How New Hampshire can adapt to the pandemic-severed supply chain
Covid has revealed how relying solely on outsourced production chains can backfire on local economies
In the last six months, every part of the world has experienced varying degrees of economic shutdown, with global supply chains significantly disrupted as trade rates plummet and manufacturers can no longer count on access to the same raw materials that they depended on just months ago. That has a direct impact on employers and workers right here in New Hampshire, where manufacturing accounts for nearly $10 billion in economic output and employs more than 10 percent of our workforce.
The time is now to start thinking about how to build a more resilient economy that can withstand future disruptions.
One immediate solution is to design shorter, smarter supply chains that can better reuse and recycle products through a more circular economy — and we can start by bringing production into our own backyard.
Today, more than two-thirds of world trade occurs through global value chains, where production crosses one or more borders before a product’s final assembly. Global value chains—including everything from the design, production, marketing, and eventual distribution of a product—are split up among multiple contractors, and can be located in multiple countries.
At the center of this supply chain web is China, the largest exporter in the world. In the past five years, China’s exports have been steadily increasing, with the U.S. at the top of the destination list. In fact, the Office of the United States Trade Representative estimated that imports from China totaled nearly $560 billion in 2018.
Like many states, New Hampshire has become tightly woven into the fabric of global value chains. In the months just before the pandemic upended our economy, the Granite State was a key importer of goods from overseas, which helped to create thousands of jobs in our local economy.
While global value chains allow manufacturers to access lower-cost materials, the current global pandemic also shows the risk of what can happen when these chains get too long and companies fail to build in redundancies. Starting with the Hubei province and quickly spreading to the country’s other regions, COVID-19’s lockdown mandates eventually forced China’s exports to be put on pause, effectively cutting the majority of global value chains in two — and leaving U.S. manufacturers—including here in New Hampshire—scrambling to find alternative suppliers.
Never before have we seen modern global supply chains hit so hard — and at such a rapid speed. In fewer than 100 days, global investment and trade patterns were left in complete disarray. Access to basic products and materials are no longer a given for many U.S. businesses, putting the economy at risk for years to come.
The pandemic has quickly demonstrated how relying solely on outsourced production and long global value chains can backfire on local economies, uncovering the need for a more consolidated manufacturing process going forward. This time last year, New Hampshire’s unemployment rate was just 2.5 percent. Now, it stands at 11.8—down from its peak of 17.1 in April, but still a net year-over-year change of almost 10 percent.
One way to bridge current supply gaps is by shifting long supply chains now made unfeasible to a more circular method.
It’s fairly simple: rather than the linear setup of a traditional supply chain, a circular model relies on a product at the end of its life to be recycled, reused, and repurposed as new material. Manufacturers can then use existing domestic supplies instead of being overly reliant on imports from China or other countries.
Infusing this concept into our regional and state economy can simultaneously boost companies’ profit while locally sourcing manufacturing materials and generating job growth.
Not only will this reduce the environmental impact of longer supply chains, it will also create new local markets for recycled materials that will help shore up struggling municipal recycling programs. This is particularly timely, as an increasing number of U.S. towns and cities are ending their recycling programs outright. Given the recycling industry’s recent hardships, our economy’s recovery should include finding methods for building up infrastructure to keep up with the regeneration of new materials and make local manufacturing a possibility.
The economy must recognize this pandemic as a turning point in our current supply chains setups, and look for new alternatives like implementing a more circular model. New Hampshire manufacturers can no longer only rely on countries overseas for their main source of materials. We should look to make lasting investments in recycling systems that allow us reuse and repurpose materials, while growing our local and regional economies in the process.
Dan Innis, professor of marketing and hospitality management at the University of New Hampshire, is the recently elected chair of the Chamber Collaborative of Greater Portsmouth’s executive committee.