The Rise of Global Supply Chains, Networks, and the Rise of Interruptions: Looking Forward Past COVID-19

The COVID-19 pandemic and the associated shutdown of economic activity, first in China, then in parts of Europe and the United States, has drawn stark attention to the consequences of long supply chains that snake around the globe. In the health care sector, disruption in the production or shipment of protective masks from China and of pharmaceutical feedstocks from India underscores the way production networks can transmit shocks in one nation to firms and consumers in many others. Recent developments highlight a much more general point: as supply chains lengthen, the set of shocks -- whether due to natural disasters, political forces, health conditions, or other sources -- that can impact the production of final goods becomes much larger. Global supply chains can be a source of risk, but the appropriate risk analysis and policy response requires understanding the nature of that risk and the role of policy levers in addressing it.

To understand the consequences of longer supply chains and the potential set of risk-reducing strategies, the Cross-Border Threat Screening and Supply Chain Defense (CBTS) -- a Department of Homeland Security Center of Excellence led by Texas A&M University -- and the National Bureau of Economic Research (NBER) will collaborate to measure the extent to which global supply chains have lengthened. The main collaboration will start with DHS leaders who identify areas of concern, and continue with the researchers funded through the joint NBER and CBTS competition. The funded projects will help identify key nodes in the global production network that are sources of vulnerability for essential goods and services, and to look along the horizon to identify supply chains that place our economic health at risk. This partnership will generate new research findings and build the community of economic researchers working on supply chain issues. Examination of these issues will inform the design of policies to ameliorate the risks. Such policies could include public or private incentives for establishing multiple sources for production-critical materials, regulatory requirements for the maintenance of private inventories to reduce the risk of stock-out or supply interruption, or public stockpiles of essential goods.