The Supply Chain Crisis and the Implications for Small Businesses (Senate Small Business Committee hearing, March 30, 2022)
Summary
Printed record of the Senate Committee on Small Business and Entrepreneurship hearing of March 30, 2022, The Supply Chain Crisis and the Implications for Small Businesses, S. Hrg. 117–243. Chairman Benjamin L. Cardin and Ranking Member Rand Paul gave the opening statements. Witnesses were Cheetie Kumar, chef and owner of Garland in Raleigh; Jason Lam, owner of Sake Thai and Sushi Bar in Stafford; Dr. Sridhar Kota, executive director of MForesight at the University of Michigan; and Joel Griffith, research fellow at The Heritage Foundation. The appendix adds a Cato Institute statement, responses to questions from Senators Risch, Inhofe, Young, Hirono and Coons, and submitted material on the Jones Act, including the claim that United States-built ships cost four to five times more than those constructed abroad.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“The Supply Chain Crisis and the Implications for Small Businesses (Senate Small Business Committee hearing, March 30, 2022).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/the-supply-chain-crisis-and-the-implications-for-small-businesses-sena-a6fa23ff65/
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S. HRG. 117–243
THE SUPPLY CHAIN CRISIS
AND THE IMPLICATIONS FOR SMALL BUSINESSES
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
MARCH 30, 2022
Printed for the Committee on Small Business and Entrepreneurship
(
Available via the World Wide Web: http://www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
47–362 PDF WASHINGTON : 2022
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SEVENTEENTH CONGRESS
BENJAMIN L. CARDIN, Maryland, Chairman
RAND PAUL, Kentucky, Ranking Member
MARIA CANTWELL, Washington MARCO RUBIO, Florida
JEANNE SHAHEEN, New Hampshire JAMES E. RISCH, Idaho
EDWARD J. MARKEY, Massachusetts TIM SCOTT, South Carolina
CORY A. BOOKER, New Jersey JONI ERNST, Iowa
CHRISTOPHER A. COONS, Delaware JAMES M. INHOFE, Oklahoma
MAZIE HIRONO, Hawaii TODD YOUNG, Indiana
TAMMY DUCKWORTH, Illinois JOHN KENNEDY, Louisiana
JACKY ROSEN, Nevada JOSH HAWLEY, Missouri
JOHN HICKENLOOPER, Colorado ROGER MARSHALL, Kansas
SEAN MOORE, Democratic Staff Director
WILLIAM HENDERSON, Republican Staff Director
(II)
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C O N T E N T S
OPENING STATEMENTS
Page
Cardin, Hon. Benjamin L., Chairman, a U.S. Senator from Maryland .............. 1
Paul, Hon. Rand, Ranking Member, a U.S. Senator from Kentucky .................. 3
WITNESSES
Kumar, Ms. Cheetie, Chef/Owner, Garland, Raleigh, NC .................................... 5
Lam, Mr. Jason, Owner/Manager/Chef/Waiter/Dishwasher/Toilet Scrubber,
Sake Thai and Sushi Bar, Stafford, VA ............................................................. 12
Kota, Dr. Sridhar, Executive Director, MForesight: Alliance for Manufac-
turing Foresight, University of Michigan, Ann Arbor, MI ................................ 17
Griffith, Mr. Joel, Research Fellow, The Heritage Foundation, Washington,
DC .......................................................................................................................... 26
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Cardin, Hon. Benjamin L.
Opening statement ........................................................................................... 1
Cato Institute
Statement dated March 29, 2022 .................................................................... 48
Griffith, Mr. Joel
Testimony .......................................................................................................... 26
Prepared statement .......................................................................................... 28
Responses to questions submitted by Senators Risch, Inhofe, and Young .. 66
Kota, Dr. Sridhar
Testimony .......................................................................................................... 17
Prepared statement .......................................................................................... 20
Responses to questions submitted by Senators Hirono, Coons, and Young 58
Kumar, Ms. Cheetie
Testimony .......................................................................................................... 5
Prepared statement .......................................................................................... 8
Responses to questions submitted by Senator Hirono ................................... 54
Lam, Mr. Jason
Testimony .......................................................................................................... 12
Prepared statement .......................................................................................... 15
Response to question submitted by Senator Inhofe ....................................... 57
Paul, Hon. Rand
Opening statement ........................................................................................... 3
(III)
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THE SUPPLY CHAIN CRISIS AND THE
IMPLICATIONS FOR SMALL BUSINESSES
WEDNESDAY, MARCH 30, 2022
UNITED STATES SENATE,
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP,
Washington, DC.
The Committee met, pursuant to notice, at 1:46 p.m., via WebEx
in Room 215, Dirksen Senate Office Building, Hon. Benjamin L.
Cardin, Chairman of the Committee, presiding.
Present: Senators Cardin, Cantwell, Shaheen, Hirono,
Hickenlooper, Paul, Rubio, Risch, Scott, Ernst, Young, and Hawley.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
CHAIRMAN, A U.S. SENATOR FROM MARYLAND
Chairman CARDIN. The Small Business Committee will come to
order. Let me just alert everyone that the floor schedule is a little
bit up in the air. We were supposed to have started the third vote
of the morning 15 minutes ago, and we are still on the first vote
of the morning, so—and it is my understanding we might have to
have the Vice President on the floor, which could cause a little
more of a delay, so we are going to try to keep the hearing moving
forward.
There is an all-Senators classified briefing on Ukraine I think at
3:00 this afternoon, so we are going to do our best to keep the hear-
ing moving forward.
I also just want to acknowledge, earlier today, I was with Vice
President Harris on an announcement that she made in regards to
a partnership with the Greater Washington Committee that deals
with this region in regards to opening up opportunities for minority
businesses and minority entrepreneurship. It was a very healthy
discussion, and the Administration announced changes in the 7(a)
Community Advantage program, which I strongly support, extend-
ing the pilot program and expanding its reach. So there was some
good news today.
Onward to today’s hearing, let me welcome all of our witnesses.
Today’s hearing will examine how the prolonged disruption in the
global supply chain has affected American small businesses as well
as the role that small manufacturers can play in our efforts to
build more resilient supply chains and reshore production of some
of our most critical products and technologies.
Based on my conversations with Maryland small business owners
in recent months, supply chain disruptions are currently their big-
gest challenge. I was proud to host Spencer Jones, who owns Chick
(1)
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and Ruth’s Delly, iconic restaurant in Annapolis, as one of my
guests for President Biden’s State of the Union Address earlier this
month. When I spoke to Spencer after the speech, he said that the
supply chain disruptions, along with rising inflation, are the two
biggest issues facing his business.
As we begin this hearing, it is important for us to remember that
the inflation we are experiencing and the supply chain disruptions
are linked. When factories close, when products sit in shipping con-
tainers and ports, when production capacity decreases due to sick
employees, and when products take longer to get from warehouse
to store, prices go up. This problem is affecting all sectors of our
economy.
A recent survey conducted by the U.S. Chamber of Commerce
and MetLife found that 6 out of every 10 small businesses surveyed
have experienced a supply chain disruption in the past year and
have had to alter their supply chains. Half of the respondents re-
ported that disruptions made it difficult to keep up with demand,
and I think we have all heard from our constituents about the dif-
ficulty in finding products on the shelf.
I was very pleased to hear President Biden announce during the
State of the Union that rebuilding America’s domestic production
capacity is central to his Administration’s plan to fight inflation
and reduce our reliance on foreign supply chains. I am even more
pleased that this priority was reflected in the fiscal year 2023
budget request. Rebuilding our domestic manufacturing sector,
which has been decimated by decades of offshoring by large cor-
porations will require a whole of government strategy, and it will
require an investment in our small manufacturers who will be key
to our long-term resilience.
One of our witnesses, Dr. Sridhar Kota, is the founding Execu-
tive Director of MForesight: Alliance for Manufacturing Foresight,
where he leads efforts to accelerate innovation and make the U.S.
manufacturing sector more competitive globally.
Dr. Kota, I am looking forward to hearing your thoughts on how
Congress and the Small Business Administration can support small
manufacturers and innovators.
I applaud the Biden administration for proposing an increase in
the authorized lending capacity of the 7(a) and 504 loan programs
as well as the Small Business Investment Companies programs.
These three programs are critical to getting capital into the hands
of small manufacturers so they can grow and increase their produc-
tion capacity.
One of the consequences of offshoring our manufacturing capac-
ity is that small businesses in the manufacturing sector need more
support to access the amount and types of capital they need to
grow. The 504 program, which is the program most utilized by
small manufacturers to finance large equipment and facility pur-
chases, hit its lending authority in September of last year and is
on track to break a record number of loans again this year. In-
creasing lending capacity of 504, 7(a), and SBIC programs will
meet an immediate need for small manufacturers looking to ex-
pand.
I am also pleased that the SBA’s leadership understands the role
they must play in this effort and they have focused on increasing
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collaboration within the Agency to improve its services to small
manufacturers.
While we take steps to make these long-term investments, we
must remember that the current state of our supply chain, from
manufacturing to food service industries, was decades in the mak-
ing, so we will not be able to rebuild our domestic capacity over-
night.
So for restaurant owners like Mr. Jones and two of our witnesses
today, Ms. Cheetie Kumar and Mr. Jason Lam, they need imme-
diate relief. I remain gravely disappointed that the omnibus spend-
ing package passed by Congress earlier this month did not include
additional assistance for restaurants and other hard-hit small busi-
nesses.
For the last two years of the pandemic, nearly all restaurants
have been under great strain as they struggle to keep staff and
adapt to the new variants while facing increased prices due to sup-
ply chain disruptions and inflation, and those have been the res-
taurants that are fortunate to have survived the pandemic. Thou-
sands have closed their doors for good.
More than 100,000 restaurants received grants from the Res-
taurant Revitalization Fund that have helped them keep their
doors open, but more than 180,000 restaurants that submitted ap-
plications—they were in line—have not received the funding. This
is a matter of fairness. It was just the luck of where they were in
line that they were unable to get the funds. This happened when
we had the Paycheck Protection Program, and we replenished the
funds without much controversy. We need to do the same for the
restaurants.
Had Congress not acted quickly to replenish the Paycheck Pro-
tection Program when it ran out of money weeks after it opened
in April 2020, the program would today be remembered as a half-
measure. Instead, we extended the emergency aid needed to meet
the crisis we face, and that is exactly what we must do again.
As we discuss our long-term effort to strengthen our domestic
supply chain and manufacturing sector today, I want us to keep in
mind that there are still hundreds of thousands of restaurants and
other hard-hit small businesses that require immediate relief. We
can, and must, address both of these issues.
With that, let me recognize the distinguished Ranking Member,
Senator Paul.
OPENING STATEMENT OF HON. RAND PAUL,
A U.S. SENATOR FROM KENTUCKY
Senator PAUL. Is the supply chain crisis a result of the nature
of capitalism or the malignant nurture of big government? The an-
swer should be obvious. The hallmark of capitalism is that eco-
nomic freedom always allows supply and demand to intersect in
virtually seamless fashion.
A trip to Walmart illustrates how advanced technology sends dig-
ital information from the checkout register to the suppliers across
the country, and the shelves are never bare, that is, until big gov-
ernment inserted its maligned presence in the form of COVID
lockdowns. Retail stores were shuttered. Mask mandates and vac-
cine passports discouraged in-person shopping. Regulations that
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discouraged trucking, combined with increased demand for online
shopping, exploded trucking needs.
Government borrowed nearly $6 trillion. And, the money supply,
as measured by the M2, peaked at 27 percent last year, a historic
high, and has averaged 15 percent growth in the money supply for
the past three years. The ensuing inflation, caused by this govern-
ment expansion of the money supply, cascades unevenly through
the economy, adding to supply chain issues as businesses must
quickly recalculate the rising costs of an inflationary era.
If one is truly interested in what is causing the supply chain cri-
sis, you must first acknowledge that government interfered in vir-
tually every step of the economic production cycle. Government
intervention caused this mess. COVID may have changed some be-
haviors, but the vast amount of the supply chain interference came
from government lockdowns. The truth is this; government policies
are what pushed us over the edge.
As COVID spread, petty tyrants and power-hungry bureaucrats
criminalized in-person commerce and locked Americans in their
homes. As a result, we lost more than individuals. We lost our free-
doms, our liberties, our vibrant, small-town Main Street busi-
nesses, our children’s growth and learning. For two years, our lives
were held captive, and so-called health experts told whomever
deigned to speak out that they were killing Grandma, but you were
not supposed to notice because the government would simply send
you a $1,200 check.
When the lockdowns ended, individuals who saved their COVID-
related cash distributed through 2020 were free to go shopping,
and demand began to rise. Nobody should have been surprised.
Americans were emerging from government-directed isolation for
the first time in the better part of a year and wanted to purchase
goods.
Instead of recognizing this trend, Congress threw gas on the fire.
They extended unemployment payments unnecessarily, keeping
workers at home. They sanctioned another round of so called stim-
ulus checks and, all told, spent another $2 trillion in new deficit-
financed spending.
Meanwhile, California ports, America’s largest, have long been
among the most inefficient in the world. Extreme demand, driven
by government spending throughout the pandemic, overwhelmed
them. Ships carrying goods destined for American stores were left
offshore. California laws banning diesel engines older than 2011
and laws limiting independent contractors combined to exacerbate
the problem.
Anyone interested, truly interested, in fixing this supply chain fi-
asco should look to the one economic system that has created more
wealth and more prosperity and lifted more people out of poverty
than any other, capitalism.
Chairman CARDIN. Thank you very much. We will now go to our
witnesses. Let me introduce two, and then I will turn to Senator
Paul to introduce the two other witnesses.
First, let me introduce—and the way I introduce will be the
order in which you will present your testimony. Ms. Cheetie Kumar
is the chef and co-owner of the restaurant, Garland, in Raleigh,
North Carolina. At eight years old, she immigrated to the United
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States with her family from India, settling in the Bronx, New York.
Later on, she moved to North Carolina where she now calls home.
Her cuisine is an interpretation of local ingredients made
through the lens of someone who grew up in India, New York, and
the South. She is also the owner of the music venue, Kings, and
its adjoining cocktail bar, Neptunes Parlour.
I cannot wait to visit North Carolina and taste that food. Sounds
very delicious and an incredible mixture.
Mr. Sridhar Kota is the founding director of MForesight: Alliance
for Manufacturing Foresight, a federally funded national consor-
tium focused on accelerating technology innovation to enhance U.S.
manufacturing competitiveness. He is an emeritus professor of me-
chanical engineering at the University of Michigan, where he
served for 34 years.
In response to the COVID–19 crisis in 2020, he founded Inspire
Rx, LLC, that invented and manufactures negative pressure de-
vices to treat COVID–19 patients and protect health care workers.
Between 2009 and 2012, Professor Kota served as the Assistant
Director for Advanced Manufacturing at the White House Office of
Science and Technology Policy. He played an instrumental role in
establishing the National Manufacturing Innovation Institute.
Senator PAUL. We are pleased to have Jason Lam with us today.
He is, in his own words, the owner, manager, chef, waiter, dish-
washer, and toilet scrubber for his restaurant, which I love the fact
that he is proud that he does everything there. The restaurant’s
name is Sake Thai and Sushi Bar in Stafford, Virginia. He opened
his restaurant in 2011 and has worked in over a dozen restaurants
since he was eight years old. As his current title suggests, he has
worked every job the restaurant industry has to offer.
Mr. Lam brings a wealth of experience to this Committee regard-
ing the real day-to-day experiences of operating a restaurant dur-
ing COVID as well as the problems small businesses face navi-
gating the supply chain issues we are here to discuss.
Our other witness is Joel Griffith. Joel is a research fellow for
the Institute for Economic Freedom and Opportunity at the Herit-
age Foundation. Previously, he worked as a researcher for a former
member of the Wall Street Journal Editorial Board and served as
Deputy Research Director at the National Association of Counties.
He most recently was the Director of the Center for State Fiscal
Reform at the American Legislative Exchange Council.
Chairman CARDIN. To the witnesses, your full statements will be
made part of our record. You may proceed. Try to keep your com-
ments to five minutes, so we have time for questioning. And we
will start with Ms. Kumar.
STATEMENT OF CHEETIE KUMAR, CHEF AND CO-OWNER,
GARLAND, RALEIGH, NC
Ms. KUMAR. Thank you, Chairman Cardin, Ranking Member
Paul, and members of the Committee. Thank you for inviting me
today to talk about the supply chain in the restaurant industry and
how this Committee and Congress can help.
I am the chef and co-owner of Garland in Raleigh, North Caro-
lina, as you mentioned. We have a music venue and cocktail bar
all in the same building. I am a self-taught chef who studied rec-
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ipes and worked in restaurants while touring across the U.S. as a
guitar player alongside my husband and business partner,
Paul Siler.
Let me start by thanking this Committee and especially Chair-
man Cardin for all the support you have shown independent res-
taurants throughout this pandemic. You have given some of us a
lifeline to survive in the Restaurant Revitalization Fund, the RRF,
and we are eternally grateful. I would be remiss if I testified before
this Committee and did not advocate for refilling that fund to take
care of the 177,000 restaurants who applied and did not receive a
grant. They desperately need help, and the Congress would ensure
the success of a generation of independent restaurants by providing
the money to fund all the outstanding grant applications.
One hundred thousand restaurants have already closed perma-
nently. Many of my friends and colleagues are hanging on by a des-
perate thread and have taken on crushing personal debts that will
be with them for a lifetime, and they are fighting against joining
the growing list of closures. More than 80 percent of restaurants
who did not receive the RRF report that they are on the verge of
permanent closure.
I am proud and grateful to be here representing the hundreds of
thousands of independent restaurants across the country and their
millions of employees today to talk about supply chain. Make no
mistake, when we talk in general terms about the supply chain,
what we are really talking about is the rising cost that results from
a broken or damaged chain.
My restaurant adapts to supply chain issues every day, and we
always have. It is our skill set. We look for seasonable produce. We
look for cuts of meat with great flavor and potential to be featured
in dishes that do not cost a lot. So as long as they can remain af-
fordable, we can serve them.
As a great example is flank steak. You know, it used to be a less
expensive cut of meat, and so it was on a lot of restaurant menus,
and for a time we could afford to put it on our menus. It is a long,
flat, thin, boneless cut. It is delicious. It is easy to cook. But like
most cuts of beef, there are only two flank steaks per cow, one on
each side. With limited supply and increased demand, prices in-
crease to the point once people discovered them, and then the price
goes up. So it does not make sense for us to put it on our menu
with margins being so close, so we make changes. We are skilled
at pivoting.
When hundreds of thousands of restaurants closed or severely
limited capacity, at the beginning of the COVID–19 pandemic, it
created a giant gap in the supply chain. Millions of dollars’ worth
of food was spoiled or thrown away. In the best circumstances, res-
taurants like mine donated food to those who really needed it. In
the worst circumstances, commodity farmers and ranchers were
forced to destroy or euthanize their crops and animals. With each
surge of the virus and change in consumer demand, the supply
chain has struggled to keep pace with the market, with inconsist-
encies as the only predictable characteristic.
At Garland, we source our food and supplies locally as often as
possible. When we shut down in March 2020, I watched my sup-
pliers suffer, too, and these are farmers and purveyors that we
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know by name. Overnight, they lost hundreds of thousands of dol-
lars in sales, and the recovery has not been easy for them either.
For instance, my seafood supplier, local seafood in Raleigh, goes to
the coast and brings fresh catch into town every week, twice a
week. They lost most of their wholesale customers in the matter of
a few days when the pandemic began.
As restaurants had uneven recovery—I returned to capacity and
operations in March, but say my neighbor cannot do it until June—
locals faced a challenge of prioritizing restaurants as their cus-
tomer base while still serving their direct-to-consumer market. We
have seen a lot of small farmers and purveyors simply close be-
cause so many restaurants have closed or because as a variant
rages through our community restaurants have had completely un-
predictable revenue and volume of sale, which directly impacts
these producers.
I was lucky enough to receive an RRF grant, and I am eternally
grateful for that. As a result, as I am struggling to deal with sup-
ply chain disruptions, but I am able to do so in the same way that
I was pre-pandemic. But those who are not as fortunate are
compounding their pandemic problems with supply chain issues.
Again, thank you for holding this very important hearing, and I
look forward to working with you on refilling the RRF and on
issues like farm policy, food security, fishery issues, and labor in
the coming weeks and months.
[The prepared statement of Ms. Kumar follows:]
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Testimony ofCheetie Kumar
Chef and Owner of Garland
U.S. Senate Committee on Small Business
March 30, 2022
Chairman Cardin, Ranking Member Paul, and members of the committee, thank you for inviting
me today to talk about the supply chain in the restaurant industry and how this committee and
Congress can help.
I am the chef and co-owner of Garland in Raleigh, NC. In the same building as Garland is our
music venue and basement cocktail bar. I am a self-taught chef who studied recipes while
touring across the US as a guitar player alongside my husband and business partner, Paul Siler.
Seeing every corner of this country with our band, Birds of Avalon, showed me the value of an
independent, artistic spirit and that informed how we connect to our downtown Raleigh
community.
Let me start by thanking this Committee and especially Chairman Cardin for all the support you
have shown independent restaurants throughout this pandemic. You have given us a lifeline to
survive in the Restaurant Revitalization Fund (RRF) and we are eternally grateful.
I would be remiss ifl testified before this committee and did not advocate for refilling that fund
to take care of the 177,000 restaurants who applied and did not receive a grant They desperately
need help, and the Congress could ensure the success ofa generation of independent restaurants
by providing the money to fund all the outstanding grant applications.
One hundred thousand restaurants have already closed permanently. Many of my friends and
colleagues are hanging on by a thread and have taken on crushing personal debt as they fight
against joining the growing list of closures. More than 80% of restaurants who did not receive
the RRF report they are on the verge of permanent closure.
Data collected from a January survey of nearly 1,200 members of the independent restaurant and
bar community in all 50 states demonstrates the dire situation the pandemic has created for these
businesses, especially those that did not receive federal RRF grants.
• 49% of businesses that did not receive RRF grants were forced to lay off workers because
of the Omicron surge
• 42% of businesses that did not receive RRF grants are in danger of filing for or have filed
for bankruptcy
• 28% of businesses that did not receive RRF grants have received or are anticipating
receiving an eviction notice
• Restaurant and bar owners who did not receive an RRF grant are taking on more personal
debt 41 % of people that did not receive RRF reported taking out new personal loans to
support their businesses since February of 2020. This is only true for 19% of businesses
that received an RRF grant
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The Census says that restaurants and bars have lost more than $280 bi lli on in sales. Chairman
Cardin, I have been on calls with a number of strong, wonderful restaurant and bar owners in
Maryland and they are past their breaking point. The same is true for Kentucky, Washington,
F lorida, New Hampshire, and every state represented on tl1is Committee.
l know you invited me to talk about the supply chain and I will do that as well, but l did not want
to pass up on tl1e opportunity to ask you for the help we so desperately need.
1 am proud to be here representing the hundreds of thousands of independent restaurants across
the country and their millions of employees. My story is not very different from so many others
in the restaurant industry. With my family, l immigrated from lndia to the Bronx at the age of8
and eventually settled in the South to play music and open my restaurant. Our industry is full of
these stories - from folks all across the country and all around the globe. Women, minorities,
single parents, veterans, and so many others get their start in restaurants, build their lives
working in restaurants, or make a career out of worki ng in restaurants. Frankly, restaurants
represent America more than any other industry.
1 am a member of the Board of the Independent Restaurant Coalition - a group borne out of
crisis. Chefs and independent restaurant and bar owners from across the country gathered in the
first days of the pandemic to advocate for help for the restaurant industry. Together we have built
a grassroots movement to secure vital protections for the nation' s 500,000 independent
restaurants and the more than 11 million restaurant and bar workers impacted by the coronavinis
pandem ic and build a more sustainable future for our industry.
Two years later I sit before you, in person fi nall y, to talk about the supply chain, how the RRF
has helped, and how we can fix the supply chain. And, make no mistake, when we talk in general
terms about the "supply chain," what we are also talking about is the rising costs that result from
a broken or damaged chain.
Independent restaurants play a unique role in the food supply chain. They both push items into
the suppl y chain and pull items out of the supply chain. Think about kale. For many years the
largest purchaser of kale was Pizza Hut who used the leafy green as decoration on their salad bar.
According to the Department of Agriculture, U.S . kale production increased by nearly 60 percent
between 2007 and 20 I2 . The increase in demand came when chefs started serving the nutrient
dense green in salads, soups and slaws. Kale went from lowly decoration on the salad bar to
becoming the darling of celebrities and food media. Kale sales continue to rise, in 2020 the leafy
g reen accounted for more than $225 million in sales. That collective growth is often spread
among smaller farms supporting local agriculture systems since independent restaurants
individually source at small er volumes.
My restaurants adapt to supply chain issues every day. We look for less expensive cuts of meat
with great flavor and potential to be featured in dishes. So long as they remain affordable, we can
serve them. In the case of flank steak, it was a less expensive cut of meat, so it was on a lot of
restaurant menus. Then the demand for flank steak increased as home cooks discovered it. Flank
steak is a long. flat, thin, boneless and lean cut of steak, whose grain nms lengthwise. Like most
cuts of beef there are two flank steaks per cow, one on each si de. With limited supply and
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increased demand, prices increase to the point where it doesn't make sense for our menu and
margins, so we make changes.
When hundreds of thousands of restaurants closed or severely limited capacity at the beginning
of the COVID-19 pandemic, it created a giant gap in the supply chain. Millions of dollars' worth
of food spoiled or was thrown away. Tn the best circumstances, food was donated to those who
needed it. In the worst of circumstances farmers and ranchers were forced to destroy or euthanize
their crops and animals. With each surge of the virus and change in consumer demand the supply
chain has struggled to keep pace with the market.
Right now, the Producer Price Index (PPI) report released by the Bureau of Labor Statistics
(BLS) indicated food prices rose 12.8% over the past year, including major jumps for ingredients
critical to restaurants like beef and veal (43. 9% ), grains (22%), shortening and cooking oils
(36.4%), and eggs (40.9%). the price of ournon-GMO oil rose from $38/ 5-pound box to as high
as $110 and currently is hovering around $85 if it's even available.
At Garland we source our food and supplies locally as often as possible. When we were forced to
close in March 2020, I watched my suppliers suffer too. Overnight they lost hundreds of
thousands of dollars in sales. And the recovery hasn't been easy for them either. For instance,
my seafood supplier Local's Seafood in Raleigh goes to the coast and brings fresh catch into
town twice a week. They lost most of their customers in the matter of a few when the pandemic
began. Their operation is large enough operation that they could pivot to offering direct to
customer sales. As restaurants have had uneven recovery - I return to near capacity operations in
March but my neighbor can't reopen fully till June. Locals faces a challenge of prioritizing
restaurants as customers while still serving their direct-to-consumer market. We've seen a lot of
small farmers and purveyors simply close because so many restaurants have closed or because as
a variant rages through our community, restaurants have had completely unpredictable revenue
and volume of sales which directly impacts these producers.
While some of the dramatic price increases, we've seen over the past two years have leveled off,
most ingredients and supplies needed to operate our business are significantly more expensive
than they were in 2019. And while I have always been able to manage changes in prices, it is
nearly impossible for independent restaurants who did not receive RRF grants to manage months
of back rent, personal debt, supplier bills, unpredictable dining demand, labor issues, and supply
chain uncertainty at the same time.
1 was lucky enough to receive an RRF grant, and I am eternally grateful for that. As a result, I am
struggling to deal with supply chain disruptions, but I am able to do so in the same way I was pre
pandemic. But those who were not as fortunate are compounding their pandemic problems with
supply chain issues.
As this Committee and others consider ways to work on the supply chain and how to help
businesses like independent restaurants, the IRC stand ready to work with you. While we remain
focused on getting relief for those independent restaurants hardest hit by the pandemic, we are
also working to give voice to those same restaurants on farm policy, fisheries policy, labor and
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employment issues, and other things that are so crucial to our members. Independent restaurants
are the tip of the spear on supply chain issues and very good at labor cultivation.
Again, thank you for holding this important hearing and I look forward to working with you on
refilling the RRF and these other critically important issues.
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Chairman CARDIN. Ms. Kumar, thank you very much for your
testimony.
We will now hear from Dr. Kota.
[Pause.]
Chairman CARDIN. I have been told that the order should be as
it is on the table. So, Mr. Lam, you will go next.
STATEMENT OF JASON LAM, OWNER, MANAGER, CHEF, WAIT-
ER, DISHWASHER, AND TOILET SCRUBBER, SAKE THAI AND
SUSHI BAR, FREDERICKSBURG, VA
Mr. LAM. Chairman Cardin, Ranking Member Paul, members of
this Committee, thank you for having me.
My name is Jason Lam. I am 34. I own a restaurant in Stafford.
It is about an hour south from here, actually.
And like Ms. Kumar, I actually started in the restaurant busi-
ness when I was eight years old. I learned how to answer the
phone, work the registers, slide credit cards over carbon paper, if
you remember that. Credit card machines were not a thing back
then. I learned how to stack cardboard and Styrofoam boxes into
bags, like little Legos, making sure they were perfect, how to stack
plates on a dishwasher rack, even went to college, and then I still
worked in a restaurant after classes.
My repertoire expanded. I learned how to cut, slice, dice, chop,
fricassée, chiffonade, julienne, a bunch of fancy terms you will find
in a French cookbook. And even when I stepped away and I
thought I would make my own way in life and I would become a
contractor to support our military, I worked my day job, and I still
went to the restaurant, often working from 8 to 4 and then 5 to
11.
I know the meaning of hard work and what it means to sacrifice
for your restaurant and do everything you can to make sure it suc-
ceeds. I worked as a manager, an accountant, managing inventory.
I mean, just name it. I have done everything that there can be
done in the restaurant industry.
At the start of the pandemic, I remember it was a Tuesday. I was
driving on 95 going to work when we got the announcement res-
taurants had to cease. I called my employees while I was in the
car, and I told them, I do not know what we are going to do, but
none of you can come to work today, and we closed.
In April, we lost over $30,000. The costs, it was insane. I threw
out—like Ms. Kumar said, we threw out inventory. We threw out
food. We threw out a lot. And I had to come up with $30,000 out
of my own pocket to pay my employees, to pay my rent, the bills.
In May, it got a little better, but I still lost over $10,000.
In June, I finally saw a little bit of a breakeven point.
In July and so forth, it got better.
Then in October 2020, we decided that we would open back up
for socially distanced spacing, and we went to 50 percent capacity,
and we opened back up for dine-in even though carryout still made
the bulk of our sales.
As the pandemic restrictions have lifted in the past year and a
half, two years, our volume is crazy. It has gone up 15 to 20 per-
cent what it used to be before in 2019. And as all this volume has
come up, we need more stuff, we need more inventory, we need to
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be able to keep up with this demand for all these customers who
are coming in through my door that want to eat and want to get
carryout or dine-in.
My restaurant’s name is Sake, but over half of the sake on my
menu is unavailable due to supply chain issues here, at home, and
abroad. I have been told that there is a glass issue in Japan and
they cannot bottle the stuff, and we cannot get it, and I know that
that is specific to my genre of food because I am a Japanese and
Thai restaurant. And I know it is not entirely fair to say, oh, tuna
has gotten more expensive, which it has. It has gotten from $15.99
to $20 a pound. That is a 25 percent increase in 16 days in this
month alone. That is crazy.
So let us go and talk about something that other restaurants
would use, like Ms. Kumar herself. Zucchini has gone from $12.50
a case to $21 a case. That is a 68 percent increase in 17 days alone
in this month.
Brown paper takeout bags. I cannot just hand my customers
boxes and tell them, no, you should bring it out to your car your-
self. That has gone from 14.5 cents apiece to 22 cents apiece. That
is a 66 percent increase.
Chicken. Chicken used to be $1.97 a pound. Now it is $3.10 a
pound. Now that has gone up 64 percent, and that is in 21 days
in this month alone.
Vendors used to be able to work with us restaurant owners. They
used to be able to tell us, ‘‘Hey, look, there is going to be a price
increase soon. It is coming. You should probably order more so you
can keep par with your inventory.’’
They cannot do that anymore. They tell me the day before, ‘‘Oh,
yes, your tuna, it was $17 a pound last week; it is $20 a pound this
week.’’
There is no amount, no amount, of planning that can compensate
for that.
I am sure you know that restaurant margins are notoriously
thin. Notoriously thin. They go anywhere from 3 to 8 percent. And
when you have items on your menu and in your inventory that
jump 50, 60, 70 percent, how am I supposed to succeed? It is in-
creasingly easier to fail.
Now I say all this knowing that starting a business is my choice.
It is inherently risky and especially the restaurant industry. Most
do not make it past two or three. But I have been in this business
long enough to know that you should never take a good day, a good
week, a good year for granted, but the current climate is making
it very difficult for businesses like mine to succeed.
As I mentioned earlier, our volume has increased, but we cannot
continue to serve our clientele without more inventory, and the
supply chain issue is killing us. It is frustrating to serve customers
and tell them, here is the list of things we cannot sell you today,
or, yes, our prices have gone up again, for the third time in the
past six months. It is incredibly frustrating, but they understand,
for the clients who know us. But what about the new customers?
That does not make for a very good first impression.
Fixing the supply issues at the core will help all businesses, not
just mine. Drycleaners, salons, tutoring centers, whatever you want
to name. But throwing money at the challenges we face, like the
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RRF, is like putting a Band-Aid on a wound that needs stitches.
It will stop the bleeding, but it does not fix the issue. You are still
going to bleed out in the end.
I did not apply for RRF funds. Spending billions of taxpayer dol-
lars is not the answer. Giving grants to these restaurants is not the
answer. I want you to look my kids in the face and tell them that
they are not going to be responsible for paying that back. They will.
I cannot do it.
I can fail or succeed in owning my business just fine on my own.
The real help I need is things that I cannot control. The supply
chain, there is nothing I can do about that. So what I want the
Federal Government to do for me is to fix that problem.
Thank you for your time and attention.
[The prepared statement of Mr. Lam follows:]
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Testimony of Jason Lam
Owner/Manager/Chef/Waiter/Dishwasher/Toilet Scrubber, Sake Thai and Sushi Bar
U.S. Senate Committee on Small Business and Entrepreneurship Hearing
"The Supply Chain Crisis and the Implications for Small Businesses"
March 30, 2022
Chairman Cardin, Ranking Member Paul, and members of the Committee, hi. My name is Jason
Lam. I'm 34 years old and I'm a small business restaurant owner in Stafford, VA I started
working in my family's restaurants when l was 8 years old. I learned how to answer the phone,
work the register, and slide credit cards over carbon paper before credit card machines were a
thing. ! learned to pack orders correctly like Styrofoam Legos into take out bags and how to
properly load plates onto a rack. Even when I started taking college classes, l would work after
class. By this time my repertoire in the restaurant business was expanding, l was part sous chef;
I learned how to cut, chop, slice, dice, julienne, chiffonade, fricassee, and a bunch of other fancy
terms you'd find in a French cooking book. I was part line cook, adjusting the temperature on
deep fryers during busy hours to maintain a constant temperature. l was the manager, the
accountant, and the inventory clerk, managing employees, singing contracts, dealing with
vendors, maintaining inventory and making sure that we were in compliance with the laws
surrounding the sale of alcohol. Even when Tthought I might step away to support our military
as a contractor, I worked evenings in the restaurant. There is not a single facet of my business
that l have skipped over or not done myself.
At the start of the pandemic, as businesses were closing their doors and shelter in place laws
were starting, we closed for 3 days as we tried to navigate the rules and regulations of how to do
business during a pandemic. In April 2020 our operating costs exceeded our profit by $30,000, in
May those loses dropped to just over $10,000, in June we broke even, and by July we finally saw
some profit return, from there our sales continued to grow and have kept growing. We reopened
for dine-in in October of 2020. With social distanced spacing, we were able to return our dine-in
capacity to 50%, and takeout orders continued to account for the bu! k of our sales.
As pandemic restrictions have lifted, we find ourselves with a daily volume of ticket sales 15-
20% higher than before the pandemic started. With this increase in volume, we now face a new
challenge. Over the course of the past year-and-a-half sourcing for inventory has become
increasingly difficult, and with a higher volume of sales, we require more inventory. My
restaurant's name is Sake but half of the sake on our menu is unavailable due to supply chain
issues both here in the US and in Japan. In addition, because we are a Japanese/Thai restaurant,
there are items that are unique to the genre of food that we serve which can be difficult to source
even under the most optimal conditions. At first the disturbances were minimal but steadily we
have seen items consistently unavailable, resulting in purchase limits and price increases when
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we do find them in stock. This month, we saw zucchini go up up 68%. Brown paper takeout
bags have gone up from $0. l45 to $0.22, a 66% increase, and chicken has gone from $1.97/lb to
$3.10/lb - a 64% increase. Vendors used to be able to tell us when a price hike would be on the
horizon allowing us to plan ahead of time, to stock up on the supplies we knew we would need
soon. Restaurant profit margins are notoriously thin to begin with. When your costs are
increasing by over 50% in a short amount of time, there is no amount of planning that can
compensate for that. As prices become increasingly erratic the success of restaurants hang in the
balance.
Stariing a business comes with inherent risks, and restaurants are some of the riskiest business
ventures out there. I have been in this business long enough to know that you never take a good
year or a good month for granted, but the current climate is making it harder and harder to
succeed and not because oflack of funds or lack of business. As I mentioned earlier our volume
has increased, but we cannot continue to serve our clientele without product to sell. Over ten
years, we have built a loyal community who has taken care ofus during hard times, and when
they come and sit down at our table it's frnstrating to list all the things we are out of, or to have
to acknowledge that yes, our prices have gone up again. Those who know us, know that it's
mostly beyond our control, but what about the new customer that comes in for the first time -
our first impression doesn't look too great. Fixing the supply issues at the core help all business.
Throwing money at the challenges that we face today is like putting a Band-Aid on a wound that
needs stitches you might stop hemorrhaging temporarily, drag out the inevitable, but without
real change that address the crux of the issue, you going to still bleed out. Our community is
small, located far enough outside the DC metroplex that I know my local restaurant owners
personally, in fact they come sit at my bar, and I hear them repeat what I have told you today.
How many more of them have to close their doors before we provide real solutions to the real
problems that they face.
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Chairman CARDIN. Thank you very much, Mr. Lam, for your tes-
timony.
We will now hear from Dr. Kota.
STATEMENT OF SRIDHAR KOTA, Ph.D., EXECUTIVE DIRECTOR,
MFORESIGHT: ALLIANCE FOR MANUFACTURING FORE-
SIGHT, UNIVERSITY OF MICHIGAN, ANN ARBOR, MI
Mr. KOTA. Chairman Cardin, Ranking Member Paul, distin-
guished Committee members, thank you for the opportunity to ap-
pear before you today to discuss the supply chain crisis and how
to be better prepared for the next crisis. My comments are based
on my over 30 years’ experience as a professor at a university, but
I also worked 20 years as a founder and CEO of a small engineer-
ing firm and in addition to the work I have done for the last seven
years or so through this think tank, MForesight.
So I would like to focus on small manufacturers, who are the eco-
nomic engines for our local communities, as you know, and back-
bone to the entire manufacturing sector. Challenges facing all man-
ufacturers, large and small, are broad, deep, and systemic.
The supply chain crisis has its roots in gradual erosion of our
manufacturing sector over four decades as we steadily offshored
manufacturing to low-wage countries. That strategy has worked
and continues to work very well for private sector companies that
remain focused on short-term profits. For too many companies,
manufacturing could be done cheaper abroad, avoiding capital costs
and operational expenses of building and running factories. By
offshoring manufacturing, we eroded our manufacturing know-how,
infrastructure, machinery, and engineering skills, all of them are
collectively called ‘‘industrial commons’’ or what we used to call
‘‘American ingenuity.’’ We may still be the most inventive country
in the world but not the most innovative, at least in hardware.
We also eroded our military preparedness with growing depend-
ence on other countries for critical military components and sys-
tems.
More recently, we all realized suddenly we did not have the
masks and ventilators when we so desperately needed them. In
fact, I had a frustrating experience with this company I started for
COVID–19 patients wherein I co-invented a device for preventing
virus transmission while treating COVID patients, but I was trying
to find U.S.-based manufacturers of electric motors. After several
months of trying everywhere, finally I reluctantly entertained some
proposals from China. And by the way, they were fantastic tech-
nically and incredible pricing and delivery options, very enticing.
But I remained focused on trying to find somebody here, and fortu-
nately I was able to find a manufacturer ultimately in Kentucky,
which was great.
But that story I just described is nothing new. This kind of lack
of domestic producers is very common in almost every manufac-
turing sector for over two decades. So reestablishing supply chains
is difficult. It is not about bringing back the jobs we lost. It should
be about how to establish industries of the future, how to rebuild
our foundational capabilities that are critical to our national secu-
rity as well as economic health and energy security.
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Yes, it is the Federal Government’s role, not the role of the pri-
vate sector, to secure and advance our national interests. A good
example of that is the current bipartisan efforts in strengthening
our domestic manufacturing of semiconductors and electric vehi-
cles.
Likewise, we need to have a whole-of-government approach with
a national strategy for other critical sectors by investing, not just
spending without any metrics. We need metrics that define what
to do, not how to do it.
And for those products that are best produced elsewhere, we
should consider nearshoring to countries, friendly countries, nearby
rather than bringing them across oceans.
And small manufacturers are the backbone. If the backbone is
strong, the large manufacturers will come.
And small manufacturers are similar constrained in resources to
make investments in R&D and upgrading their equipment, and
they routinely face even more challenges in attracting and retain-
ing a skilled workforce. And SBA can help in meaningful ways, and
I outlined some of them in my written testimony. Current and
pending legislation in creating Regional Innovation Hubs, the new
Technology Directorate for NSF, and a new Manufacturing Office
in SBA, these are all very encouraging signs.
However, if these programs, like every other Federal program
and agency, act in silos, the results will be mediocre at best. For
instance, the SBA Manufacturing Office can play an effective role
in helping entrepreneurs and small manufacturers advance tech-
nologies developed by other agencies to initiate pilot production
here in the U.S.
Rather than continue to fund programs that have not yielded de-
sirable results in decades, government needs to launch a series of
listening tours across the Nation to understand the real-world chal-
lenges faced by small manufacturers and entrepreneurs.
MForesight did just that in 2018, and I outlined some of those in-
sights in my testimony.
Shortage of skilled workforce, raw materials, components, these
are all intertwined, and no single Federal agency can truly fix the
supply chain crisis by itself, and SBA is no exception. We already
have numerous well-established, well-funded Federal agencies and
institutions, but each is focused on its own mission, understand-
ably. It is like having a great team of players but we do not have
a coach.
We need a coach to win. We need a strategy. We need to connect
the dots. We need a new entity in Federal Government whose sole
focus is to strengthen U.S. manufacturing competitiveness and to
ensure what is invented here is manufactured here.
It sounds like ‘‘industrial policy,’’ a term derided for decades. Yet,
oil and gas, telecommunications, aerospace, they all benefited from
a successful industrial policy we enjoyed for nearly a century. Even
if we pretend it is not, whatever you want to call it, we should rep-
licate that policy boldly to other sectors that are critical to national
interests, to create a stronger, wealthier nation that is better pre-
pared to confront the next crisis and to finally get a return on in-
vestment of taxpayer dollars.
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I will end with a quote attributed to Churchill. ‘‘We can always
count on Americans to do the right thing after they have exhausted
all other options.’’
Now is the time. We have had two Sputnik moments, COVID–
19 and China 2025.
Thanks again for giving me the opportunity to share my
thoughts.
[The prepared statement of Mr. Kota follows:]
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Sridhar Kota
Executive Director- MForesight: Alliance for Manufacturing Foresight
Herrick Professor Emeritus of Engineering, University of Michigan.
Founder & CEO, FlexSys Inc., Inspire Rx LLC.
Chairman Cardin, Ranking Member Paul, distinguished Committee Members-thank you for the•
opportunity to appear before you today to discuss the supply chain crisis and how to better
prepare for t he next crisis.
I would like to focus my testimony on sma ll manufacturers who are the economic engines of
our local communities, and backbone to the e ntire manufacturing sector. Cha llenges facing
manufactures are broad, deep and system ic. We need government action that is
commensurate with the challenge to prepare for the next crisis. No single federal agency can
truly fix the supply chain crisis by itself, and SBA is no exception. The supply cha in crisis has its
roots in gradua l erosion of o ur manufactur ing sector over four decades. Therefore, creating yet
another f ederal program or increasing f unding for an existing program might give some
satisfaction but it will not fix the underlying problem. It takes a whole of government approach.
It demands an effective national strategy to create industries of the future. It needs sustained
investment, not spending, by t he federal government.
To highlight t he nature of this cha llenge, I q uote Akio Morita, co-founder and Chairman of Sony
Corp. "American companies have eit her sh ifted output to low-wage countries or come to buy
parts and assembled products from countries like Japan t hat can make quality products at low
prices. The result is a hollowing of American industry. The U.S. is abandoning its st at us as an
industrial power." This was said in 1986. The slippery slope we have been for the past 4
decades has only made matters m uch worse. It is not surprising t hat we did not have adequate
masks and ventilators that we desperately needed during t he Covid-19 crisis. To ensure that we
will be better prepared for the next crisis, be it health, military or natural, it is crucial that the
federal government takes a ho listic approach to develop a rea l solution, not a piecemeal
approach that is likely to fail.
The pandemic is new but t he gross inadequacies in our domestic supply chains across almost
every manufacturing sector are, unfortunately, not new. With heavy reliance on global supply
chains and foreign manufacturers, t he pandemic has interrupted shipping of parts and
materials t o nearly 75% of U.S. companies. Modernizing our ports and distribution channels will
streamline the flow of goods from other countries the next time we face crisis. But that will
only provide a false se nse of security when faced with a different type of crisis. Already, our
new normal celebrates when an Amazon Wa rehouse moves to town, but the nation simply
ca nnot maintain its living standards based on low-paying jobs in warehousing, distribution, and
sales of American innovations made in offshore factories.
For decades, we have steadily offshored manufacturing to low-wage countries. That strategy
has worked and continues to work well for private sector companies that remain focused on
1
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short-term profits. For too many companies, manufacturing could be done cheaper abroad,
avoiding the capital costs and operational expenses of building and running factories while
destroying good-paying domestic jobs resulting in stagnant incomes for nearly 50 years. By
offshoring manufacturing, we have slowly but surely eroded our manufacturing know-how,
infrastructure, precision machinery and engineering skills - all of them collectively called
"industrial commons" or what we used to call American ingenuity. As a result, we also eroded
our military preparedness with growing dependence on other countries for critical military
components and systems. For instance, a report by the Senate Armed Services Committee in
2012 documented the vast number of counterfeit parts in defense supply chains, typically
imported by third and fourth tier suppliers. There were several other reports and studies since,
but the downward trajectory has only intensified. More recently, we all realized our
vulnerabilities in health security during the Covid crisis.
Personally, I had a frustrating experience in 2020 when I tried to identify U.S.-based
manufacturers of electric motors for a device I co-invented to treat Covid-19 patients while
preventing virus transmission to health care workers. After over a month of failed attempts, I
reluctantly entertained offers from China. I found them to be technically thorough with very
attractive delivery options and pricing (unit and volume), which, understandably, would have
been enough for most customers to place the order. But I was determined to keep
manufacturing here, and, fortunately, after additional efforts, I was able to identify a
manufacturer based in Kentucky. Such lack of domestic producers is a common phenomenon in
almost every manufacturing sector for over two decades, but only aggravated by the Covid
crisis.
Between 2007 and 2019, manufacturing output fell 1.3 percent, a worse performance than
during the Great Depression. Productivity rose only 0.4 percent per year compared to 3.7
percent in the prior 20 years. In 2018 the Food and Drug Administration (FDA) listed 90 drugs in
short supply; in September 2020, the number had jumped to 119. Output from a key industry
during the pandemic, medical equipment and supplies, fell 10 percent. A more granular analysis
of 40 manufacturing industries found that only one-wood containers and pallets-increased
employment between 2002 and 2018, but only by 1.2 percent. Every other industry examined,
including advanced industries like semiconductors, communications equipment, and
computers, experienced large drops in the number of establishments and employment.
Meanwhile, production in China continued to grow, to roughly double U.S. output.
Covid-19 has aggravated and surfaced the underlying systemic challenges in our manufacturing
supply chains. Domestic manufacturers of all sizes have experienced shortages of raw materials,
components, sub-systems or machinery and tools that are routinely imported from other
countries, particularly from Asia. Additionally, the shortage of skilled workers at all levels
continue to plague the manufacturing sector. These challenges are intertwined fixing one or
the other will not improve our resiliency when the next crisis arises. An effective way to prepare
for the next crisis is to take a holistic approach that begins with a national strategy to
strengthen not only emerging technologies and industries of the future but also the
foundational industries and capabilities that are critical to our national security, as well as
2
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economic, health security and energy security. It is the federal government's role, not the role
of the private sector, to secure and advance our national interests.
A good example of such a federal initiative is the current bipartisan efforts to strengthen
domestic manufacturing of semiconductors and electric vehicles. Likewise, if we have a national
strategy that identifies other critical sectors, we can identify specific technologies, both
emerging and foundational technologies, that we must develop to ensure robust and cost-
effective supply chains on-shore and/or near-shore to minimize the impact of future shortages.
Such a strategy could direct federal investment and public-private partnerships in building
knowledge and physical infrastructure just as we are witnessing in electric vehicles and
semiconductors.
Although the U.S. remains a large manufacturer, accounting for nearly 17 percent of global
output, over two-thirds of revenue is generated in just three industries: Chemicals (including oil
and gas products), Food & Beverages, and Transportation. It's no coincidence that the first two
are anchored here by their dependence on local raw materials and agriculture production. The
silver lining is the Auto industry, accounting for over 20 percent of U.S. manufacturing. That is
because it still has the installed base of talent, infrastructure and supply chains built over a
hundred-year history. Once supply chains move away it is very difficult to lure them back
quickly even with tax incentives or tariffs.
But contrary to the Washington consensus, it is not high wages, taxes, unfair trade, regulations,
or automation that have decimated American manufacturing. Consider Germany, Japan, and
South Korea: these advanced nations continue to have strong manufacturing and innovation
ecosystems despite having higher wages, higher taxes, higher energy costs, strict regulations,
and more automation than in the United States. Governments and the private sector in these
advanced nations invest with a long-term strategy. In fact, foreign multinationals, German and
Japanese in particular, continue to invest in manufacturing facilities in the U.S.
Small and medium sized manufacturers (SMMs) serve as the backbone to the entire
manufacturing sector. Most SM Ms have never had a "China strategy" and are less likely to shift
production abroad. They produce key components and sub-systems that OEMs integrate into
finished products and systems. They are severely constrained in resources to make necessary
investments in R&D or to upgrade their machinery and equipment to be globally competitive.
With the spread of lean manufacturing, they also tend to have limited inventory, so the supply
chain crisis has affected them even more severely. SM Ms face significantly more challenges in
attracting and retaining skilled workforce at all levels.
Government has an important role to play in building a strong and globally competitive
manufacturing sector by supporting SMMs in a meaningful way. This may include: grants and
low-interest loans to upgrade equipment; federal vouchers to subsidize training on the use of
Industry 4.0 technologies, hire talented workers including veterans, semi-retired or retired
engineers and managers; partnerships with vocational training programs for talent
3
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23
development; partnerships with R&D institutions to bring inventions to production and access
to capital, government procurement and export markets.
Rather than continue to fund programs that have not yielded desirable results in decades,
government needs to launch a series of Listening Tours across the nation, rather than heeding
lobbyists in DC, to understand the real-world challenges faced by SM Ms and entrepreneurs.
This will help identify gaps in our innovation pipeline and supply chains. In 2018, MForesight did
just that. We convened diverse groups of experts via numerous round table discussions in
various cities across the country which informed us, among other insights, the need for
investment in translational R&D, and scaling up 4-yr polytechnic universities that provide both
education and training.
In our Austin roundtable, we learned that nano-electronics technology developed by UT-Austin
researchers, is now being scaled in Japan by Canon. The research was initially funded by NSF
and later by NIST's ATP program. Despite demonstrating the potential of the technology,
federal funding dried up and no U.S. companies showed interest. Canon saw the long-term
potential, took the risk, and invested $10 million in this nascent technology, only to make the
resulting products in Japan. Representatives from Canon who were at the roundtable explained
in detail how the United States lacks the manufacturing know-how, precision machinery, and
engineering skills needed to scale the technology, despite continued preeminence in research.
Therefore, all the production jobs, high-value product sales, capital investment, and supplier
contracts are captured in Japan, not to mention the tacit learning gained from actual
production.
Such transfer of technology, willingly, has only accelerated since China joined the WTO. Blaming
universities is not the answer. Government that invested taxpayer dollars in R&D should
institute proper metrics and policies to ensure a return on investment back to taxpayers. It also
must create programs to fund technologies beyond just basic research. Otherwise, we will
continue to silently witness other countries picking our winners. A study of 150 manufacturing
startups from MIT during the last decade found that of those startups that managed to scale,
70% of them scaled in China and none in the U.S. This is due to lack of capital, skills and
infrastructure. We may still be the most inventive country in the world but not the most
innovative - at least in hardware. Innovation is about transforming a promising invention into a
product manufactured at scale.
Current and pending legislation to create Regional Innovation Hubs, the new Directorate for
Technology, Innovation and Partnerships at the National Science Foundation and a new
Manufacturing Office in SBA are all very encouraging signs. However, if these programs, like
every other federal program and agency, act in silos, the results will be mediocre at best. For
instance, the SBA Manufacturing Office can play an effective role in not only helping current
SM Ms but also helping entrepreneurs and small manufacturers advance technologies
developed by other agencies and helping initiate pilot production in the U.S.
4
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For some, the idea of the federal government even considering developing a strategy for
industrial competitiveness runs counter to free-market principles that we all believe in. The
private sector pursues what is in its best interest and, understandably, cannot be responsible
for national interests. The term "industrial policy" was derided by policymakers for decades.
Yet, Oil and gas, Telecommunications, and Aerospace have benefited from favorable tax
treatment, trade barriers, federal research, and defense procurement. Tesla got its start
through a government loan. The federal government has a long history of building strong
national industries through a combination of sustained R&D and procurement contracts.
Aviation, semiconductors, computers and the internet are obvious examples. The Department
of Defense helped create Silicon Valley. Government can make a positive impact again whether
we call it industrial policy or not.
Of all the manufacturing sectors, only aerospace has consistently generated a trade surplus,
and it is the only manufacturing sector that has enjoyed long-term, consistent government
support. Led primarily by defense, the federal government has invested in both basic and
translational research, engineering development, technology demonstrations, deployment,
procurement, policies and programs that have made sure that aerospace completes the
innovation cycle and wins in international markets. Regardless of the party in power, every
President helps this industry market and sell both defense and commercial products when they
visit other countries. This is successful, high-profile industrial policy we have enjoyed for nearly
a century even if we pretend it isn't. We should replicate this policy boldly to other sectors
critical to national interests.
We can rebuild a strong manufacturing sector especially because we still have some of the core
ingredients such as basic research prowess and institutions, creativity, policies that attract the
best and the brightest to our shores and entrepreneurship in our collective DNA. But the longer
we delay, the greater the loss of industrial commons critical to robust and resilient supply
chains.
We have numerous well-established and well-funded federal agencies and institutions, but
each is focused on its own mission. It is like having a team of great players - but we don't have a
coach. There is no entity in the federal government focused on U.S manufacturing
competitiveness. To ensure that the U.S establishes the industries of the future, let alone
prepare for the next crisis, we need a "coach" - that is a new entity in the federal government
whose sole focus is to strengthen U.S. manufacturing competitiveness and to ensure that what
is invented here is manufactured here. The goal is not to add another layer to the federal
bureaucracy but to streamline 58 different "manufacturing" programs across 11 agencies and
do so with a real national strategy and meaningful metrics which we currently lack. Federal
programs must identify proper metrics that capture what needs to be accomplished but not
how to accomplish it. For instance, in the context of R&D or entrepreneurship, patents, licenses
and even start-ups are necessary first steps to generate returns, but they are poor proxies at
best for economic impact because by themselves they do not create national wealth, jobs or
national security. We need to manufacture our inventions at scale just like other countries have
scaled our inventions.
5
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We had at least two "Sputnik moments" in the recent past - Covid-19 and China 2025. These
could be positive tipping points if we take the right steps to create a stronger, wealthier nation
that is better prepared to confront the next crisis, be it medical, military or a natural disaster.
6
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Chairman CARDIN. Thank you very much for your testimony.
We will now hear from Mr. Griffith.
STATEMENT OF JOEL GRIFFITH, RESEARCH FELLOW, FINAN-
CIAL REGULATIONS, INSTITUTE FOR ECONOMIC FREEDOM
AND OPPORTUNITY, THE HERITAGE FOUNDATION, WASH-
INGTON, DC
Mr. GRIFFITH. Chair Cardin and Ranking Member Paul, mem-
bers of the Senate Committee, my name is Joel Griffith. I am a re-
search fellow at the Heritage Foundation. These views are my own.
Supply chain issues continue to empty shelves, bottleneck pro-
duction, and delay deliveries. The mismatch between supply and
deficit-driven demand also contributes to the steepest rise in prices
in 40 years.
The Biden administration has falsely insisted that these prob-
lems are transitory while blaming the pandemic, scapegoating busi-
nesses trying to fix the problems, and now even blaming the war
in Ukraine. Meanwhile, this Administration refuses to acknowledge
the primary culprits. That would be the ill-advised COVID restric-
tions that throttled production, the ill-targeted government trans-
fer payments and diminished childcare options that shrank the
workforce, the opposition by organized labor to common-sense port
operations in California and New Jersey, new environmental regu-
lations targeting diesel semi-trucks in California, and record gov-
ernment spending financed by the Federal Reserve.
In short, government reduced supply and stoked demand the
past 2 years. This is a recipe for both shortages and higher prices.
The primary factor behind the supply chain issues are the ill-ad-
vised COVID restrictions. The pandemic itself did not shutdown
the world. Government lockdowns and oppressive restrictions shut
down large parts of the world. Erratic, unpredictable, arbitrary de-
cisions by government bureaucrats made planning even for the
short term nearly impossible. Politicians pushed millions of fami-
lies and businesses off an economic cliff while blaming the pan-
demic.
Government policies also created the unprecedented labor short-
age in the United States, with an employment gap of nearly 5 mil-
lion workers presently. This directly contributes to supply chain
issues. Of course, early in the pandemic, government restrictions
on businesses resulted in mass layoffs as schools in many parts of
the Nation closed their doors for much of the year and many of
those formerly working in the childcare industry left. This made
employment difficult for many parents.
But then compounded with that were generous Federal unem-
ployment bonuses in terms of payout and duration. These payouts
acted as a powerful disincentive to returning to work even as the
economy reopened, especially when combined with multiple Federal
stimulus checks. Many people delayed their return to the workforce
even after benefits ended, instead, choosing to live off the stock-
piled government cash. Private vaccine mandates and the Federal
threatened mandate pushed others out of the labor force.
In short, misguided government policies shrank the number of
people willing or able to work. Now businesses across nearly every
sector in this country are desperate for workers and have expanded
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27
their pay and benefit packages. The number of unfilled jobs re-
mains at record levels. Nearly half of business owners are unable
to fill open positions, more than double the historical average.
Domestic government policies are compounding the global ship-
ping problems in this country. California specifically matters be-
cause California receives nearly half of all containers coming into
the United States. Yet, in the midst of the pandemic and the sup-
ply chain crises, California continued a phase-out of older diesel
trucks.
Furthermore, organized labor in California continues to resist
modernization in favor of inefficient modes of operation and, in
fact, refused to fully expand their hours to alleviate the shipping
backlog. The unions even secured a provision in the bipartisan in-
frastructure package that would prevent any funds from going to-
ward automation.
It should be no surprise that California ports are among the least
efficient on the planet. After sitting up to weeks on boats off the
coast of California, containers of goods can wait weeks longer for
the select few trucks and truckers that California’s environmental
and labor laws actually allow into the State. From there, those
items are transported to California’s border where those goods are
transferred once again to other trucks that can, at last, distribute
those goods to the rest of the country. These restrictions add time
and hassle and back up the supply chain even further, raising the
cost of goods themselves.
Last, while government has hampered the supply of goods and
services, a tsunami of government spending financed by the Fed-
eral Reserve contributed to a rise in demand, including future de-
mand, as households stockpiled income from both wages and gov-
ernment COVID–19 relief checks. The Federal Government has
used the Federal Reserve as a piggybank, selling trillions of dollars
of debt for newly printed money that then floods into the economy,
driving inflation while bribing resources and workers away from
businesses that desperately need them. The Central Bank more
than doubled its balance sheet from just $4 trillion in March 2020
to nearly $9 trillion today as our overall M1 money supply jumped
nearly five-fold, from $4.3 trillion to $21 trillion.
In conclusion, misguided COVID–19 restrictions combined with a
Central Bank-financed government borrowing and spending spree
set in motion the economic turmoil, skyrocketing inflation, and sup-
ply chain havoc that Americans are experiencing. Proposals for yet
more government spending, more labor regulations, and more at-
tacks on energy production, combined with the massive tax hikes
in the latest budget package, risk further shocks. A full recovery,
including a functioning supply chain, requires a full reopening
across the world and an unleashing of our fossil fuel energy re-
sources here at home.
Thank you.
[The prepared statement of Mr. Griffith follows:]
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'Tlie -
Hentage Foundation
CONGRESSIONAL TESTIMONY
The Supply Chain Crisis and the Implications for Small Businesses
Testimony before
U.S. Senate Committee on Small Business and Entrepreneurship
United States Senate
March 30, 2022
Joel Griffith
Research Fellow, Financial Regulations
The Heritage Foundation
Chair Cardin, Ranking Member Paul, Members driven demand contributes to the steepest rise
of the Senate Committee on Small Business and in prices in 40 years-- from the grocery store,
Entrepreneurship. to housing, 10 the gas pump. The supply chain
crisi s has been exacerbated by this.
My name is Joel Griffith. I am a Research adm inistration's "war on energy," including
Fellow in Financial Regulations at The Heritage shuttering pipelines, 1 closing off swathes of the
Foundation. The views J express in this nation to dri ll ing, 2 and even threatening oil
testimony are my own and should not be executives with prison for providing the
construed as representing any official position gasoline American business and fam ilies.
of The Heritage Foundation. depend on.3
Introduction The Biden adm inistration has falsely insisted
these problems are transitory while blaming the
Supply chain issues in conjunction with rising pandemic and scapegoating the businesses.
prices continue to yield empty shelves,
production bottlenecks, and delivery delays.
The mismatch between supply and deficit-
1 o.wid Blackmon, "Why Biden's Kining Of Keystone XL Was An J Katelyn Caralk!, "Vie should put them fn jail!' Joe Biden wants to
Energy Serurity Blunde,;" fC)!'~, March 10, 2022, prosecute fMsil fu~ exerutives fol environ~ntal damage-but
hftps:l{y,ww.f9rbfs.cgm(siJPS{davidbla(li!:m9n/).Q2?/03/)Q/wh','• doesn't mention son Hunter who helped run Ukrc11inic11n natul'al (ta$
bldMi:kdlk'lg:9f-kMJOOO:Xl·wa$·t·bis·<:!1&1£Y· giant," Doily Moil, DecOOlbN30, 2019,
blunder{1sh-=13bObf4fBfd (accessed M a,ch 29, 2022), tmps;llwww.dallymall. co.uk/news/ait icle-7831265{We--)a1l~Bidm-
1 Lisa Friedman, " Biden Administration Halts New Drilling in Legal
wan1s-pr9secute-fossMuel•e~ecutiye$•en..,1f'onment-damau.tum1
Fight ()lfer Climate Cosu," The New York Times, febn.iary 22, 2022, (a«E!$.$-Cd March 29, 2022).
https:/Jwww.nytimes.c:;om(20l1/02/20/climate/c.arbon-bkfen-
dnlling-dimat e.htm1 (accessed Ma,ch 29, 20 22),
214 MaS$.&chvsetu Avenue, NE • W11Shlngton, DC 20002 • (202) 546·4400 • heritage.org
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29
CONGRESSIONAL TESTIMONY
trying to fix the problems4- and now the war government lockdowns shut down large parts.
in Ukraine. s of the world. Companies were forced by
governments to abide by oppressive
ln recent months, prominent media restrictions, driving many out of business.
commentators and various media outlets have Erratic, unpredictable, arbitrary decisions by
taken up this false attack on the very people government bureaucrats made planning even
suffering from the bad decisions being made in for the short-term nearly impossible, Onerous.
Washington. Meanwhile, the administration distancing and capacity restrictions on
refuses to acknowledge the primary culprits: processing plants crippled production.
ill-advised COY ID restrictions here and across
the world that throttled production and Bad government policy set in motion the
shipping, flooded record government spending economic turmoil, skyrocketing inflation, and
financed by the Federal Reserve that stoked supply chain havoc Americans are
demand, and labor force suppression from experiencing, and new government policies.
poorly targeted government transfer payments, continue to worsen the crisis.
shuttered schools, and diminished childcare
options. Exacerbating the problem- As evidenced by the disparate economic
particularly in California--are organized labor perfonnance in states, those that reopened
groups refusing to embrace common sense port society quickly or refused to impose shutdowns.
operations adjustments and a continued slew of from the start enjoyed a much better economic
environmental regulations slashing the number environment. The Federal Reserve State
of available trucks. Coincident Indexes- an approximation of state
GDP- vividly illustrates how variant the
Proposals for yet more government spending, economic recovery is based on states. 7 This
labor regulations such as the PRO Act, harsh index suggests economic output at the end of
environmental regulations on energy 2020 was actually greater than pre-pandemic in
production, and massive tax hikes on eight states which did not endure crushing,
businesses risk further shocks. Artificially long-lasting shutdowns, such as Florida and
stoking demand while crippling production is a South Dakota. This contrasts starkly with states
recipe for both shortages and higher prices. such as Hawaii, Michigan, Rhode Island, and
Massachusetts which remain more than 10%
The primary factor behind the supply chain smaller than pre-pandemic. Overall, by the end
issues are the ill-ad vised COVID restrictions of 2020, the IO states with the fewest
here and abroad.6 restrictions in place 3 averaged 4. 7 percent
unemployment- while the 10 states with the
Contrary to conventional wisdom, the most restr1ct1ons averaged 7. 1 percent
pandemic itself did not 'shut down the world,' unemployment. 9 Los Angeles suffered from
-' In particular, thk Ntw YMk Ti~s pieu laid the blame for the state ' Petet St. Onge, ..Blame Gove<nr'Mnt, Not COVI0-19, for Su ppt;-
of the economy, the tabor shortage, supply chain problems. and Chain Coltapse," The Heritage Foundation, October 18, 1021,
inflation not on irresponsible policy choices in Washington, bl.it at ht1ps:(/www.heritage.org/transpo,tation/commentary/bfame-
the feet of hardworking Americans trying to support their families. governmcnt•nOt•Covid•l9•supply•chain•COlfapsc {accessed March 29,
Neil Irwin, ""\Nho's to Blame for Rising Prices?," The New York rimes. 2022).
1
Noi.iember 16, 2021, federal ReseNe Bank of Philadelphia, State Coincident Indexes,
h1tps:{/www.nytimes.com/2021/11h6/bripfjng{inflation-biden- https:/Jwww.philadelphiafed.01J1/•/ media/frbp/asset;sfsurveys-and-
~ (accessed March 29, 2022). daJilfcOIOdd£Ot/Ce!ncidcOt-r<:Yb:£dJth f_acc~sed M arch 29, 2022).
'Adam Mccann, ,.·s ,a,es with the Fewest Coronavirus R@sttictions,"
sThe Heritage Foundation, Fact-Chec::king the Media's FaI$@ and Wallet.Hub, January 26, 2021, h1tps:(/wallethub.com/edu/slates-
M isleading Claims Blaming Ameriu.ns for Rising Prices, Supply Chain C0r9n0i11irus-rPStrkJionsQ3813 ('1«essed March l9, 2022).
Crisis, Novembe< i s, 2021. bttos·//www Mrita2e O!Ekm»/fact· '1.J.s, t)(>par1ment of labor, Bureau of LaborStati~tics, Local Area
checldng-the-med1as-false-and-mhlead!ng-cla!ms-bfamlng- Unemployment Stat6tiC5 Data Series, December 2020,
americans-.ri1.ing-prices-suppty (accessed March 29 2022).
2
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30
CONGRESSIONAL TESTIMONY
11.1% unemployment and NYC 8.6%- cities about 4.7 million workers-is contributing
where draconian restrictions and an am1y of to supply-chain issues a nd rising prices.11 12
compliance officers continued to push tens of
thousands of businesses out of business. 10 Early in the pandemic, governments forced
Meanwhi le, unemployment in numerous many businesses to shutter completely or
communities in Alabama, Idaho, Iowa, dramatically reduce operations. Many of these
Nebraska, South Dakota, and Utah was close to employees hardly ' elected ' to stop working.
3% or less by the end of 2020. instead, their jobs disappeared due to
governments criminalizing their employment.
Politicians who advocated for shutdowns and Meanwhile, schools in many parts of the nation
pervasive economic restrictions pushed closed their doors for much- if not all-of the
millions of those who are unemployed or academic year or imposed spontaneous,
financiall y underwater off an economic cliff, unpredictable interruptions. This made
while blaming the pandemic for the mi llions employment difficult for many parents. In
slipping " through the cracks." addition, many of those formerly working in
the childcare industry left. Generous federal
Record amounts of government spending unemployment bonuses 13 combined with state
financed bv the Federal Reserve also unemployment benefits resulted in the majority
contribute to the supply chain problem. of unemployed Americans earning more off the
job than on the job- acting as a powerful
While governments hampered the supply of disincentive to returning to work, especially
goods and services, a tsunam i of government when combined with multiple federal stimulus
spending contributed to the rise in demand- checks. This specifically impacted warehouse,
including future demand as households retail, and the hospitality sectors. Private
stockpiled income from both wages and vaccine mandates and a threatened federal
government COVID-19 relief checks. Without mandate pushed others out of the labor force.
a doubt, Federal Reserve policy is contributing ln short, misguided government policies
to the very large burst of inflation. The federal
government has used the Fed as a piggy-back,
" selling" trillions in debt for newly ' printed'
money that then floods into the economy,
driving inflation while bribing resources and
workers away from businesses that desperately
needed them.
The unprecedented labor shortage in the
United States-with an employment ga p of
ht1es·//www bts•soyfweb/Jausl'aumstrk htm '•cussed Mirch 29, Oecember 8, 2.021, httQ5:'/IWWW hfrjtagf grg{igbs;:anl'.J.
2022). labgr/r,;port{what•haPQf"f'ling-t1npr':'<:P.df'fltl:'d-us•lillbQ r•m.ari<':'t.
IOU U.S. Bureau of Labo, Stati~tks, une~ym~t Rate In Los u Rachel Gres2:ler, Joel Gfiffith, E.lilabeth Hanke, Tori Smith, and
Angeles,.long Beach•A~heim, CA (MSA) (lOSA106URN], retrieved Katie Tubb, "Inflation: Policymakers Should Stop Driving It and Start
from F-AEO, Federal Reserve 83nk of St, Louis; fighting It," Special Report No. 252, The Heritage foundiitlon,
tiur,s://fred.st1ovlsfed.org/s("fies/l0SA106URN , (accessed M,1rch Jaooary 20, 2022,
29, 2022). U.S. Bu,eau of Labor StatistjC$, Unemployment Rate in h1tm:{lwww.hetita1e.ont/$ites/defautt/file-s{1022-02/SR2S2.pdf
New Vort-New.ark-Je£$ey City, NY-NJ-PA(MSA) (NEWV636URN], (acce$$ed Marc:h 29, 2027:).
retrieved from FREO, F-edcr.al ReseNe 8ank of St. louis; 11
Rachel Gres:zter. "9 Re:JSOrl$ Why Feder.al Unemployment 8onus
httos·/lfrM gloulsfed orn/sedes/NEWX636URN . (acc@Ss.cd March subsidtCS Need to Go,• The He,ltage Foundcltk>n, J(me 10, 2021,
29, 2022). https·/Jwww.herita@
e.org[,obs-and-1abor/commentarv/9-rmon:s-
11 Rachel Gres:ler, "What Is. Happening in This. Unprecedented U.S. why-federal~u nemg!gvment-bonus.-s.ubs.idies-n eed- gt> (accessed
L.tborMarkct," Herit.age Foundation Backgrounder No, 3677, March 29, 2022).
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31
CONGRESSIONAL TESTIMONY
shrank the number of people willing or able to Federal and slale policies. especially in
work. 14 11 16 California, compounded global shipping
problems.20
As a result of so many dropping out of the labor
market, the availabi lity of workers is incredibly California mailers because it receives nearly
tight. Businesses across nearly every industry half of all containers coming into the United
in the United States are desperate for workers States. Yet, in the midst of the pandemic and
and have expanded their pay and benefit supply chain crisis, Cal ifornia continued a
packages. The number of unfilled jobs remains phase-out of older diesel trucks. Organized
at record levels, with 10.6 million unfilled jobs labor in Cali fornia continued to resist
in November 202 1- more than 1.5 jobs modernization in favor of inefficient modes of
available for each of the 6.9 million operation while refusing to fully expand their
unemployed workers. 17 hours to alleviate the backlog. With such high
labor costs (roughly three times the national
The National Federation of Independent average for pon workers) and the union's
Business (NHB) repons that 48 percent of unwillingness to operate on a 24/7 schedule
business owners were unable 10 fill open simi lar to all other major pons in the world, it
positions in November- more than double the would make sense to increase automation, bur
22 percent historical average. 18 Accordingl y, the union has fought hard against that-
businesses are increasing compensation, and including securing a provision in the bipanisan
therefore thei r costs. According to NHB, 44 infrastructure package 10 prevent any funds
percent of business owners reported raising from going toward automation.2 1
compensation in November (a 48-year record
high}, and 32 percent plan to raise Consequently, in the World Bank efficiency
compensation in the next three months (a rankings,22 the California pons were among the
record high). 19 least efficient on earth- behind even those of
Mombasa, Kenya, and Dar es Salaam,
Tanzania.23
1~ Rachel Greszler, •More Bad Pollc5e-s and Government Spend,ng No11ember 29, 2021, https:(/assets.nfib.com/nfibeorn/2021•Nov•
Will Worsen Labor Shortage," The Heritage Found ation, October 13, Jobs-Report-FINAL.odf (accessed date March 29 2022).
2021 h!Jps'/JWWW hfritHP. 9rg/j9bs,•ancf.labgr/cqQ),npnftry/rn9re:; a Unfilled job openings tot;ill 11.3, mil~on-more t~n 1.8, jo~ for
bad-polidtt:ancJ..eoyernmtnMPf:Odlng-w1ll•worwn-tabo,•$honage f!tlery unemployed wo,li:e<.
jacxes.sed Marth 29, 2022). 20
Rachel Greszler, Joel Griffith, Elluboth Hanke, Ton smith, and
u Rachel Greszler, "Why has employment been so slow to recover?," Katie Tubb, • inflation: Policym;jlkers Should Stop Driving It ~nd Still
The Woshingfon rimes, March 9, 2022, Fighting rt," spedal Report No. 252, The Heritage Foundation,
https:{IWWW.Wf1Shlngt9ntim('!S.99mfnfws/2022/m.ar/9/why•has~ January 20, 2022,
emp&oymet1t-been-so-slow-recover/ (accessed March 29, 2022), https:f/www.heritage.orsfsites/defau1t/f11e;(2022-0 2/SR252.pdf
1~ 5 percent of unvaccinated adults surveyed said they would leave
(accessed Mar, h 29, 2022).
their jobs if their employef"S required them lo get a vaccine or get 11
Erle ~hm, "America's Ports Need M0<e Robols, but the SI
tested weekty. Considering that the unauthorized Occupational Trillion Infrastructure BIii won't Fund Automation," Reason,
Safety and Health Administration (OSHA) mandate would appfy to an November 9, 2021, hHps:{lre<tSon.com/20 21/ll/09/americ-as..-p9rts-
e-$limated84 million wo,ti:.e<s, this could 11:!quire employets to fite- nftd-m9rf:robots·Wl·Ihf: Mrilli9n;infrastructurr:bilJ.wgnJ-fynd;;
and attempt to repbce-upto 4.2 minion worker'$. Liz Hamel e-t :al., po'3•dtJlomatign/ (accessed March 29, 2022).
"KfF-COVID-19 VcKClne Monitor: October 2021;"' Kaiser Famltv 11 "'TheWorfd Bank and IHS Ma riot Containe, Port Performan~
Foundation, Octobe, 28, 2021. httm:l{www kff.01g{c9ron.wirus- Index 2020 Report," Wor1d Bank Group and 1Hl5 Mart.if, (2021),
covid-19/po1Uindin@/kff-covid-19•vaedne-mo nitor~oet.ober-2021 / https:ljihsmarlcit.co m/lnfo/0521/container-port-performanee-index-
!accessed March ?9, 2022). 202Q.h1 ml (ao:es.sed Oe<:ember 16, 2021).
11
News release, "Job Openings. and labor Turnover-November " Liu Baertletn, ..California Ports, K~ to U.S. SupptyChaln, Among
2021," BLS, December 8, 2021, world's Least Efficient, Rank.ln,g shows," Reutets, oetober 20, 2021,
https·f/www,bls g(Mnm ,e,IWt/archivts/tOltS. 01042022-Ddf https·/(www.reuters.com/workl(us/california-ports-key•uS-suppty-
!accessed March 29, 2022). Cbilin.amonB:WOCkh::lfast·rtFtcient~2021·19:20/ (accessed Janua,y
1• NFIB, "Labor Market Challenges Breaks 48-Year Record as Biggest
JO, 2022).
ISsue Impacting Small Businesses," November survey through
4
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32
CONGRESSIONAL TESTIMONY
After sitting up to weeks on boats, containers particular, the Merchant Marine Act of 1920,
of goods can wait weeks longer for the select commonly referred to as the Jones Act,
few trucks and truckers that California's mandates that any goods shipped by water
environmental and labor laws allow into the between two points in the United States must
state, only to be transported to California's be transported on a U.S.-built, U.S.-Oagged
border where the remaining 70 percent of vessel with a crew that is at least 75 percent
trucks in the United States are free to come and American. 25 This law drives up shipping
transfer the goods across the rest of the country. costs 26 on average by 270 percent 27 as this
All th is adds time and hassle, backing up the regulation excludes 99.8 percent of the world's
supply chain further, and raising the costs of shipping capacity from transport between
the goods themselves. 24 states. 2329 The sheer cost of interstate water
transport due to the Jones Act often makes it
Labor costs and bottlenecks could increase more affordable to ship goods from Asia than
further if the Teamsters' Union President between states For example, in October 2021,
James P. Hoffa convinces the Biden millions of pounds of Alaskan seafood were
Administration to change the definition being blocked from coming into the United
of employee so that businesses cannot hire States via Canada due to the Jones Act.30
independent truckers to transport their goods
but must instead make do with the much What can be done:
smaller supply of expensive unionized Congress and the Biden administration should
truckers. get the federal government out of the way by
cutting red tape, by stepping away from
Long-standing government policies that limit massive tax-and-spending legislation that
how goods can be transported have exacerbated seeks to micromanage the economy, and by
port delays, largely occurring at the adjacent saying " no" to unions and activists who want
Ports of Los Angeles and Long Beach. ln to cripple our economy.31
'' Rachel Greuler, "California's "Pre>-Work«' law ts Killing Jobs Left Service, "A 2011 study by- the U.S. Maritime Administration (MARAD)
and Right,,. The Daily Slgnal. Jinuary 8, 2020. found that ln 2010, the average opcr,tlng cos1 of a U.S.•flag ship was
ht1ps:/(www.hetitage.org/jobs-and-labor/commentary/calrfornias- 2.7 times greater than a foreign-flag ship, but MARAD estimates that
pr9-worker-law-killing-iobs-left-anct-risht . this cost differential has since increased."
n Nicola$ loris, 8rian Slattery, and 8,yan Ailey, '"'Sink theJone$ACI: la lnfoMaritlme, "World Merchant r:leet 4nd Top 15 Shipowning
Restoring America's Competitive Advantage In Maritime-Related Countries (2021 •) Data," Aueust, 22, 2021.
Industries," Heritage Foundation Backgrounder No. 2&86, May 22, httw//infomaritime.eu/index.php/2021/08/22/loD-15-Shipowning-
2014, https:/{www.heritage.org/government- coyntries/ (accessed December 13, 2021).
rt"gl.)1.itionfreport/sinl(,ttu~•jones-~«•te'Storlng•:lm(>Cius~
comoetitivt:actvantue-ma,ttime . 29 Colin Grabow, "'The Progressive CMefor Jones Act Reform," Cato
26 Federal Reserve Sank of New York,, "'Report on the Institute, September 7, 2021,
Competitiveness of Puerto Rico's Economy," June 29, 2012, hftps:l{www.0to.9rsh:tudy/progl"es,SM?;;case;igne5-.act-
ht1os·//www nrwvocktcd ora reform#faHOO· \iW (access«t C>ecombcf" 10, 2021). The cost of a U.S.•
/meg;a1ibrary/media/fep:ional/Puert0Ri<:9/repof1.odf (accessed buitl ship is "four to f1Ve times mo,·e costly than those- constructed
December 9, 2021). For exampte, acoording to a Federal Resetve abroad," accor'ding to Colin Grabow, policy analyst at the Cato
Bank of New 'fork repqrt, the cost of shipping a 20-foot cont•iner Institute, and "the s.hlpy~rd:;. that build these ves.sels are s.o
from the East Coast to Puen.o Rico k about double the cost of uncompetitive that few eommerdalshtpS are .M:tualty built."
shipping to nearby klands 1hat are not subject to the Jones Act
30 Editoriat "A Jones A.ct Fish Story, Chapter 2,• Wall Street Jor.,mD/,
27 U.S. Oep,irtment of Tro1nsportation, Maritime Administration, October 3, 2021, hUPidlwww wsl c.om/artidm/a·!onr:hlLt-fish·
Comparison of U.S. and Forelgn•r:lag Operating Costs, September storv:;ch,1 pter-two,.afasl::J-Shlpping•baysicle-c:an:1da--J 1(;33030744
2011, https:/(www (accessed oetember 7, 2021).
. maritime.dot .gov/sites/marad.dot .gov/files/docs{resources/3651 /c
omparisonofu.sandforPignflagqpE'fatlngcosts.pdf (ac,;es.sed January 31 Peter St Onge, ''Why Siden's lnfra!>tru,tu.-c Bill Will Likely
10, 2022), quoted ln John Frittet1l ""Shipping Under the Jones Act: Only Worsen Supply 01ain Crisis."The Hcrit;:1ge ~oundotion,
Legislative and Regulatory Bad:,ground," Congressional Research November 17, 2021 hww//www b1'Civlf'I' oa•/hnds:cr-smd-
Service Report for Congress, updated November 21, 2019, snrndlnr/cnmmcnmrv/whv·bldrns·lnfrastmrn1re·hl!l·wlll·
https:/Jcrsr("r,ort;J,.CQngrPSs.g9v/product/pdf/R/R4S7'S (accessed Hkc!y-only-worS1'n-supply·rh=iin (accessed March 29, 2022).
December 9, 2021). A«:ordMlg to the-Congressional Research
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33
CONGRESSIONAL TESTIMONY
• Remove welfare work disincentives
• Acknowledge the misguided nature of such as monthly child payments
the COVID- l 9 restrictions enacted by detached from work. End COVID-19
national, state, and local governments benefits policies that discourage work
against people freely creating, working, by the able-bodied.
shopping, and engaging. • Eliminate Section 232 tariffs on steel
• Repeal the Jones Act. The Jones Act and aluminum imports. Eliminate
drives up shipping costs, makes it more tariffs on manufactured goods imports
difficult to transport goods that are including cars, trucks, and parts.
important to the food sector, and Eliminate Section 301 tariffs and
impedes access to affordable domestic antidumping and countervailing duties
energy. This is particularly noticeable on chassis so truckers can raise
in states such as California, where very capacity.
limited pipeline infrastructure means
California's gasoline must be
transported from refineries to demand A full recovery-including a functioning
centers by way of expensive and supply chain-- requires a full reopening across
artificially scarce ships and crews. the world and an unleashing of our fossil fuel
energy resources here at home--a stark
• Do not force workers into unions.
contrast to printing more fiat currency,
Enable more flexible contract work by
government borrowing, and government
using a common law basis for
spending programs.
independent contractor status. Abandon
legislation and regulations that restrict
work such as California's AB5 law and
the similar federal PRO Act.
*******************
TI1c Heritage Foundation is a public policy, research, and educational organization recognized as exempt under
section 50l(c)(3) of the Internal Revenue Code. It is privately supported and receives no funds from any government
at any level, nor does it pcrfonn any goven1ment or other contract work.
The Heritage Foundation is the most broadly supported think tank in the United States. During 2017, it had
hundreds of thousands of individual, foundation, and corporate supporters representing every state in the U.S. Its
2017 income came from the following sources:
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Foundations 9%
Corporations 4%
Program revenue and other income 16%
The top five corporate givers provided The Heritage Foundation with 3.0% of its 2017 income. The Heritage
Foundation's books arc audited annually by the national accounting firm of RSM US, LLP.
Members of The Heritage Foundation staff testify as individuals discussing their ow11 independent research. The
views expressed are their own mid do not reflect an institutional position for The Heritage Foundation or its board
of tmstees.
6
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Chairman CARDIN. Mr. Griffith, thank you for your testimony.
I thank all four of you for your testimony.
We will now go to five minute rounds. First, I really appreciate
Ms. Kumar and Mr. Lam, two restauranteurs, one using the gov-
ernment programs, the other not using the government programs,
both coming together at this hearing, raising the issue of supply
chain. I think that is helpful for us to have that.
I want to just go back to the beginning of the COVID–19, when
we got together particularly on this Committee under, at that time,
Chairman Rubio—we had Senator Collins and Senator Shaheen
and myself—in order to try to deal with the fact that small busi-
nesses are the growth engine of America. We need to keep them
going during a pandemic. We know they do not have the resiliency.
What can we do in order to keep small businesses afloat, to keep
our economy from going into a deep recession?
And we came together with near unanimous actions in the House
and Senate, signed by President Trump and later by President
Biden. The centerpiece of that was the Paycheck Protection Pro-
gram. The purpose of that was, pretty simply, to keep employees
employed by small businesses, which have a challenge finding
workers under any scenario, but if they were to lay off their work-
ers they would collect unemployment insurance. It did not seem to
make a lot of sense. Let us try to keep it going so we can keep the
small businesses going. And it was successful.
We then expanded the EIDL program, the Economic Injury Dis-
aster Loan program, because we knew there would be a great need
for low-interest loans, and it was widely used for the very smallest
of the small businesses, a very modest grant up to $10,000.
And then later we added specific sector relief for those industries
that were basically ordered to be closed by government, restaurants
being a prime example.
Now, quite frankly, we did not envision that every small business
would need this help. So, Mr. Lam, I applaud you for making your
decision. I do not know a lot about your business, but in the res-
taurant field, if it is a business that can do a robust carryout, it
can do very well during a pandemic when people are eating at
home.
So we could not define that in the legislation we adopted. Other-
wise, we would have hamstrung its use. But if you are a restaurant
that is in an area where there is not a lot of opportunities for out-
door dining and you really have to be in a confined space, you were
out of luck.
So we did expect small business owners to exercise discretion.
We were very disappointed by some small businesses that chose to
use the PPP program that did not really have an economic need.
So the bottom line was the program, in its totality, worked. Why
do I say that? Because our economy got through the worst of the
pandemic without going through a major recession.
And we have problems today. You identified them, and I agree.
High prices.
So I want ask both of you because you both seem to agree on the
need on the supply chain challenges. It seems to me that it is not
only a price issue. It is also an availability issue so that you can
carry out what your restaurant is famous for and be able to use
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35
a product. So tell us just how deep is this problem today and what
type of relief do you need in order to be able to do your business
in regards to having a reliable supply of reasonably priced or com-
petitively priced products?
I will start with Ms. Kumar.
Ms. KUMAR. Thank you for that. You know, for me, like I said,
I am pretty used to pivoting and finding different suppliers for dif-
ferent things because we work so closely with farmers, but one
thing I cannot get from farmers is fryer oil. I used to pay $35 a
box for non-GMO canola oil because, you know, we like the
healthier option. I have paid up to $120 for the same box of fryer
oil, and now it has sort of settled at $85, if it is available. I have
had to go from canola to sunflower to mixed blends and what not.
You know, I cannot operate a restaurant without oil. We have to
cook with oil. So you know, that is an example of something that
I cannot really come up with a creative solution for. I just have to
sustain the increase in price, and if it was not for the restaurant
grant I would not have been able to do that. And before that, the
PPP I utilized for keeping my staff employed and being able to, you
know, pay them fair wages.
So it is a combination of things, I think. You know, there is not
one single solution.
A restaurant like mine is a fine dining establishment, and take-
out is not something that we normally relied on. That is just not
our business model. So you know, not all restaurants are created
the same, and we all have different needs and strengths and abili-
ties to pivot. But there is a blanket consistent problem, I think,
that we are all facing, and I think you know, economic injury is not
the same across the board.
But for those restaurants that qualify for the grant are res-
taurants that suffered a lot of loss, and that is something that you
do have to prove before you qualify for it. So you know, it is great
that somebody Mr. Lam is able to operate at a profit in June or
July 2020, but that was not the case for us and for hundreds of
thousands of other restaurants in this country.
Chairman CARDIN. Mr. Lam?
Mr. LAM. How do I say this? I am not insensitive to the struggles
of restaurants. My family has had 17. I have had—we have had 6
successes, 11 failures. When I say failures, I mean we sold the res-
taurant at a loss. There was a recession. My stepfather actually
had to declare bankruptcy. We owed so many people so much
money.
I know what desperation feels like. I know what it tastes like.
I have never forgotten that.
But I am sure that Ms. Kumar and her family, much as the same
as my family, we came here because America promised a fair shot.
We started our businesses, I am guessing, for the reason, the pur-
suit of happiness, one of our inalienable rights. It did not promise
us success. That is upon us.
Now I understand that the issues we face today are largely out
of our control. So if you are asking me, what can the government
do, fix the supply chain issue.
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36
I understand what she says when she means that oil has gone
up. I am seeing the exact same prices. She is not lying. It is just
very difficult to deal with these kinds of price hikes.
So as I said in my testimony, I am perfectly capable of failing
and succeeding and taking care of my business on my own however
I see fit, but the government can help me by stabilizing these
prices. That is how it can help.
Chairman CARDIN. Thank you. I want to try to keep to the five
minutes so every member can have a chance before we have to ad-
journ at 3:00.
Senator Paul.
Senator PAUL. Jason, thank you for your testimony. I am amazed
by your story and your work ethic. We have a country right now
where 38 percent of the people who can work choose not to work.
So it is great to hear, you know, how hard you have worked in all
facets of the restaurant business and how, you know, you really be-
lieve in the American Dream.
I understand you have a couple of guests here. I wonder if you
would like to introduce your guests.
Mr. LAM. Yes. It is my daughter and my son right behind me,
Paige [phonetic] and Colin [phonetic]. They are in high school and
middle school.
Senator PAUL. And I guess I had one general question. How did
you get your work ethic? Did it just happen? Were you born that
way? Did you get it from your parents?
Mr. LAM. Grandparents, uncles, and parents, my family.
Senator PAUL. Do you think it is important that kids work?
Mr. LAM. Oh, I put them to work in my restaurant. Oh, trust me,
I am teaching them how to pack orders and wash dishes.
Senator PAUL. Good. I think the commonality—and I think, you
know, I said in my statement, you know, this is nature or nurture.
Is this just some sort of accident that sort of happened? You hear
from people, and they say, oh, the supply chain. It is just like it
mysteriously came out of nowhere, or COVID caused it. No. It was
our reaction to it.
You know, in the beginning, it was that we would not let you
open up. So you did better with takeout than your counterpart, but
government forced her to lose business because government closed
her down.
We should be asking the question whether or not any of the
things we did, the so-called mitigation, putting stickers on the
floor—can you imagine the millions of dollars we spent on these
idiotic stickers? Did we save anybody’s lives? Did we change the
course of the disease? A million people died with what we did. I am
not positive any of these things changed the course of the disease
at all other than immunity. We now have immunity. Ninety-five
percent of us have immunity from either the vaccine or having had
the disease.
But we need to know what the cause of this was. Otherwise, we
are going to do this again. We are going to get another flu. We are
going to get another pandemic. We are going to get another maybe
worse virus the next time.
But when you describe the rising prices, they are twofold. Either
your supplier is under quarantine from the government, shutting
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37
your supplier down, reducing the supply to elevate the price, or it
is part of generalized inflation.
But it is also part of this bigger thing, something for nothing.
People think, oh, well, there is no penalty to the PPP program. Ev-
erybody got lots of money. We kept everybody open. Or, everybody
got unemployment checks. Well, the penalty is this; it destroys
work ethic in people. But also, we are finding the penalty now is
generalized inflation, and that is part of your problem in trying to
figure out.
And you are right. It is beyond your control, but it is making
your job, which is already a difficult job, predicting and running a
restaurant, so much more difficult.
So I understand this, but I am not sure everybody does. And
there is not agreement yet on both sides of the aisle what causes
inflation. Basically, deficit spending, printing up the money, now
the money is worth less. And that is what we have is this general-
ized inflation.
They said it was going to be transitory, and yet the Federal Re-
serve Chairman, yesterday, said transitory is now three years. I
predict it is going to get worse before it gets better.
But it comes from the notion of something for nothing, which
gets back to the whole idea of work ethic. So while I am incredibly
proud of your work ethic, we need to be proud of the idea and un-
derstand the idea that there is no free lunch. There is nothing for
free really. And when we offer people things for free, ultimately
there is a penalty, and that is the penalty we are paying now.
Mr. Griffith, I think it is perplexing to people when they look on
TV, even to myself. You look on TV, and you see just the ships
lined up off the coast of Long Beach and Los Angeles. One thing
that you mentioned and others have mentioned—and I did not real-
ly realize this, but if you could go into any more detail—is that I
guess most ports in the world work 24 hours a day. They have shift
work.
My brother grew up doing shift work at Dow Chemical. All the
plants, I thought, did shift work. You do not have to work 24 hours.
You work shifts, either of 8 or 12 hours, and then someone else
comes on. It is not like inhumane, but it is the way we get things
done.
But tell us a little bit more about what goes on in Long Beach,
why there is not 24-hour—you know, why they have not adapted,
you know, to all those ships sitting out there. How could we pos-
sibly just look at all those ships and leave them there?
Mr. GRIFFITH. Thank you, Senator Paul. One interesting data
point coming out of the past year is the year-over-year number of
containers coming in to Long Beach-Los Angeles were virtually un-
changed, and yet this backlog continued. And this was twofold. A
lot of these social distancing restrictions, capacity restrictions, actu-
ally were perpetuated both in Long Beach and also in New Jersey.
They refused to lift those in a timely manner. And instead of going
ahead and expanding those operations to the 7 days a week and
24 hours a day, the unions there, the organized labor bosses, were
incredibly resistant to going ahead and expanding those hours to
actually alleviate the problem.
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38
And then when we saw the infrastructure package that passed
in a bipartisan fashion in Congress, some of those resources could
have gone to helping them modernize and become more efficient,
and the union groups balked again. And that is a big part of the
reason why that backlog continues now off the coast of California.
Senator PAUL. Thank you.
I guess I am in charge now. Senator Shaheen.
Senator SHAHEEN [presiding]. No. Actually, Senator Cardin
asked me if I would take over while he went and voted, but I want
to thank all of our witnesses for being here.
And, Dr. Kota, I would like to begin with you because you said
I thought very persuasively in your opening remarks about the im-
portance of the role of government to help invest in innovation, to
help encourage innovation, that we need if we are going to be suc-
cessful with manufacturing and technological development.
One of the programs that I think has been very important in en-
couraging innovation is the SBIR/STTR program, and I understand
your firm received the Tibbetts Awards in 2015 through the SBIR
program. Can you talk about what you were able to do as the re-
sult of getting that SBIR grant that you might not have been able
to do without that kind of support?
Mr. KOTA. Yes. Thank you, Senator. So we have this firm it is
more than 20 years now old—and this technology we developed for
morphing aircraft wings in flight because it has been known for a
long time to save fuel but also reduce noise, and there are many
other benefits. But stuff like that, you know, the private sector
businesses do not fund because it takes many years of building and
testing prototypes and all. So none of that would have happened
had it been not for SBIR.
It started as a phase one SBIR contract, and that led to several
successes where thanks to U.S. Air Force, SBIR program, and be-
yond, that were able to demonstrate it on actual flight tests and
now we are implementing on military aircraft, which is all a good
thing. So none of that would have happened without the SBIR pro-
gram.
I had a few other SBIRs as well through other agencies. So I
think that is one of the really good tools in or tool box, SBIR pro-
gram, and I hope you all strengthen that program in many ways.
And I testified earlier on ways we could—I had several years of ex-
perience working on SBIR programs with various agencies. So I
certainly hope that you continue to strengthen it, and I can elabo-
rate more on ways we can strengthen it.
Senator SHAHEEN. Well, before I ask you to do that, as you know,
you are probably aware that those programs are going to expire in
September of this year, and so that would—if we do not reauthor-
ize them, that would eliminate that support that encourages the
kind of innovation that you are talking about. Do you have
thoughts about what we could do to strengthen the program?
Mr. KOTA. First of all, I hope it will continue to grow.
Senator SHAHEEN. Me, too.
Mr. KOTA. I do not know the details about any of that, but I hope
it continues to grow. And there are ways we can strengthen it in
terms of—you know, I do not want to get too much into the weeds,
but you know, even—you know, with startup entrepreneurs, they
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have different sets of needs. It is not the tax breaks they need. It
is actually having some funding to file patents, so the patent ex-
penses should be included, on one hand.
On the other hand, the other one is the different agencies have
different ways of running this program. Some do much better than
others. There is a way——
Senator SHAHEEN. Yes, that is absolutely correct.
Mr. KOTA. And there is definitely a way we can, you know, make
it uniform and minimize, make it like a 1040EZ for an SBIR form,
so to speak.
And the other thing you could do is actually if you think—if you
go back and look at the data about how many SBIR phase twos
that were successful and did not go anywhere because there was
no follow-on funding. There is a phase three program. It has its
own challenges.
But having said, there are ways to make sure that we just do not
drop the ball. We need to have a strategy what to do with our own
good ideas so that ideas turn into products made in this country.
So there are other programs like the Rapid Innovation Fund in De-
partment of Defense as an example. Those are the kinds of things
we need to put in place so then we know how to take a success and
take it to the next step. That is something that we need to connect
the dots.
Senator SHAHEEN. Thank you.
Ms. Kumar, you talked about the importance of the Restaurant
Revitalization Fund, which I am a big supporter of and hope that
we can get that funded in a way that we address the applications
that are still in the queue. But obviously, there are long-term chal-
lenges that restaurants and the hospitality industry face that are
not going to be addressed just by that program.
As you talked about adapting to address the changing markets
and to respond to COVID, are there other things, other lessons that
you learned, that you think are translatable to other restaurants
and small businesses that we should be taking away from what we
have just experienced?
Ms. KUMAR. Absolutely. I think restaurants like mine have tried
so many different things over the pandemic, and we have walked
away with a lot of lessons. One is, you know, how to pay our em-
ployees more, how to make sure that they not only have an entry-
level job but they can stay with us and build a career, a very re-
spectable and well-paying career in hospitality.
But more so, there was a period in the beginning of the pandemic
where we were able to, you know, participate in feeding the hun-
gry, and there were grants available to do packaged meals for folks
in need, children who were not in school and needed school
lunches.
And there are continuing to be more programs that are devel-
oping out of former nonprofits that would just do sort of a little bit
more elitist fundraising for hunger causes but now are figuring out
ways that—you know, lessons that we learned during the pandemic
of how to bridge the gap between, you know, a restaurant that has
to charge a certain price point to serve its guests but then also be
able to keep people, give them more hours, give our staff more
hours, but—and also feed people who are food-insecure, which un-
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fortunately is a very high number, especially among children in
North Carolina.
So those items in particular are very inspiring to me, and I think
that there are very real ways that we can push our industry for-
ward and take care of our staff and take care of our communities,
which is something that I think our industry has always been very
proud to do.
Senator SHAHEEN. Thank you very much.
Senator Rubio.
Senator RUBIO. Thank you. Thank you all for coming in today.
Let me start with Dr. Kota. It is great to see you again. You were
here with us in 2019 for a reauthorization hearing.
And you know, there was a recent study of 150 MIT manufac-
turing startups over the past decade, and it found that 70 percent
of them scaled in China and none of them in the United States. I
guess my question is—you know, I think you have alluded to this
already—how common is it to see offshoring or international trans-
fer of a product or IP that is developed using U.S. taxpayer funds?
Mr. KOTA. It is over many, many years I have seen that happen.
I am not talking about the intellectual property theft part. That is
a big issue to be addressed. That is leaving that aside.
Willingly giving our IP—unwillingly giving away our IP to other
countries, particularly to China. Why China? Because what hap-
pens is when you even look at comments about SBIR you have—
the typical scenario is a professor or a company spends like 5, 10
years working on a program with one of the Federal agencies, gets
10, 15, 20 million dollars in funding, and does the research, and
then finally a little nugget of a great idea that comes out that is
worthwhile scaling that has a promising future. Then once you do
that, that agency, that particular program, they have nothing to do
with it. You are done with it. You are on your own, and there is
nowhere to go to.
So there is no—innovation is about—you know, it is like what do
you call it? The relay race. You hand the baton to the next and
take it all the way.
So what happens is many people I personally know and heard
stories of and read about, they get frustrated. There is no way to
know. Here is a great idea. It is already tested. Now what do we
do? I need some money to scale it and test it in a wind tunnel or
whatever.
This is when the phone rings, at least the phone used to ring,
or an e-mail comes from China, particularly because they are doing
everything they can to do what is good for them. And so they offer
all kinds of incentives for you to go there. So there are lots of re-
searchers being tapped in that way. The technology that we spent
millions of dollars developing goes over there, the best ideas, and
that is where the scaling is done.
And the MIT is a great—that 150 manufacturing startup study,
that is a great example. It happens all the time.
Senator RUBIO. Mr. Lam, I wanted to ask you because your story
in particular is one I think resonates with a lot of people. If you
could just describe both—on the labor shortage side, what is it that
people say, or what is the rationale people use, or what is your sort
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of real-life understanding of why it has been so hard to get people
to come into the labor force and do this job?
And secondly, and more important I think to this overall discus-
sion, is when product—when the prices of your supplies and/or
labor go up, I am not sure people fully appreciate that at some
point the numbers have to work. You cannot charge less for some-
thing than what it takes for you to bring it. You cannot do it at
cost. You have got to make some profit, or you will not be a busi-
ness for long.
If you could describe the mechanics of the labor shortage, why
you think people are not working or what they say, and the second
piece is what happens when the price of labor and the products
goes up, how you have to price that through to the extent you can.
Mr. LAM. So from just personal experience, on the onset of pan-
demic, obviously everyone started getting unemployment checks,
and then I tried—after we opened back up for dine-in around mid-
October, I called everyone back as part of my duty to extend and
invite them back to get their jobs. I never said they were laid off.
I never said they were fired. At any opportunity, they could come
back, at any time. And resoundingly, my staff all said, ‘‘No, because
I was getting paid more to sit at home collecting my unemployment
check than I would be coming into work.’’ That is separate.
So now I am still hiring. I am still short-staffed. I still need peo-
ple, front of house mostly—servers, busboys, hostesses, whatever.
And I am willing to pay anywhere from 15 to 20 dollars an hour.
And these kids and these people are saying, increasingly, ‘‘No. I ac-
tually do not want to do that. I actually want to like work in the
kitchen. I do not want face-to-face interaction with people. I just
want to work in the kitchen,’’ which makes no sense to me.
I am willing to give you a job paying you good money, and you
can become a manager. You can become just—you have to start at
the bottom, and I am willing to give you an opportunity to do so.
They do not want it, and no one is really applying for it. No one
is really interested in doing that.
Second part, the supply and the inventory. You are right. I have
had to increase my prices, like I said in my opening testimony,
three times in the past six months alone.
Part of the reason why I think the EIDL and these grants and
programs is a bad idea is because I have my invoices. I have all
of them here. I can show you real, tangible numbers of how much
money I am paying.
As Ms. Kumar alluded to earlier, oil has gone up like crazy, and
chicken, vegetables, very, very simple items, which in and of itself
is innocuous when you see price increases like this.
But when I am selling one plate of chicken teriyaki, let us say,
the chicken has gone up. The bell peppers has gone up. The mush-
rooms in it has gone up. The onions has gone up. The box I am
putting it in has gone up. The bag that I am putting the box in
has gone up. The price that I have to pay for the online services
I have to pay for has gone up. The propane has gone up. Every-
thing. The pay that I have to pay my employees has gone up.
I cannot continue to sell this one plate of chicken teriyaki for the
exact same price as I did in 2019. It used to be $12.50. I am selling
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it for $15 now. That price is reflective of what I have to deal with
and the supply chain issues that I see on a day-to-day basis.
Now, the programs. Let us say I can get $10,000 from this EIDL
program. You can do the math on these invoices. That $10,000 is
going to last me exactly one month. Let us say I get $100,000.
Great. I can skimp along for another 10 months.
What I need, what restaurants across the board need, is more
stability and going back to the prices that it was in 2019, 2018,
where it was actually affordable and competitive to be able to do
business.
I am not an economics professor or a fellow or a student, but I
think the way it works is that prices go up, you charge people
more, and it is just an ever growing fire that feeds on itself and
makes it worse.
Ms. KUMAR. Can I add something to that real quick?
Chairman CARDIN [presiding]. I am afraid I cannot because we
are running short on time because of a briefing we have on
Ukraine. So let me give Senator Hirono a chance.
Senator HIRONO. Thank you very much. I was sitting here listen-
ing to all of you testifying, and thank you very much for being
here. What I do understand is that this is not a simple situation
because for a long time manufacturing in our country was
outsourced to other countries providing cheap labor. Isn’t that a
true statement, Mr. Kota or Professor?
Mr. KOTA. Yes.
Senator HIRONO. And I emphasize the words ‘‘cheap labor.’’ We
in our country, in America, got used to getting our goods cheaper
because it was made through cheap labor in other countries, and
now that we are all focused on making it in America we are not
necessarily willing to pay the prices that we need to pay. And you
cannot blame workers because why should we exploit cheap labor
in order to get cheap goods. I do not think that is where I want
our country to be.
So I do not know how—Mr. Lam, you said you would like things
to be the way it used to be, where costs were lower, et cetera, but
I do not know how you achieve that really.
Dr. Kota, I am sorry. Are you ‘‘Dr. Kota’’ or ‘‘Mr. Kota’’?
Mr. KOTA. Mr. Kota is good enough.
Senator HIRONO. So how do we get back to that? Is that really
not where we are heading, that we are going to go back to some
kind of situation where we continue to basically use cheap labor in
other countries to get us the goods that we need? Is that what we
are needing to do?
Mr. KOTA. No, not—no. It started out that way back in the late
1970s and early 1980s, but the point is we are no longer going to
China necessarily for cheap labor. China is well past that.
On the other hand, think about countries like Germany, Japan,
and South Korea. They have a very strong advanced manufacturing
and a very strong manufacturing innovation ecosystem. Wages in
Germany are 40, at least 40, percent higher than here. In Japan
and South Korea, they have high wages. They have higher taxes.
Their energy costs are significantly higher. Their regulations are
just as strict.
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And their automation is significant, three to six times more auto-
mated than we are here, and yet, they have a strong manufac-
turing base because their private sector companies have longer-
term goals. They have—they care about stakeholders, not just
shareholders.
In fact, they are investing here in, our manufacturing facilities
in this country. You know, from Siemens to Toyota, they have been
around for a long time, and Honda and other companies, BMW.
They are investing here, and we are rushing over there to other
countries.
So I think it has to do with two things. One is our large corpora-
tions have, you know, these quarterly shareholder profits that have
taken over for 40 years, and that seems to be working just fine for
them, and I do not think it will change. COVID–19 or something
else, that is not going to change it. They are going to go to a dif-
ferent country now.
But we need to think about how to build our capacity to inno-
vate, and that means we need to invest in small manufacturers, I
say, because when we invest in small manufacturers then the big
guys will come.
Senator HIRONO. I think you noted in your testimony how we can
encourage the small- and medium-size manufacturers through
grant programs and you laid out an array of suggestions based on
some of the discussions that you have been having across the coun-
try with small manufacturers as to what would meet their needs,
and I think that those are some suggestions that we should incor-
porate.
And recently, the President announced a new Manufacturing Of-
fice at SBA. I think you noted that that program could really facili-
tate the support for medium and small manufacturers. Can you ex-
pound a little bit how you think that an entity like this could pro-
vide the kind of support that we are talking about?
Mr. KOTA. Absolutely. I think that is a very encouraging sign, to
have this, because SBA has focused mostly and broadly on busi-
nesses at large, not so much manufacturing. But now with the
Manufacturing Office, it is very encouraging.
How they can support is, again, connecting the dots and looking
at what—you know, we are investing so much in other agencies,
and they are investing in so many technologies. What happens is
just like I described before. When the technology is proven, then
there is nowhere to go. This is where, instead of nowhere to go
after the technology is proven, SBA can play a critical role in
leveraging other technologies developed by other agencies and then
nurturing the technology and then putting the pieces together so
that we can do at least pilot production, start the pilot production
here, so they can work with it, whether it is a new Technology Di-
rectorate at NSF or even existing offices, existing Federal agencies.
So, yes, we need that. I was talking about having a coach, having
somebody, you know, looking across and connecting the dots. And
I think that would be a very—it would be very, very it will have
a great multiplier effect in terms of what SBA can do in that way.
Senator HIRONO. If I could mention, Mr. Chairman, you obvi-
ously have a familiarity with SBA programs that are successful.
Yes?
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Mr. KOTA. Yes, yes, I am very familiar with the SBIR program.
Senator HIRONO. Yes.
Mr. KOTA. Because of personal experience for over 25 years.
Senator HIRONO. STTR/SBIR, I very much support.
I was going to ask, Mr. Chairman, if he could provide us a list
of those programs. I do acknowledge that you say that a lot of
these programs are in their silos. They need to be talking to each
other, but—you know, it would be—I would like to know which of
the SBA programs actually help small businesses and manufactur-
ers, if you could maybe help us with a list so we can continue to
provide support for these programs that actually work.
Thank you, Mr. Chairman.
Chairman CARDIN. Senator Hirono, thank you. I know Senator
Shaheen also asked about the SBIR/STTR programs. We have a
challenge because they have to be reauthorized, so we have a time
problem getting that done. The Administration is aware of that. So
we are going to be working on that this year to make sure that pro-
gram is extended.
Ms. Kumar, you wanted to respond?
Ms. KUMAR. Well, Ms. Hirono kind of touched on it. I was going
to say that, you know, supply chain issues and pricing is not just
a domestic issue. We rely so heavily on the global market for even
food and canola oil and things like that. So it is not just something
that the government can just magically fix when, you know, China
is in lockdown and different countries have different waves at dif-
ferent times. It is a complicated issue, and it is not something that
anybody can wave a magic wand over.
Chairman CARDIN. You are exactly right. The supply chain chal-
lenges could be eased considerably if we had domestic source, and
manufacturing is a good example. How do we preserve manufac-
turing for supply chain and technology and innovation and job
growth in America? And to me, the key there is what do we do en-
courage small manufacturing companies because that is where the
growth will take place.
But the entire supply chain, really much depends upon domestic
sourcing as much as possible so that we are not subject to inter-
national interruptions, whether it is because of autocratic govern-
ments, because of war, because of transportation issues, energy
issues, et cetera. So we have a bill that has passed both the House
and Senate—it is now heading toward conference—the Competition
Bill that deals with a lot of these supply chain challenges but more
on the larger scenes.
We have to make sure that we have supply chains so your res-
taurants can get a predictable—I like, Mr. Lam, when you said pre-
dictability. That is a critically important part of your business, to
know how you can plan your business for the next year, let alone
your challenge whether you do it for the next week right now be-
cause of the changes. How do you invest in decisionmaking if you
do not know what the supply chain is going to be and the pricing
of that is going to be?
So the more we can do this domestically, the more we can protect
our own sources, the better off we are going to be.
Dr. Kota, I think your comments are right on target about manu-
facturing and incentives for smaller companies.
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Several of our colleagues were here, but because of the briefing
that I mentioned earlier for all Senators on Ukraine they had to
leave. I know Senator Risch is going to be asking some questions
for the record. I saw that we had Senator Hickenlooper here; Sen-
ator Ernst was here. I believe Senator Hawley was here by WebEx.
So we have had other members that have been here, but unfortu-
nately could not stay because of the briefing.
Let me thank you all for your testimony. The record will stay
open for two weeks, and if members have questions we would ask
that you try to respond in a prompt way.
With that, with the Committee thanks, the Committee will stand
adjourned.
[Whereupon, at 3:04 p.m., the Committee was adjourned.]
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APPENDIX MATERIAL SUBMITTED
(47)
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CA10
March 29, 2022
The Honorable Ben Cardin The Honorable Rand Paul
Chair Ranking Member
Committee on Small Business Committee on Small Business
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
Dear Chair Cardin, Ranking Member Paul, and Members of the Committee:
My name is Scott Lincicome. I'm the Director of General Economics and Trade at the Cato
Institute, where my research has recently focused on manufacturing, industrial policy, and
global supply chains. I am pleased you are holding a hearing on March 30, 2022, titled "The
Supply Chain Crisis and the Imp lications for Small Businesses." Through this letter, I hope
to offer a contrasting view on American supply cha ins and economic resilience - one that I
hope w ill inform your consideration of this hearing's important topics. Importantly, I
should note that the Cato Institute and its scholars do not e ndo rse, oppose, or otherwise
lobby on behalf of ( or in opposition to) specific legislation. My comments are thus intended
to be for educational purposes only.
Accompanying my written testimony are three recent studies that I have authored on the
state of American manufacturing and its nexus with national security; on pandemic-related
supply chain issues; and on the history of industrial policy, here and abroad.1 Summarizing
this research in a few short minutes would of course be impossible, so I instead want to
leave you with several core themes that carry across my work and are relevant to this
committee's deliberations:
First, much of the recent supply chain problems stem from simply the economic
effects of a n unpredictable, once-in-a-lifetime global pande mic, which scrambled the
typically predictable global supply-and-demand patterns on which complex production and
logistics networks have long been based. As the United States reopened last summer, for
example, demand for imported industrial inputs and consumer goods skyrocketed, but
many major exporting countries, especially in Asia, were still mostly closed-down. Muted
consumer demand from these same countries also dented their typical purchases of U.S.
products, such as farm goods. The result was a major imbalance in the usual shipping
container flows to and from the U.S. This was then amplified by temporary closures at
specific ports and factories because of isolated COVID-19 outbreaks.
Another serious mismatch has arisen between total available shipping capacity and
abnormally high worldwide demand. Some of that demand is the natural result ofpost-
COVID reopenings, as vaccinated consumers make up lost time and companies restock
1
https://www.cato.org/publications/policy-analysis/manufactured-crisis-deindustrialization-free-markets-
national·security: https:f/www.cato.org/pandemics•policy/pandemic•does-not-demand•government-
micromanagement-global-supply-chains; https://www.cato.org/white-paper/questioning•industrial..policy.
Cato Institute • 1000 Massachusetts Ave., N.W. • Washington, D.C. 20001 • (202) 842-0200
Fax: (202) 842-3490 • www.cato.org
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depleted inventories, aided by Americans' increasing comfort with e-commerce. However,
some of the mismatch is likely owed to psychology: Just as consumer hoarding of toilet
paper and other essentials emptied store shelves last year, now, economic uncertainty and
a fear of running out have pushed retailers and other large importers into stockpiling and
panic-buying.
This created a self-fulfilling "bullwhip effect" that pushed others to do the same. Lean, "just-
in-time" inventory management was replaced by a "just-in-case" approach that saw some
buyers, especially in the U.S., double or even triple their inventory levels. Shipping capacity
just can't keep up: Logistics firm Flexport estimates, for example, that global demand for
ocean cargo space last Fall was 20 to 30 percentage points higher than available capacity,
even though ocean carriers have deployed every ship they have, including ones "not even
designed to carry containers."
The pandemic's supply-demand imbalances then spilled into the United States's logistics
infrastructure, creating bottlenecks that have exacerbated the original problem. This starts
with the ports: As Flexport noted in June, effective ocean freight capacity was 25% lower
than what was technically deployed "because so many vessels are caught up in record
bottlenecks at ports." The situation deteriorated further over the summer, with record
numbers of waiting ships at the ports of Los Angeles/Long Beach, Oakland, New York/New
Jersey, Savannah, and Charleston. The worst of it, however, has been reserved for the
LA/Long Beach port complex, which is the busiest port in the U.S., handling around 40% of
total cargo volumes each year. Ships there were even forced to take the unprecedented step
of just drifting offshore because all port space and contingency anchorages were filled.
Many speculate that these ships' anchors caused the recent oil spill off the California coast.
Other chokepoints and simple coordination problems have added to U.S. port woes.
Shipping containers, for example, have been stacked up at port, thus preventing additional
boxes from being quickly unloaded. This is because there is insufficient truck and freight
rail service available to pick them all up. Those backlogs, in turn, are reportedly due to a
shortage ofintermodal chassis - what shipping containers sit on when trucks move them
across the country - and warehouse space. Without a nearby place to put their orders, U.S.
importers have left their containers at the ports, using them as de facto warehouses (and
paying high "demurrage" fees to do so). Truckers also report that preexisting port rules on
hours of service, appointment times, and "dual transactions," which require trucks to drop
empty containers in order to pick up full ones, have limited their ability to clear port
backlogs. And nobody, it seems, can find enough workers.
Regardless of which link in the chain really is the weakest, these strains have had a
collectively big effect. West Coast backlogs have also pushed shippers to use East Coast
ports (via the Suez and Panama Canals), adding to their backlogs. Thousands and
thousands of containers full of items Americans have ordered are effectively out of use
while they wait days, even weeks in California, for a spot at U.S. ports. They then spend
several more days awaiting pickup. It's worth reiterating: Fewer containers in use means
higher shipping prices and more stress on the domestic and international supply chain
systems. And all of this eventually redounds to U.S. companies and consumers.
2 of6
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For these problems, there is unfortunately no easy fix. In part, this is because port
expansions, warehouse and ship construction, worker training, and other capacity
expansions simply take time, as does the calming of global supply and demand patterns.
We therefore expect that supply chain issues will weigh on the U.S. economy until at least
the Fall.
On the other hand, not everything can be blamed on the pandemic alone, and this
brings us to my second key point for today: myriad local, state, and federal policy
have surely exacerbated pandemic-related supply chain problems by over-inflating
domestic demand and intentionally diminishing U.S. supply chain capacity,
efficiency, and flexibility.
On the demand side, there is little doubt today that the unprecedented amount of monetary
and fiscal stimulus implemented during the pandemic has strained global supply chains
and contributed to inflation. Household demand, fueled in part by stimulus payments, was
channeled into durable goods like cars and furniture, putting retail spending on those items
far above the pre-pandemic trend. New research from the Federal Reserve, in fact,
estimates that U.S. stimulus packages caused a 2.5 percentage point increase in inflation
because stimulus checks boosted domestic demand for durable goods but did not (could
not) produce a corresponding increase in supply of those goods, thus increasing prices. A
February 2022 analysis from Morgan Stanley found basically the same thing, calling this
trend the single largest factor in the rise in inflation. President Bid en himself
acknowledged the situation in a November speech in Baltimore, blaming inflation on
"higher demand for goods" caused by stimulus checks, higher wages, and pandemic-related
barriers to in-person services like restaurants.
This channeling of stimulus-soaked demand into goods and away from services inevitably
affected manufacturing supply chains, which had their own pandemic-related hiccups and
simply couldn't handle the extra volumes for practical and policy-related reasons. In fact,
the World Trade Organization's chief economist estimates that increased demand for goods
is a major factor behind supply chain issues, accounting for anywhere between 65 to 75
percent of supply shortages.
On supply side policies, the problems start at the ports. Longshoremen's unions on both
U.S. coasts have leveraged their political power and ability to shut down ports (and thus the
economy) to negotiate contracts that inflate salaries, limit working hours and job flexibility,
and prohibit the efficiency-enhancing automation that ports in Asia and Europe adopted
decades ago. Unions have also used favorable labor regulation to fight ports' efforts to
supplement their workforces with non-union workers - something that might have come in
handy during the current worker shortage.
Furthermore, the Merchant Marine Act of 1920 (aka the "Jones Act") and the Foreign
Dredge Act, which require coastwise shipping and U.S. port dredging to use American-
made, -owned, and -crewed ships, have inflated costs and deterred port expansion projects.
The Jones Act, which has made coastwise shipping prohibitively costly, pushes companies
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to avoid these costs by "port hopping" up and down U.S. coasts using larger, foreign-flagged
ships that take longer to offload and are prohibited from picking up additional cargo while
they're in port. The Foreign Dredge Act, meanwhile, further diminishes U.S. port and
shipping capacity by limiting available port dredgers and dramatically raising the cost of
dredging-dredging that ports need to accept more, bigger, and fuller ships.
Finally, state and local laws, especially in California, have prevented ports and other
companies from expanding container storage. Last Fall, for example, we learned that local
zoning ordinances prevented container stacking on aesthetic grounds and had caused
massive backlogs at the Los Angeles/Long Beach port complex, in turn preventing ships
from quickly unloading their cargos. Various California land-use and environmental
regulations, meanwhile, have made building new warehouses exceedingly difficult-a
serious problem now that free warehouse space is essentially non-existent. According to
one recent estimate, building new warehouses can take as many as nine years in parts of
California, compared to a still-slow two years elsewhere in the country.
As a result of these and other policies, not one American port ranks among the 50 most
efficient in the world, while the largest U.S. port system - Los Angeles/Long Beach - trolls
near the bottom of the 350 global ports examined. Major U.S. ports also handle fewer ships
than many of their foreign counterparts. No wonder, then, that ports have struggled to
process record container volumes, and that port trucks are waiting record times to pick up
cargo.
Speaking of trucks, several U.S. policies also have diminished available trucking capacity,
which is now so desperately needed. For example, U.S. trucking companies last fall
complained that the planned federal vaccine mandate for private companies was reducing
the number of available drivers. The United States also has barred Mexican trucking
companies, which have the largest and closest supply of potential trucks and drivers, from
carrying freight within the United States or from Mexico to inland U.S. destinations -
despite federal government pilot programs qualifying them as safe and environmentally-
friendly. Massive immigration backlogs - totaling more than a million potential workers -
add to our current domestic labor shortage, which many port officials, importers, and
logistics experts blame for trucking and warehouse bottlenecks. The Jones Act has pushed
domestic freight that could have been shipped by water onto trucks and trains, because the
more efficient coastwise shipping is so expensive. This means less U.S. trucking space for
international cargos now clogging up American ports.
Meanwhile, high U.S. tariffs have been imposed on intermodal chassis, which trucks use to
carry containers from port to warehouse, from China. With the world's largest chassis
supplier effectively banned from the U.S. market and insufficient non-China production
available, a serious shortage has ensued. California emissions regulations, moreover, have
reportedly pushed some port truckers, whose rigs the regulations suddenly made obsolete,
out of the industry.
These policies have helped to create a domestic port, logistics, and infrastructure system
that just can't handle the unexpected stress of the pandemic (and related government
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stimulus). They may have had minor and diffuse effects during the best of economic times
but have collectively become a major and acute problem today - especially given that
supply chains were already reeling from a generational, global shock.
Finally, recent events should serve as a cautionary tale about proposals to "fix" the
current supply chain situation with protectionism and on-shoring. Domestic supply
chains rely on most of the same labor, transportation, and infrastructure that global ones
do. Without substantial changes to the U.S. policies that weakened our global supply
chains, onshoring would simply trade a vulnerability to foreign shocks for a vulnerability to
domestic ones - while making the whole system even more sclerotic, costly, and inefficient
than it already is.
Global supply chains and a nation's openness to trade and investment inevitably involve a
risk that a "shock"-war, pandemic, natural disaster-hits the world or certain key nations
and roils domestic supplies. Such issues surely have arisen since last year, as has been
widely reported. Far less reported, on the other hand, is how the U.S. and global
manufacturing sectors immediately began adjusting to whatever supply chain challenges
arose. There is perhaps no better example than the medical goods in such short supply in
early 2020. According to a December 2020 U.S. International Trade Commission (ITC)
report, U.S. manufacturers and global suppliers acted quickly to procure or produce new
drugs, medical devices, personal protective equipment (PPE), cleaning supplies, and other
goods in high demand. (Particularly "resilient," in the ITC's own words, were the U.S.
pharmaceutical, medical device, N95 mask, and cleaning products supply chains.) The
Commission's findings have been supported by reams of anecdotal evidence of U.S.
investors, producers, and importers jumping to produce medical and other essential goods
during the pandemic. By January 2021, in fact, members of Congress were writing
President Eiden to complain of a potential glut of American-made PPE!
Such events are not only a testament to the tireless work of manufacturers, retailers, and
logistics professionals throughout the pandemic, but also a cautionary tale for U.S.
policymakers: by the time Congress decides to intervene in a certain market, it will look
much different than the one on which that decision was based, and it will change again by
the time any government-supported production comes online.
Furthermore, while reshoring supply chains might have insulated U.S. producers and
consumers from external supply and demand shocks, those same policies can amplify
domestic shocks and reduce overall economic growth and output to boot. Such a risk
emerged in 2021 when unprecedented cold hit Texas: several U.S.-based semiconductor
manufacturers were forced to idle production capacity, thus exacerbating the very chip
shortage that is today often blamed on "globalization." A few months later, we learned
from the New York Times that Germany - a nation more focused on manufacturing than the
service-oriented United States and often a model for a new American industrial policy - has
suffered greater economic disruptions because of its "dependence" on manufacturing and
goods exports. Both experiences are consistent with past research showing that
manufacturing and mercantilism are not an easy recipe for economic resiliency; that
domestic economic shocks can cause the same supply chain problems as foreign ones; and
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that the diverse U.S. economy is not nearly as vulnerable to global economic turmoil as is
often claimed.
For these reasons, future government action on domestic and global supply chains should
focus not on trying to outsmart the market or deliver targeted federal grants or loans to
privileged companies and workers, but instead on broadly emphasizing economic
openness, diversification, and flexibility. Reform efforts should start with the supply side
regulatory impediments discussed above, and others that impose similar harms to the U.S.
economy. Demand-side pressures may ease in the coming months, but the supply side will
remain vulnerable, as long as governments intentionally diminish available port and
transportation capacity. Policies liberalizing trade and foreign investment should also be
considered, as they would support U.S. manufacturing competitiveness and economic
resiliency by improving companies' access to and production of essential goods. Reforms
should go beyond simple tariff relief and instead focus on making it easier for businesses to
locate and invest in the United States.
Congress also should consider other "horizontal" economic reforms that would boost U.S.
manufacturing competitiveness. Most notably, the federal government should significantly
expand high-skill immigration, past U.S. restrictions of which have been shown to
encourage multinational corporations to offshore jobs and R&D activities to affiliates in
more welcoming countries and to benefit potential U.S. adversaries, especially China, in
terms of new jobs, new businesses, and new innovations. The government should also
further lighten corporate tax and regulatory burdens to encourage innovation and foreign
investment and to ensure that businesses already here can remain globally competitive.
This includes expanding and making permanent the 2017 Tax Cuts and Jobs Act's
temporary "full expensing" provision ("100 percent bonus depreciation"), which allows U.S.
businesses to write off certain business investments immediately and fully.
In conclusion, both recent experience and scholarly research show that federal government
attempts to subsidize "essential" industries or reshore supply chains carry significant risks,
and that open markets can bolster U.S. resiliency and competitiveness by increasing access
to critical goods, services, and workers, mitigating the impact of domestic shocks, boosting
economic growth, and facilitating rapid, market-based adjustment in times of severe
economic uncertainty. This argues for a different approach to achieving real economic
resiliency than the ones primarily under consideration today - an approach based not on
economic nationalism or top-down planning but instead on the open and flexible policies
that America does best
Sincerely,
/s/
Scott Lincicome
Director, General Economics and Trade
Cato Institute
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Ms. Kumar Response to Senator Hirono
Restaurant Revitalization Fund (RRF):
Last year Democrats passed the American Rescue Plan Act (P.L. 117-2), which created the
Restaurant Revitalization Fund (RRF) to provide relief for foodservice and drinking
establishments heavily impacted by the pandemic. You have highlighted how the program was
underfunded:
QUESTION 1:
Can you speak further to how the RRF has supported your restaurant, restaurants in your
community, and restaurants elsewhere? What kiud of difference have RRF grants made to
these businesses?
I am proud to own an independent restaurant that continues to survive this far into the pandemic.
We have cut, crimped, changed, pivoted, closed, opened, closed again, opened again, pivoted
again, did more takeout, served outside, did subscription meal kits and myriad other things to get
to this point today. At Garland, we took both rounds of the Paycheck Protection Program (PPP)
funding. We were closed for the first six weeks of the pandemic and the stoves were lit again, we
did not do hot takeout because we have a small kitchen, and we didn't feel it was safe for cooks
to be working in close proximity to each other (pre-vaccine). We did weekly cold prepared meal
kits for our guests and for restaurant workers, but I wanted to make sure my team was safe.
Garland is a great example of stitching together all of the programs possible to get help. Between
PPP and the RRF we have been able to pay people through the pandemic. We were able to stay
open and continue to provide jobs. Although like my colleagues, I am struggling to deal with
supply chain disruptions I have been able to navigate and absorb higher costs on most everything
because I have received the RRF. But those who were not as fortunate are compounding their
pandemic problems with supply chain issues. They are forced to dramatically increase their
menu prices to cover the cost of ingredients, which puts them at risk of driving customers away
at a time when they're desperately needed. My colleagues who did not receive the grant are
saddled with enormous debt in the form ofloans, second mortgages or losing their leases for
which they have a personal guarantee. Indeed, they face a lifetime of economic devastation that
will affect how they can provide for their families for decades to come.
Without the RRF, lam absolutely certain that my restaurant would be gone.
In a March survey of more than 1,000 members of the independent restaurant and bar community
more than half of independent restaurants and bars without RRF grants anticipate they will close
within six months.
The survey indicates that a significant number of businesses anticipate they will close within
months if they do not receive an RRF grant:
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• 24% of businesses that did not receive RRF are in danger of closing their business in up to
3 months compared to 13% of businesses that received grants.
• 28% of businesses that did not receive RRF are in danger of closing their business in 4 to
6 months compared to l l % of businesses that received grants.
RRF grants would help businesses address the issues threatening their longevity:
• 48% of restaurants without federal grants reported are in danger of defaulting on a loan
compared to 22% of businesses that received RRF.
• 40% of restaurants without federal grants reported are in danger of filing for bankruptcy
compared to 25% of businesses that received RRF.
• 28% of restaurants without federal grants reported are in danger of being evicted compared
to 20% of businesses that received RRF.
Survey results show that RRF grants would afford businesses the flexibility to modify their
operations, improve working conditions, and the overall dining experience:
• 83% of restaurants reported that a grant would allow them to increase their wages;
• 44% of restaurants reported that a grant would allow them to expand their menu;
• 51% of restaurants reported that a grant would allow them to expand outdoor dining
options; and
• 91 % of restaurants reported that a grant would allow them to withstand rising food costs
without significantly increasing menu prices.
QUESTION 2:
What would additional funding mean for these businesses?
Thousands of businesses will close if the Congress does not replenish the Restaurant
Revitalization Fund. After two years of missed rent, supplier and utility payments, navigating
astronomical food costs, and multiple COVID-19 surges that brought businesses to a halt,
independent restaurants and bars are out of time, options and money.
Receiving a Restaurant Revitalization Fund grant would secure the financial future of restaurants
and bars, while giving owners the financial flexibility to become better employers. When I speak
to my colleagues the top priority for their use of RRF funds is to raise wages, bring on more
staff, and pay down any pandemic related expenses that continue to hang over their balance
sheet.
The survey data also indicates that businesses would use RRF grants to pay down debts and
make repairs, allowing restaurants to continue serving their communities:
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• 86% of restaurants reported that a grant would allow them to be able to hire more staff;
• 77% of restaurants reported that a grant would allow them to pay their rent;
• 72% of restaurants reported that a grant would allow them to pay their utilities;
• 76% ofrestaurants reported that a grant would allow them to make supplier payments; and
• 77% of restaurants reported that a grant would allow them to make repairs.
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57
Senate Committee on Small Business and Entrepreneurship Hearing
March 30, 2022
Follow-Up Questions for the Record
Question for Mr. Lam
Question from:
Senator Inhofe
Practical Solutions to the Supply Chain Crisis
Mr. Lam, last fall, I spoke with Allison Dickens, owner ofLudgers Bavarian Cakery in Tulsa,
Oklahoma, about the staffing shortage her bakery was facing. Now, Ms. Dickens's primary
concern is navigating the ever-changing environment brought about by the supply chain crisis.
On a week to week basis, supplies are either running short, or prices have skyrocketed for basic
goods like to-go containers. As a result, Ms. Dickens constantly has to evaluate whether to raise
prices for consumers or wait for the issue at hand to subside. This is not a sustainable
environment for businesses much less small businesses to operate in.
QUESTION l:
Mr. Lam, as a restaurant owner, what practical changes can the Eiden administration implement
to help businesses navigate this environment and mitigate the impact of the supply chain crisis?
The most unequivocally simple answer is to stabilize the supply chain. Not necessarily to bring
prices down to pre-Covid levels but to offer predictability in the market for goods and services.
Chicken has risen further from $3/lb to $4/lb in the 2 months since my testimony. Prices
fluctuate on a near daily basis for the most basic necessities and goods like napkins, chopsticks,
bell peppers, and oil.
As far as possible solutions I can only offer my very limited knowledge and thoughts on what I
believe could help.
1. Restart the EIDL and provide resources to the SBA to continue processing applications for
low cost loans to businesses trying to survive. Maybe offer 0% interest in the first 2 years and
stagger the repayment plan and increase the rate to 2% for years 3-4 and 4% for years 5-6.
2. Aid truckers through regulation and policy to obtain fair wages and safe work conditions that
are already under examination by the Dept of Transportation and Dept of Labor in hopes of
keeping our long haul and last mile truckers on the road to stock shelves in our stores and
warehouses.
3. Temporarily increase domestic oil production to stymie the increase of gas price increases to
ease the strain on logistics companies that are trying to distribute goods across the country.
1
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Questions for Dr. Sridhar Kota
Questions from:
Senator Hi.rono
l.everagi11g exisli11g federal progra111s and resources
77,e.federal govemme/11 has a variely ofdijfere/11 programs and resources thal promo/e small
and medium-sized 111a111ifac/urers in 1he U11iled Slates, i11cludi11g !he Small Business
Admi11is1ratio11 's (SBA) rece111!y a1111ou11ced Ma11ufac1uri11g Office. a11d !he Small 811si11ess
l1111ova1io11 Research (SBIR) and Si11all Business Tech11ology 1i·a11.ifer (STIR) programs:
QUESTION 1:
/11addi1io1110 1he Ma111ifac111ri11g Office a11d the SB!RISTTR programs, can you speak to 01her
SBA progrc1111s and resources 1h01 pro111ote small and mediu111-sized 1110111,ft1c1urers?
As a hardware entrepreneur, founder, and CEO of FlexSys Inc., for over two decades, I
benefitted immensely from various SBIR programs in maturing technologies I developed. SBA ' s
PPP loans enabled FlexSys to stay afloat, without laying off employees, during the pandemic. r
am very grateful for the timely help and for rapid processing of checks when we needed them the
most.
Many other SBA programs are designed to meet the needs of small businesses (mostly service-
oriented businesses) in general but are not targeted to cater to the needs of small manufacturers
such as procurement of new manufacturing equipment or skil led workforce. Particularly,
hardware start-ups face uphill ba11les to identify, let alone seek, help from the federal or state
governments in scaling up promising technologies. To illustrate these gaps in federal programs,
I would like to summarize my experience with a new startup company.
In response to Covid-19 challenges, in March 2020, I co-invented two new devices, Aerosolve
Helmet and Aerosolve Tent, to treat Covid-19 patients, without using a ventilator, by providing
oxygen through a nasal cannula while protecting health care workers (HCWs) from virus
transmission. Simply put, these work as " PPE for the Patient" to protect people around the
patient such as HCWs, family and friends. These devices were immediately adopted at the
University of Michigan hospital (under an " innovative care protocol") where they took patients
off ventilators and successfully treated them with Aerosolve devices. I received countless
requests from hospitals around the country through 2020 until mid-2021. I approached a few
established companies that were already in the PPE business, but none had the capacity to
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59
undertake manufacturing of a new product since they were all too busy making conventional
PPE/face-shields/masks. Therefore, I founded a new company Inspire Rx LLC to start
manufacturing Aerosolve Devices. I invested over $750,000 ofmy own funds to design,
engineer, small-volume manufacture, test, and prepare & file FDA applications for Emergency
Use Authorization. I could not get any support from the State or Federal government, but I kept
going to do my part to combat the Covid crisis by treating patients non-invasively, protect health
care workers and enable family members to visit patients. When I was running out of funds, I
could not find any grant opportunities at SBA, and SBA loan options were not viable. SBA's
7(a) loans require business profits which Inspire Rx is too new to have, and SBA's microloans
are capped at $50,000 with 10-14% interest rates so too small and too expensive.
Although the ability to save lives at the University of Michigan hospital was extremely
rewarding, I was equally frustrated by my inability to scale the life-saving devices when we
desperately needed them primarily due to (1) undue delays in the FDA review/approval process
and (2) lack of funding opportunities. Even at this stage, more than two years into the pandemic,
these devices are very valuable for future pandemic preparedness but, even for me who is very
knowledgeable about federal government programs, it is impossible to find an appropriate
government official who can help.
QUESTION 2:
What SBA programs and resources have been particularly helpjidfbr these manufacturers?
Based on my over two decades entrepreneurial experience and for over a decade of
manufacturing policy experience in DC, I believe the established (not start-ups) small and
medium sized manufacturers (SMMs) could benefit from (a) SBA loan program (although the
interest rate is almost twice the rate offered by a commercial bank) and (b) the SBIR program.
The creation of a new SBA Manufacturing Office is a very encouraging development. It can help
SMMs in many meaningful ways including:
• Financial assistance (grants preferably or low-cost/forgivable loans) to purchase and
upgrade equipment, especially Smart Manufacturing technologies and manufacturing
process improvements
• Facilitating government (DoD and GSA) procurement
• Vouchers to hire semi-retired or retired engineering and business professionals
• Grants to offer apprenticeships as a pathway to full-time recruitment
• Research grants to help mature emerging technologies or adopt current technologies in
collaboration with either the private sector, MEPs or local research institutions or
universities.
Follow up
Federal programs to promote small and medium-sized manufacturers include the National
Institute ofStandards and Technology's (N!Sl) Manufacturing Extension Partnership (Jv[EP)-
2
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which promotes national and regional collaboration and coordination between these
manufacturers.
Early in the pandemic, for example, Hawaii nzam{facturers used the NIST-l\1EP network to
develop new products to meet the growing demand/or Personal Protective Equipment (PPEJ.
More recently, they have used the network to find alternative sources for raw material1· they use
in their products:
QUESTION 3:
How important are federal programs like NLS'T-MEP that promote collaboration and
coordination between small and medium-sized manufacturers?
There are numerous success stories like the one you cited in MEP' s reports. However, MEPs in
general are less impactful than what the federal government believes. Some MEPs are very
effective in addressing the changing needs of small manufacturers such as the Hawaii MEP
example. However, most MEPs still engage in training lean manufacturing and quality
improvement methods (ISO 9000) of the late 90s and are not equipped to offer training in
Industry 4.0/Smart Manufacturing methods or cybersecurity challenges. This is partly due to
their limited capacity and capabilities. Although the MEP program was created over 30 years
ago, the macro impacts have not been what was envisioned then-there are roughly 100,000
fewer SMMs today than 30 years ago-despite numerous individual company successes. MEPs
across the 50 states have only engaged with less than 10% of all SM Ms to date. MEPs tend to
work with the same set of SM Ms (usually larger companies with over 100 employees) year after
year because they provide a more assured flow of client fees which are required by the MEP
funding model. Furthermore, a relatively small number ofMEPs in states with the highest
number of manufacturers tend to generate the bulk of reported impacts.
Rather than simply doing more of the same or simply spending more on the same programs, it is
critical that the federal government defines and implements proper metrics for success. Although
MEP has an elaborate set of performance metrics and a survey process designed to solicit
impacts directly from MEP customers, there often is a disconnect between reported impacts and
the long-tenn performance of those SMMs. As additional resources become available through
the America Competes Act (when it passes), MEPs should upgrade their skill sets to educate
small manufacturers on Smart Manufacturing processes, empower them by implementing pilot
projects to demonstrate its benefits, engage with private sector vendors, provide financial
assistance to upgrade their equipment thereby enabling small manufacturers to be globally
competitive. For this to happen, Congress needs to define the expectations clearly and hold
MEPs accountable.
3
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Questions from :
Senator Coons
U.S. 111m111fact11rers 11111st offer a co111pelli11g value proposilion to compete globally. Smart
ma1111fact11ri11g teclmologies hm1e the potential to help domestic mam!facturers be more
productive adap1able. Ye, adop1io11 ofsmart ma1111fact11ri11g technologies has been slow,
especially among small ma111ifact11rers.
QUESTION I:
Whal do you see as the main obstacles that are holding back smal/ 111a,11ifacturersfrom adop1i11g
smart 111a1111fact11ri11g technologies?
Through MForesight, my colleague Tom Mahoney and I studied th is topic, interviewed
numerous SMMs in 2019, researched available technologies, vendors, and success stories. We
published a " primer for SMMs" 1on challenges, oppornmities, and resources for implementing
Smart Manufacturing. ln short, the main obstacles that small manufacturers face are:
I. Lack of motivation - unless their customer demands, SMMs simply do not have the
resources to invest in Smart Manufacturing technologies
2. Lack of expertise and availabil ity of expertise
The federal government has an important role to play to ensure that small manufacturers, the
backbone of our manufacturing sector, are globally competitive. Governments in other advanced
nations (Germany, Taiwan etc.) have been providing significant support to small manufacturers
for upgrading equipment installations, etc. Since small manufactures are severely constrained in
their resources, the federal government should provide vouchers directly to them to seek
expertise and procure smart manufacturing equipment (hardware and associated software
instal lation).
/11 your testimony. you stated the U.S. must stre11g1hen 1he technical know-how of011r workforce
lo grow domes/ic ma1111fact11ri11g. A recent survey ofDelaware employers revealed they are
s1r11ggli11g to Jill open positions. Some ofthese jobs require college degrees, but many good-
paying_Jobs do 1101. One possible solu1io11 is 10 increase 1he availabilily ofappre111iceships 10
young people from a diversity ofbackgrounds.
QUESTION 2:
What role ca11 you see appre111iceship programs playing i11 the development ofour
mamifacturing workforce?
1 Thomas C. Mahoney and Sridhar Kota, "Smart Manufacturing: A Primer for Small Manufacturers", MForesight:
Alliance for Manufacturing Foresigh t, March 2020,
4
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It is true that many good-paying jobs do not require a college degree and more so in the
manufacturing sector which also provides many opportunities for growth and upward movement
for those who continue to learn new skills. But to get students interested in pursuing a career
(with or without a college degree) in manufacturing, they need to be made aware of the
oppo1iunities and more importantly they need to be inspired by the sophisticated manufacturing
processes and equipment. That initial exposure at an early age is critical. For that, the first (and
the forgotten) step is the require all high schools to offer a Shop Class and make it required for
all students. This might seem like an overly burdensome government mandate, but it is important
to remind ourselves that many high schools students dissect a frog but not all of them end up
pursuing career in biology and that has been ok for decades. Likewise, it is ok to require all
students to take a shop class whether they decide to pursue a career in engineering or
manufacturing. It is important to expose students to various options so they can pursue what
inspires them rather than the default 4-yr college as the only viable option.
Additionally, it is critical to educate high school counsellors about the benefits of real-world
exposure through apprenticeships for college-bound and non-college bound students.
Internship at a local manufacturing plant is an excellent way to expose young minds to various
facets of manufacturing from design and creativity to sophisticated manufacturing equipment,
products, quality, logistics, automation, business management, etc. However, the federal
government should not administer or coordinate any internship programs directly or through
academic or government institutions because doing so would be ineffective and lack relevance to
the real world. Instead, the federal government should provide incentives (tax incentives) to
manufacturers of all sizes (much more so for SMMs) for offering and scaling internship
opportunities to high school students and others who are interested. Note that internships are not
charity programs for the private sector - instead they are the most effective recruitment
opportunities for the participating firms of any size.
To its credit, the federal government has invested and continues to invest in community colleges.
While they do provide valuable employable skills in some cases, they cannot solve the multi-
dimensional challenges we face in worker shortage or skills shortage at multiple levels. Doubling
down on the same program will not necessarily change the outcome. After admiring German
polytechnic education for decades, it is time for the federal government to act. Government
should invest in standing up 4-year polytechnic universities in every state since they offer
balanced education and training across multiple disciplines including engineering/manufacturing,
health care, information technology, digital arts, etc. Polytechnic universities provide a good
balance of theory and practice much like medical school education. Traditional 4-year colleges
emphasize theory and most take pride in their capacity to train students to be researchers or
professors at the expense of bridging the gap between theory and practice. At the other end of the
spectrum, community colleges provide highly specialized skills (such as operating a CNC
machine or welding) but are not designed to provide a broader or a deeper understanding of the
subject matter. Besides, society places a much higher value on a 4-year degree rightly or
wrongly. There are a few excellent polytechnic universities around the country that are
completely ignored in the popular, academic, or political press. Government has an important
5
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role in strengthening and scaling the best programs in polytechnic education ifwe are serious
about rekindling American ingenuity.
6
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Questions from:
Senator Young
Right now, I know that all levels ofgovernment are focused on a top-down review e>f the supply
chain, but we are in need e>fsomething more permanent, comprehensive, and easily accessible.
I believe aggregated demand mapping/or critical industries will open the door for supply chain
visibility. Specifically, my proposal, which was included in the Trade Title <>f the US. Innovation
and Competition Act, would establish an online toolkit and database within the Department e>f
Commerce to support a supply chain mapping effort.
QUESTION l:
With this in mind, what value do you see in creating a comprehensive understanding e>( our
supply chain vulnerabilities/or the mam!facturing sector?
I applaud your proposal to review supply chain challenges in a "comprehensive and permanent"
manner. This is critical. Since your office is focused on this important issue and plans to address
it in a comprehensive and permanent manner, I would like to share my opinion with the hope that
your office will go beyond creating a comprehensive understanding and act on its findings with
urgency.
First, I must also note that there have been other supply chain review reports published in the
recent past including 2012 Senate Armed Services Committee Report and 2018 on DoD Supply
Chain vulnerabilities. While each of these reports have meticulously identified the gaps and
challenges the situation only continued to get worse. We have been admiring the problem for
much too long. Besides, at least in the context of vulnerabilities in the defense sector, which are
too many, government should place the burden on its defense contractors to ensure that all
components are made in the U.S. If a private sector customer placed such a burden, the supplier
would simply comply to procure the purchase order, but somehow the government customer has
been unable or unwilling or afraid to place that burden and define metrics that are in the best
interest of taxpayers who are footing the bill. The private sector and major defense contractors in
particular are equipped with ample resources and expertise to ensure complete visibility of their
supply chains and enforce Made in USA principles if the customer demands it.
To prevent future supply chain challenges on products critical to defense or health or energy, the
government should consider the following:
l. For non-defense related products, if the product cannot be produced domestically, the
federal government should consider and facilitate near-shoring to any number of friendly
countries south of our border rather than importing from across the oceans.
2. Congress should require that, for any product or process derived from federally funded
R&D, at least 75% of the value added must be produced in the United States. This is the
same standard established for automobile production in the United States-Mexico-Canada
Agreement. The only exception to this requirement would be a temporary waiver for up
7
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65
to one year due to a demonstrated on-going national emergency. Such a waiver, an
Emergency Manufacturing Authorization (EMA), will be issued by the White House or
Congress during an emergency (like the Emergency Use Authorizations issued by the
FDA during the Covid-19 pandemic). This is the only way to ensure a real return on
investment back to American taxpayers who funded the research in the first place. This
helps stop the bleeding of emerging technologies developed with American taxpayer
dollars only to be scaled in other countries, which has been the nonn for nearly three
decades.
8
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Senate Committee on Small Business and Entrepreneurship Hearing
March 30, 2022
Follow-Up Questions for the Record
Question for Mr. Griffith
Questions from:
Senator R isch
Jnefficiencies at U.S. ports is one of the main causes of the supply chain crisis with maritime
labor unions deliberately blocking modernization efforts at ports. The upcoming contract
negotiations are about to begin between the Pacific Maritime Association and the International
Longshore and Warehouse Union where we could again see maritime labor unions using
"slowdown" negotiating tactics instead of striking like they did during the 2014 negotiations.
Mr. Griffith, these types of tactics cause substantial losses for local businesses importing and
exporting goods whi le worsening our nation's supply chain crisis. For an Idaho exporter, every
additional day their goods are stuck in port costs them thousands of dollars. To address this issue,
I recently introduced the Preventing Labor Union Slowdowns (PLUS) Act to protect our national
supply chain. The PLUS Act would change the National Labor Relations Act to define a labor
slowdown by maritime unions as an unfair labor practice. The bill also makes it an unfair labor
practice for labor unions to block modernization efforts at ports and specifies that refusing to
work automated vessels is an unfair labor practice.
QUESTION I :
Could you elaborate on the impact that additional labor union slowdowns at U.S. ports would
have on the national supply chain crisis?
Answer:
The crisis at the California ports demonstrates how further port slowdowns will exacerbate
supply chain issues. The Ports of Los Angeles and Long Beach handle 40 percent of containers
that bring goods and parts into American homes and factories. The exclusively unionized
workers at those ports earn upwards of$200,000 per year in compensation. 1 With such high
labor costs (roughly three times the national average for port workers) and the union's
unwillingness to operate on a 24/7 schedule simi lar to all other maj or ports in the world, it would
make sense to increase automation, but the union has fought hard against that-including
securing a provision in the bipartisan infrastructure package to prevent any funds from going
1 Los Angeles Times, "LA. City Employee Salaries Database," Harbor, http://projects.latimes.com/la-city-
salaries/department / harbor/
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toward automation.2 Consequently, in the World Bank efficiency rankings,3 the Cal ifornia ports
were among the least efficient on earth-behind even those of Mombasa, Kenya, and Dar es
Salaam, Tanzania.
QUESTrON 2:
How have labor union efforts to prevent modernization upgrades at U.S. ports affected our
nation' s supply chain?
Answer:
Labor union efforts to prevent modernization at U.S. ports results in higher prices and shortages.
Prices are higher largely because the system relies more on labor rather than automation. But
shonages and delays of goods may also develop as the capacity of these pons is anificially
constrained by inefficient processes. TI1is can create a ripple effect across the entire economy as
raw materials and other inputs for manufacturing and constructions businesses are delayed.
Questions from
Senator Inhofe
Impact of Regulations
Mr. Griffith, this administration's regulatory agenda has harmed our economy and small
businesses everywhere. We see this most prominently as it relates to fossil energy development,
and Americans are paying the price with record high gas prices. Keep in mind - President Bi den
has cancelled Keystone XL pipeline, paused permitting for new drilling on federal lands, and
sought new taxes for the oil and gas sector. And shockingly, this Administration blames
everyone but themselves for the oil and gas supply disruption we' re facing when they should be
looking squarely in the mirror.
QUE STlON 1:
Mr. Griffith, how doe-s the Biden administration's energy regulatory agenda affect industries
across our economy?
Answer:
Amid enormous shifts in energy supply and demand since the pandemic, government policies
have consistently pushed prices yet higher. Energy is essential to nearly every good and
service-schools, hospitals, grocery stores, manufacturing, small businesses- that Americans
2 Eric Boehm, "America's Ports Need More Robots, but the $ 1 Trillion Infrastructure Bill Won't Fund Automation/'
Reason, November 9, 2021, https://rea son.com/2021/11/09/ameri cas-ports-need-more-robots-but-t he-1-trillion-
infrastructure-bil l-wont -fund-port-automat ion/
' "The World Bank and IHS Markit Container Port Performance Index 2020 Report," World Bank Group and IHIS
Markit, (2021), https://ihsmarkit.com /lnfo/0521/container-port-performance-index-2020.html
1
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68
engage in. It is critical to Americans' econom ic opportunity and abi lity to live healthier, safer,
and more productive lives. When energy prices increase, therefore, it directly hurts Americans.
Crude oil is refined into petroleum products such as gasoline, jet fuel, and petrochemicals.
Natural gas is used for both heat and electricity and is a critical raw material for thousands of
industrial products such as fertilizer, plastics, and pharmaceuticals. Coal is used for heat and
electricity as well as in industrial applications such as steel production, and it is an exceptionally
affordable energy source.
The Biden Administration has proposed or finalized regulations restricting nearly every aspect of
conventional energy: financing and private sector inve.stment, exploration and production,
pipeline construction and operation, and consumer use. Further, it has effectively banned leasing
for coal, oil, and natural gas exploration and production on federal lands and the Outer
Continental Shelf in defiance of the law. The Department of Interior also recently proposed
sweeping policy changes to federal land management that would severely minimize if not
effectively ban production of coal, oil, and natural gas on these lands and waters. Finally, the
Administration continues to promote the Build Back Better Act, which would increase energy
prices by adding new fees, royalty rates, and regulations on conventional energy producers and
cut access to production off American coasts. A proposal in the bill setting a I5 percent
minimum tax on businesses ' book income would also have outsized negative impact on coal
companies, cars and trucks, and utilities and could increase prices or skew future investment
away from these industries.
QUESTION 2:
Does the administration' s regulatory agenda worsen the supply chain crisis we' re seeing?
Answer:
The administration's regulatory agenda worsens the supply chain crisis. The supply chain crisis
has been exacerbated by this administration's "war on ener!,,y," including shuttering pipelines,4
closing off swathes of the nation to drilling,S and even threatening oil executives with prison for
providing the gasoline American business and families depend on. 6 Proposals for yet more
government spending, labor regulations such as the PRO Act, harsh environmental re1:,'lllations,
and massive tax hikes on businesses risk further supply shocks.
4
Oivid Blackmon, "Whv Side-o's f<illing Of Keystone Xl Was An Energy Security Blunder," Forbes, M arch 10, 2022,
ht1rrr,:{/www.forbP$.CQm/sitP:>/davidblackmon/]022/03/10/why-bidPns- kilting- of- keys•onP.-xl-w.iK--a-hig-ener-gy-blundPr0sh■ t3bObf4f1 3fd
(accessed March n. 2022).
) Lisa Friedman, "Blden Administration Halls New Orilllng In Legal right Over Climate Costs," The New York Tltrl4!5, February 22, 2022,
https:j/www.nytimes.com/2022{0200/climate/carbon•biden~drilling-climate.html (accessed March 29, 2022).
6
Katelyn C;,ralle, "'We should put them in jaill' Joe Biden wants to prosecute fossil fuel executives for environmental damage-but doesn't
ment ion son Hunter who helped run Ukrainian natural gas giant,'" Doily Moil, December 30, 2019, https:(Jwww claflymail.cg ul(/newsl.artide-
7837265/W~jal\-Biden-wants-prosecute-fossll-fuel-exe<:ullves-.environment-damage.html (accessed M arch 29, 2022).
2
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Questions from:
Senator Young
Small businesses are finally starting to claw their way back from the pandemic only to now face
high fuel costs and runaway inflation.
QUESTION 1:
What would you suggest that this committee be focused on-as it relates to the SBA' s
jurisdiction-to empower businesses to find their solutions to risings costs without wasteful
government spending?
Some ofmy colleagues have been tempted to offset inflation with subsidies. This implies having
the federal government borrow even more money to help Americans pay for certain expenses,
including gas, housing, childcare, etc. However, this approach threatens to impose a greater
stagnation spiral.
Answer:
Rather than expand the SBA' s involvement in the economy, Congress and the Bi den
administration should get the federal government out of the way by cutting red tape. Remove
welfare work disincentives such as monthly child payments detached from work. End benefits
policies that discourage work by the able-bodied. Government has caused these rising costs.
Rather than counterproductive policies or attempts to advise businesses on how to operate,
government should reduce red tape and cease perpetuation of these destructive fiscal and
monetary policies.
In relation to proposals to expand SBA funding, it's a misnomer that credit markets are not
providing funds to small businesses. Most small businesses are saying they are generally not
looking for more credit. 7 Only three percent ofrespondents in a January 2022 National Federation
of Independent Business (NFIB) survey reported their borrowing needs were not satisfied. Only
1 percent reported financing as their top business problem. The survey also reported, "Only a net
2 percent reported their last loan was harder to get than in previous attempts (up l point)." 8 In past
economic crises, 37 percent have reported financing and interest rates as a top concern.
QUESTION 2:
Can you elaborate on why increasing poorly tailored social spending will likely continue to prop-
up our supply chain disruptions?
; William C. Dunkclberg and Holly Wade. NFIB Small Business Economic Trends. NFIB Research Center_ January
2022, https://asscts.nfib.com/nfibcom/SBET-Jan-2022-Final.pdf (accessed February 8. 2022).
8
Ibid.
3
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Answer:
Government spending financed by the Federal Reserve stokes demand while doing nothing to
increase the supply of goods and services. In fact, the current administration is suppressing
supply with increased regulations. This combination of anificially increased demand with social
spending combined with supply suppression yields both higher prices and disruptions. A tsunami
of government spending contributed to the rise in demand- including future demand as
households stockpiled income from both wages and government COVID-19 relief checks.
Without a doubt, Federal Reserve policy is contributing to the very large burst of inflation. The
federal government has used the Fed as a piggy-back, "selling" trillions in debt for newly
' printed' money that then floods into the economy, driving inflation.
Perhaps of utmost importance has been the labor shortage-a shortage contributing to supply chain
disruptions. Primarily the result of so many dropping out of the labor market, the avai lability of
workers is incredibly tight. Businesses across nearly every industry in the United States are
desperate for workers and have expanded their pay and benefit packages. The number of unfi lled
jobs by November 202 1 was at record levels, more than 1.5 jobs available for each of the
unemployed (those looking for a job) workers.9 The National Federation of Independent Business
(NFIB) reponed that 48 percent of business owners were unable to fill open positions-more than
double the 22 percent historical average. 10 Accordingly, businesses are increasing compensation,
and therefore their costs. According to NFIB, 44 percent of business owners reported raising:
compensation (a 48-year record high), and 32 percent plan to raise compensation in the next three
months (a record high). 11
The rising costs for busi nesses are largely a result of governments hampering the suppl y of
goods and services, a tsunami of government spending contributed to the rise in demand-
including future demand as households stockpiled income from both wages and government
COVID-19 relief checks. Government has also disincentivized individuals from re-entering the
workforce. Private businesses are attempting to remain solvent and grow despite these
government errors.
QUESTION 3:
Furthermore, can you elaborate on why subsidies will merely create more inefficiencies in the
production and deli very of these goods and services -especially for small businesses?
Recently, the Administration announced a new data-sharing pilot program called the Freight
Logistics Optimi zation Works initiative-also known as FLOW-in order to speed up the
movement of goods.
Answer:
o~nings and Labor Tumov@t- November 2021," BLS, Dec:ember 8, 2021,
9 News feleas.e, "Job
https:/fwww.bls.gov/news.release/art.htves/jolts 01042022.pdf (accessed March 29, 2022).
10 NFIB, "Labor Market C'ha8cnges Breaks 4S•Year Record as Biggest Issue Impacting Small 13usine,;sses," November survey through November
29. 2021. httos·llaw:ts nfib-com/nfiboom/202l·N2Y:lobs·Reeort·ElNAl pdf (accessed date March 29 20221.
11 Unnlled job openings total 11.3 mfl1ion- more 1han 1.8 jobs for f'Nery unemployed worker.
4
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71
Artificially stoking demand through subsidies-especially with a regulatory agenda that
suppresses production-- is a recipe for both shortages and higher prices.
Housing is one important example. Government subsidies have increased borrowing and demand
for housing without increasing supply, leading once again to higher home prices and increased
taxpayer risk. Subsidies and government guarantees ofMBSs will perpetuate inflated prices,
deprive other sectors of needed financial resources, and place the burden of catastrophic risk on
the federal taxpayer.
Subsidies for individuals in the form welfare-without-work policies-such as a 21 percent
increase in Supplemental Nutrition Assistance Program (SNAP) benefits and vastly expanded
Obamacare subsidies-disincentivize people from j oining the labor force, exacerbating worker
shortages and driving up costs while dim inishing service.
State renewable energy mandates and subsidies through the tax code. These mandates and
subsidies have forced out not only coal-powered generation but also existing nuclear-power
reactors. 12These policies seek to alter energy outcomes according to political preferences rather
than grid reliability, affordability, and customer demand. Energy subsidies in the form of tax
credits and direct payments implicitl y raise barriers for other energy suppliers to compete, inject
pol itical boom-and-bust cycles into energy markets, and in the long run harm the industries they
are intended to help. 13
QUESTION 4:
Do you believe there are additional efforts the Administration (or Congress) can take to coincide
with this effort?
Answer:
To Congress and the Biden admini stration should get the federal government out of the way by
cutting red tape, by stepping away from massive tax-and-spending legislation that seeks to
micromanage the economy, and by saying " no" to unions and activists who want to cripple our
economy. 14
• Repeal the Jones Act. The Jones Act drives up shipping costs, makes it more difficult to
transport goods that are important to the food sector, and impedes access to affordable
domestic energy. This is particularly noticeable in states such as California, where very
12
Katie Tubb, "Diablo Canyon Shutdown Last Chapt er for Cl ean Nuclear Power in California," Heritage Foundation
Commentary1 January 29~ 2018~ https://www.heritage.org/energy-economics/commentary/diablo-canyon-
shutdown-last-chapter-clean-nuclear-power-california.
" Adam N. Michel, "Tax Ext enders Are Bad Tax Policy," Heritage Foundation Issue Brief No. 4980, July 19, 2019,
https://www.heritage.org/taxes/report /tax-extenders-are-bad-tax-policy.
•• Peter St. Onge, 'Why Blden's Infrastructure Bill WUI Ukely Only Worsen Supply Chain 0-lsls,'" The Heritage Foundation, November
17. 2021, httns· //www bcrim<tt 2or/h11d2cr-and·sncndin"tcommcntarv /whv·hidcns·iufrasm,m ,cr-biH·wlH· Jlkckonlv·worseu-s, ranlv-
dliwl (accessed March 29, 2022).
5
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limited pipeline infrastructure means California' s gasoline must be transported from
refineries to demand centers by way of expensive and a1tificially scarce ships and crews.
• Do not force workers into unions. Enable more flexible contract work by using a common
law basis for independent contractor status. Abandon legislation and regulations that
restrict work such as California's ABS law and the similar federal PRO Act.
• Eliminate Section 232 tariffs on steel and aluminum imports. Eliminate tariffs on
manufactured goods imports including cars, trucks, and parts. El imi nate Section 30 I tariffs
and antidumping and countervailing duties on chassis so trnckers can raise capacity.
QUEST ION 5:
How can the federal government sustain the urgency of promoting the kind of data-sharing that
will accelerate responsiveness?
Answer:
Congress and the Biden administration should get the federal government out of the way by
cutting red tape.
What's truly to blame for the lack of responsiveness? Federal and state policies, especially in
California, are compounding global shipping problems ' 5 For instance, in the midst of the
pandem ic and supply chain crisis, California continued a phase-out of older diesel trucks.
Organized labor in Cal ifornia continued to resist modernization in favor of inefficient modes of
operation while refusing to fully expand their hours to alleviate the backlog. With such high
labor costs (roughly three times the national average for port workers) and the union ' s
unwillingness to operate on a 24/7 schedule similar to all other major ports in the world, it would
make sense to increase automation, but the union has fought hard against that- including
securing a provision in the bipartisan infrastructure package to prevent any funds from going
toward automation. 16
After sitting up to weeks on boats, containers of goods can wait weeks longer for the select few
trncks and truckers that California' s environmental and labor laws allow into the state, only to be
transported to California' s border where the remaining 70 percent of trucks in the United States
are free to come and transfer the goods across the rest of the country. All this adds time and hassle,
backing up the supply chain further, and raising the costs of the goods themselves. 17
Labor costs and bottlenecks could increase further if the Teamsters' Union President James P_
Hoffa convinces the Biden Administration to change the definition of employee so that businesses
15
Rac:hel Greszler, Joel Griffith, Elizabeth Hanke, Tori Smith, and Katie Tubb, "Inflation: PolicyrnakerS Should Stop orMng It and Start Fighting
It," Special Report No. 252, The Heritage Foundation, January W, 2022, ht1rs:/Jwww.heritage.org/sites/defautt{filesJ2022-02/SR2S2.pdf
(a«e-$sed March 29, 2022).
n Eric Boehm, •Amerlc-a's Ports Need More Robots, but the $1 Trillion Infrastructure Bill won't Fund Automation,n Reas.on, November 9, 2021,
htt0 :lfreaS-On ,com/2021/11/09/americas•ports•need· more•robolswbuMhe-l •tri11ion~infrnstructu re, bill-wont-fund•port• automatton/ (accessed
March 29, 2022).
11
Rachel Cres:zler, "'California's 'Pro-Worker' Law Is Killing Jobs Left and Right," The Daily SignaL January 8, 2020,
https:l(www.heritage.org{iobs:-and-laborJcomme,uary/califoml.as-p.-o-worke.--law-'-llling-jobs-left-and-rlght .
6
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cannot hire independent truckers to transport their goods but must instead make do with the much
smaller supply of expensive unionized truckers.
Long-standing government policies that limit how goods can be transported have exacerbated port
delays, largely occurring at the adjacent Ports of Los Angeles and Long Beach. In particular, the
Merchant Marine Act of 1920, commonly referred to as the Jones Act, mandates that any goods
shipped by water between two points in the United States must be transported on a U.S.-built,
U.S.-flagged vessel with a crew that is at least 75 percent American. 18 TI1is law drives up shipping
costs 19 on average by 270 percent 20 as this regulation excludes 99.8 percent of the world's shipping
capacity from transport between states. 2122 The sheer cost of interstate water transport due to the
Jones Act often makes it more affordable to ship goods from Asia than between states. For
example, in October 2021 , millions of pounds of Alaskan seafood were being blocked from
coming into the United States via Canada due to the Jones Act. 23
" Nicolas Loris, Brian Slattery, and Bryan Riley, "'Sirik the Jones Act: RestoringAmeric,1's Compelitive Adv,mtage In Marillme-Re~ted lncllstries,""
Heritoge Foundation 8.ld:.grounder No. :2886, May 22, 2014, https:(Jwww.heritage.9rg/ggvemmen(-rp,gulatiqn/report/sink-the--j9nes-act-
r!':1:toring-amt>rl~comp<:11tklf'•advant4'S,p.mat!lme ,
" ~r•I R(IS('tve 8.'.lnlc of NewYOOI, "'Report on th&C.ompecltlvenc:ss of Puefto Rk:o's Economy,'" Juno 29, 2012, hftps=//www nwo&fcd.org
/mda1,bfary{medl,a/res!Pna11Puca0Rko/ct990 pdf f3ccessed OKembE-r9, 2021). ~°' ex,mple, according to a Fedet111I Resetve Sank of New
Yort report, the cost of shlppinga 20-foot container from lhe Easl Coast to Puerto Rico is about double the cost of shipping to nearbyblands
t hat are not subject to the Jo nes Act
xi U.S. Department of Transportation, MaritimeAdmlniStraUon, Compa(cson of U.S. and Foreign-Flag Operating Costs. Septetnber 2011,
hnps:/Jwww.mar~lme.dot.gov/si1es/marad.dot.gov/files/docs/resources/36S1/comparisonofus.1ndfo1etgnnagoperattngcos~.pdf' {accessed
J.;muary to, 2022), c,.ioted in John FrilteOi, •shipping Under the Jones Act: LegislatNe and Regul.ilory Background," Congressional Research
Service Report focCong,ess, updated Novembef 21, 2019, https;!Jcmeoor1S COOB•ess govfo,oduct/odf/R/R45n5 (accessed December 9,
2021), Acco,ding to tht' cong,essionat RM~ardi Service, "A 2011 study bytbe u..s. Maritime Admlnls:tration {MARAO) found that In 2010, tM
avt-rage operating cost of a U.SAlagshipwas 2.7 tlmes grNter than ii foreign-flag ship, but MARAO ~timates that thk cost differenti.al has
since tnc,e.ased.•
,, tnfoM;ultlrne, -WOfld Me-rchanl Fleet and Top 1$ Shlpowning Countr'es (2021 •1 Data," August 22, 2021,
htJp;//)nfomtriJlm9.cyllRdnc-PhPi2021/08G21JoP:lS.shlpowntn1-countrln/ (accessed Oecembo, 13, 20211.
u Colin Grabow, "The Progressive C~ for Jones Act Reform," Cato Institute, September 7, 2021, ht1ps:l(www.cato.of1/stu5bi!progressive;
(AAt:;jons-act•reformlFfailed-Law (accessed December 10, 2021). The cost of• lJ.S..t,uilt ship!$ '"'four to fiYe times, more cos.tl'f th.iln those
constructed abroad~" according to Colin Grabow, policy analyst ,1t t he Cato Institute, and "thes.hipyoilrds that bulld t hese Vt1$Sels are so
uncompetitNethat ff!W comme,cialships .1re actu.1Uy b.Jilt."
n Edi1oria~ " AJonesAc:t F&h Story, Chapter 2," Woll Sueet Journal, October 3, 2021, https:l/www-wsj.com/c1rtJcles/a-K)nes•act•f&h•s:19ry.
chapter-twg-ala5ka-shipping-bi!yside-c.1nada-J16J.3Q3Q744 (accessed December 7, 20211.
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