From Mr. Stoller's BIG substack, April 25:
In the face of a coming tariff shock, a lot of things are going to crack. We should remember from Covid that yes America can build. It's time for lawmakers to lift the paper restraints preventing us.
This piece has a very simple point. While there are a lot of things we can only source from China right now, America can build. And we can get a lot, though not all, production up and running much faster than most of us assume.
I am writing this piece because we’re going to hit some rocky shoals in the next few months, when the ships from China stop coming and the inventories of key materials draw down. It’s not clear how bad the damage will be. It could be gradual enshittification, like worse selections of consumer goods, no more spare parts for air conditioning units and industrial systems, and higher prices for everything from baby gear to packaging materials. Or it could be much worse, like rolling black-outs as vital utility systems break down. We just don’t know. As Mike Beckham, the CEO of Simple Modern, an Oklahoma-based consumer products company said, “The trade war is setting up a supply chain disaster that could dwarf the chaos during COVID.”
And yet, in such a breakdown, a lot of things that seem improbable happen, and the political contours of what is possible change.
For instance, in the early months of the pandemic, America was facing a shortage of cotton swabs to test for Covid, and the only factory that made FDA approved swabs was located in Maine and run by two cousins who hated each other. Eleven months later, that company was churning out 15 times as many. How? The government provided capital and had machine tooling specialists from a major military contractor expand production facilities.
In April 2020 the Department of Defense announced it was investing $75.5 million in Puritan to double its production of the foam-tip swabs used for rapid antigen testing. The company renovated a dormant 95,000-square-foot factory in Pittsfield in eight weeks, with government contractor Bath Iron Works building proprietary swab-wrapping machines in a quarter of the time normally required. This facility is now making about 100 million swabs a month.
This episode wasn’t the only illustration that a lot of the difficulties in building stuff are just self-imposed rules we can toss aside. As a different example, auto companies repurposed their factories to make ventilators. GM gave aptitude tests to all its employees and sent some of them on this new project. Here’s what one of them, Kelly Willis Rice, said about it.
“It was amazing because I started about a week or two into it and they were still converting floors from an abandoned plant, putting in new wiring, putting in a new ceiling, learning to do this themselves while teaching you and while hiring a thousand people,” she said. “It was insane.”
The production worked, even though ventilators, it turns out, weren’t necessary. We saw the same thing with Operation Warp Speed, developing a vaccine from scratch and deploying it in 11 months. Shared urgency fosters a lot of innovation. And interestingly, we saw the first Trump administration quietly use some New Deal-style tools. The government, of course, offered guaranteed contracts for vaccine-makers, which meant that it simply created a market and justified investment. But beyond that, it actually cut real barriers, like patents. Moderna got the ability to cut through the patent rights of others using march-in rights, so that they could produce their vaccines.
There are clear physical constraints, limits on what we can do and what we know how to do based a foolish legacy of offshoring. But some restraints, as we saw during Covid, were self-imposed. In Jonathan Swift’s 18th century novel Gulliver’s Travels, Gulliver awakens tied up by a race of six inch people called Lilliputians. The legal restraints we have put on our engineers, workers, business people, farmers, and so forth, are like those ropes tying us down.
A few days ago, I wrote about the pricing games monopolists are going to play in this crisis, and ways to prevent that from happening. And the reason they can operate this way is because we’ve structured a political environment where America is dedicated to consumption and finance, while China does the production. Given we are no longer going to be able to get what we need from China, we’re going to have to reverse these choices, to make it easier for the builders again. That means creating the freedom to tinker, to explore, to collaborate, without being sued by big firms.
There are a bunch of business practices that bloat our operational environment, and make it harder for businesses to adjust to shocks. For instance, John Deere makes billions of dollars making it harder to fix agricultural equipment, using copyright, contract, trade secrets, and patent law. That’s not great in a normal business world, but when we can’t get new stuff and have to repair the old stuff, it’s a catastrophe....
....MUCH MORE
