the outbreak. The general practitioner wasn’t in favor. The burn ward of the hospital isn’t even open. Why would the payer of the surgery want it to occur on an accelerated schedule?

The answer, which I wrote about at the Prospect today, could lie in the complexities of the workers’ comp system, which does appear to incentivize accelerating a treatment schedule to get to settlement more quickly, even (I guess) during a pandemic. Check out the piece here.

Tomorrow, I’m participating in a panel discussion for a new documentary about the U.S. Postal Service called Gone Postal. It’s a Facebook Live discussion at noon ET. The link is here.

Emma Rindlisbacher has a solid piece for us today about how for-profit colleges are ramping up their advertising, seeking to capitalize on crisis just as they did during the Great Recession, when enrollment spiked.

All of our coronavirus coverage can be found at prospect.org/coronavirus. And email me with tips, comments, and experiences.

Pandemic Insurance

Congress is very concerned about the small business loan program, the PPP; the last major law passed was mostly an add-on to it, and Senate negotiators just agreed on a second bill that will modify it as well. By 2021 we’ll have dialed in the PPP perfectly, just in time for small businesses with razor-thin profit margins to have closed six months earlier.

The Senate deal would extend the time to pay out funds from the loan from 8 to 16 weeks to make it forgivable. The concern was that hiring back workers when stay-at-home orders remain in place means that businesses are still shut while paying salaries. The deal also allows money from PPP to go toward modifications like plexiglass shields and protective equipment. A House version extends the timeline to 24 weeks and drops the requirement that 75 percent of funds must be spent on payroll.

I don’t know why this is even being legislated. The Small Business Administration has essentially waved through PPP loans under $2 million, all but saying they will be forgiven. These modifications generally affect those level of loans. And the problem is that these businesses are insolvent and will remain without the necessary revenue for months, not what percentage of a one-time, too-small grant will go to what bucket of spending.

That’s why this proposal from the property and casualty insurance industry is so interesting. Businesses would “purchase” what amounts to pandemic insurance, paying out up to 80 percent of payroll and expenses for three months, which the government would cover automatically when an emergency pandemic declaration is triggered. It’s weird that it’s called a business purchase, since it’s an automatic benefit. It’s unclear to me what the premium would be, if any, for a business; it could be akin to the small “terrorism risk insurance” policy for businesses, which has never been paid.

You could see this as a variant on Pramila Jayapal and Bernie Sanders’s payroll support bill, and it’s coming from the insurance industry. The automatic and all-encompassing nature of the relief makes superior to the PPP. But insurers would have to have some skin in the game, otherwise they shouldn’t sell or benefit from the policies.   

Today I Learned

You can count on the Prospect, can we count on you?

There's no paywall here. Your donations power our newsroom as we report on ideas, politics and power — and what’s really at stake as we navigate another presidential election year. Please, become a member, or make a one-time donation, today. Thank you!