[Senate Hearing 116-627]
[From the U.S. Government Publishing Office]
S. Hrg. 116-627
EXAMINING THE AMERICAN
MANUFACTURING INDUSTRY'S RESPONSE TO THE
COVID-19 PANDEMIC
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MANUFACTURING, TRADE,
AND CONSUMER PROTECTION
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
NOVEMBER 17, 2020
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available online: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-854 PDF WASHINGTON : 2023
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
ROGER WICKER, Mississippi, Chairman
JOHN THUNE, South Dakota MARIA CANTWELL, Washington,
ROY BLUNT, Missouri Ranking
TED CRUZ, Texas AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska RICHARD BLUMENTHAL, Connecticut
JERRY MORAN, Kansas BRIAN SCHATZ, Hawaii
DAN SULLIVAN, Alaska EDWARD MARKEY, Massachusetts
CORY GARDNER, Colorado TOM UDALL, New Mexico
MARSHA BLACKBURN, Tennessee GARY PETERS, Michigan
SHELLEY MOORE CAPITO, West Virginia TAMMY BALDWIN, Wisconsin
MIKE LEE, Utah TAMMY DUCKWORTH, Illinois
RON JOHNSON, Wisconsin JON TESTER, Montana
TODD YOUNG, Indiana KYRSTEN SINEMA, Arizona
RICK SCOTT, Florida JACKY ROSEN, Nevada
Nick Rossi, Staff Director
Adrian Arnakis, Deputy Staff Director
Jason Van Beek, General Counsel
Kim Lipsky, Democratic Staff Director
Chris Day, Democratic Deputy Staff Director
Renae Black, Senior Counsel
------
SUBCOMMITTEE ON MANUFACTURING, TRADE,
AND CONSUMER PROTECTION
JERRY MORAN, Kansas, Chairman RICHARD BLUMENTHAL, Connecticut,
JOHN THUNE, South Dakota Ranking
DEB FISCHER, Nebraska AMY KLOBUCHAR, Minnesota
DAN SULLIVAN, Alaska BRIAN SCHATZ, Hawaii
MARSHA BLACKBURN, Tennessee EDWARD MARKEY, Massachusetts
SHELLEY MOORE CAPITO, West Virginia TOM UDALL, New Mexico
MIKE LEE, Utah TAMMY BALDWIN, Wisconsin
RON JOHNSON, Wisconsin KYRSTEN SINEMA, Arizona
TODD YOUNG, Indiana JACKY ROSEN, Nevada
C O N T E N T S
----------
Page
Hearing held on November 17, 2020................................ 1
Statement of Senator Moran....................................... 1
National Association of Manufacturers--American Renewal Plan. 4
Statement of Senator Blumenthal.................................. 13
Statement of Senator Cantwell.................................... 43
Statement of Senator Thune....................................... 45
Statement of Senator Klobuchar................................... 46
Statement of Senator Baldwin..................................... 48
Statement of Senator Rosen....................................... 50
Witnesses
Ravi Bulusu, Founder, MolMas, Inc................................ 15
Prepared statement........................................... 17
Neil Gilman, President, Gilman Gear.............................. 18
Prepared statement........................................... 21
Rick Krska, President and Chief Executive Servant, InkCycle, Inc. 22
Prepared statement........................................... 25
Tiffany M. Stovall, CEO, Kansas Manufacturing Solutions, Kansas
Manufacturing Extension Partnership (MEP)...................... 27
Prepared statement........................................... 29
Michael Wessel, Commissioner, U.S.-China Economic and Security
Review Commission.............................................. 32
Prepared statement........................................... 34
Appendix
Response to written questions submitted by Hon. Jacky Rosen to:
Ravi Bulusu.................................................. 53
Tiffany M. Stovall........................................... 53
Response to written questions submitted to Michael Wessel by:
Hon. Dan Sullivan............................................ 54
Hon. Jacky Rosen............................................. 61
EXAMINING THE AMERICAN
MANUFACTURING INDUSTRY'S RESPONSE TO THE COVID-19 PANDEMIC
----------
TUESDAY, NOVEMBER 17, 2020
U.S. Senate,
Subcommittee on Manufacturing, Trade, and Consumer
Protection,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2 p.m. in room
SR-253, Russell Senate Office Building, Hon. Jerry Moran,
Chairman of the Subcommittee, presiding.
Present: Senators Moran [presiding], Thune, Fischer,
Sullivan, Young, Blumenthal, Cantwell, Klobuchar, Baldwin,
Sinema, and Rosen.
OPENING STATEMENT OF HON. JERRY MORAN,
U.S. SENATOR FROM KANSAS
Senator Moran. Good afternoon, everyone. Thank you for
being with us or being near us, at least in the technology
sense.
As Chairman of the Senate Commerce Committee on
Manufacturing, Trade, and Consumer Protection, I welcome all of
you to today's hearing that we have entitled ``Examining the
American Manufacturing Industry's Response to the COVID-19
Pandemic.'' The Subcommittee, as of the pound of the gavel,
will come to order.
As the Nation continues to fight the unprecedented public
health crisis brought on by the COVID-19 pandemic, Americans
have worked to protect against further spread of the virus
while trying to maintain a certain degree of normalcy,
including maintaining a job and earning a paycheck. There is
not a corner of the United States' economy that has not felt
the impact of the pandemic, and today's discussion will focus
on particularly harmful effects that this public health
emergency has had on the manufacturing sector.
During this pandemic, many in the manufacturing community
have adapted their operations to help provide products needed
to prevent the spread of the virus. Whether it is an early
stage pharmaceutical wholesale distribution company that
completely pivoted to manufacturing face masks in response to a
dire national supply shortage or a successful printer cartridge
remanufacturer shifting to production and distribution of hand
sanitizer and other innovative sanitation solutions, we have
examples of manufacturing businesses in Kansas taking the lead
bolstering the U.S. manufacturing to compete globally and to
assist in meeting the needs that arrive with the pandemic.
There are a variety of Federal programs intended to provide
assistance to our nation's manufacturers, and in response to
the pandemic, Congress and the administration took action
through the CARES Act to improve existing programs and to
create a few new ones.
As Chairman of the Senate Appropriations Subcommittee on
Commerce, Justice, Science, and Related Agencies, I am
particularly involved in the oversight of the National
Institute of Standards and Technology Hollings Manufacturing
Extension Partnership, MEP, which distributes resources to 51
State designated centers to assist small and medium sized
manufacturers. The CARES Act specifically provided an
additional $50 million to the Fiscal Year 2020 appropriation to
augment support in response to the pandemic. The law provided
additional assistance by waiving the statutory non-Federal cost
match requirement for all MEP funding for that fiscal year.
The comprehensive pandemic response package offered
assistance to manufacturers and other businesses, including but
not limited to Small Business Administration's Paycheck
Protection Program, the Treasury's Main Street Lending Program,
the Manufacture USA Institutes, and the Economic Development
Administration's Recovery Assistance Grants. Congress must
uphold its oversight responsibilities to determine what worked
in administrating these programs and make refinements, where
appropriate, to ensure effective Federal investment.
In addition to resources, the manufacturing community
requires regulatory and technical guidance to enable new
manufacturing venues such as production of masks, gloves,
gowns, ventilators, and other relevant items.
While I understand the U.S. Food and Drug Administration,
the U.S. Centers for Disease Control and Prevention, the
National Institutes of Health are fundamental in forming and
sharing critical information needed to enable solutions, the
private sector has played a critical role in the disbursement
of this information.
In addition, liability relief to the nation's small
businesses, coupled with robust resources dedicated to testing
and PPE, will play an enormous role in the nation's economic
recovery.
As Congress enters negotiations for a future COVID-19
response package, I urge my colleagues to use today's
discussion to reinvigorate their efforts to provide thoughtful
Federal policies and resources to our nation's job creators and
innovators.
Additionally, I would like to highlight Senate bill 3705.
It is a bipartisan piece of legislation that I have developed
with Senator Warner designed to allow the aviation
manufacturing sector to retain workers who are at risk of
permanent reduction through furlough. This proposed cost
sharing program would enable the private and public sector to
come together to preserve a uniquely hard-hit industry and
overall major contributor to the U.S. trade balance.
Finally, I would be remiss if I did not address the unique
national security and economic consequences if the U.S. does
not immediately fortify and increase its manufacturing
capacities and supply chain, specifically as it relates to the
national strategic stockpile of PPE.
The threat from China to our manufacturing sector is real.
In 2019, U.S. imports of pharmaceuticals, medical equipment,
and related products from China were estimated to have an
approximately $20.7 billion of value according to the
Congressional Research Service calculations based on official
U.S. data. This number likely understates the current extent to
which the U.S. relies on China for pharmaceuticals and medical
equipment, products and supplies as demand in the United States
for these products rose during the pandemic.
All in all, the American manufacturing industry has played
a critical role to date in mitigating harm stemming from this
pandemic from both public health and economic perspectives, and
it is vital for Congress to acknowledge this work by providing
appropriate support through thoughtful policymaking.
Kansas is home to the Air Capital of the World in Wichita
which remains our nation's leader in industry and academic
collaboration and manufacturing and workforce development. This
type of innovative collaboration takes the form in various
other manufacturing capacities across the State of Kansas, so
today's conversation is personal to me and to my constituency.
I look forward to hearing from our witness panel today that
provides a variety of different perspectives to the same
important issue.
Joining us today is Mr. Ravi Bulusu, founder of MolMas,
Inc. based in Haysville, Kansas; Mr. Neil Gilman, President of
Gilman Gear in Connecticut; Mr. Rick Krska, Chairman and Chief
Executive Servant of InkCycle, Inc. based in Shawnee, Kansas;
Ms. Tiffany Stovall, Chief Executive Officer of Kansas
Manufacturing Solutions which serves as Kansas' MEP center to
our State's small and medium sized manufacturers; and finally,
Mr. Michael Wessel, Commissioner of the U.S.-China Economic and
Security Review Commission.
Finally, the National Association of Manufacturers provided
their American renewal action plan for the hearing record
describing their collaborative efforts of their member
companies in responding to the pandemic, and I ask this
document be submitted for the record. Without objection, so
ordered.
[The information referred to follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator Moran. With that, I turn to the Ranking Member, Mr.
Blumenthal, or perhaps the Ranking Member of the Full
Committee. Richard, I have never seen you not in person. So
glad you have joined us. Thank you.
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thank you so much, Mr. Chairman.
Ordinarily I would be with you in person. I am here in
Washington, D.C., but I am taking this extra precaution to
participate remotely just for today.
And for you and for me and for many of us, this issue is
indeed personal, and I am so glad that you and the Chairman,
Senator Wicker, have agreed to do this hearing and especially
grateful to Neil Gilman of Bozrah, Connecticut for
participating remotely as I am doing.
I want to just make a couple of quick points, and I know we
have a vote so we may have to take a recess. But the
coronavirus pandemic has created a surge in demand for personal
protective equipment and other public health products all
across our country and the world. Everyone, particularly health
care professionals and essential workers, our heroes today,
urgently needed face masks, gloves, and hand sanitizer, among
other products. This sudden and universal need for critical
supplies exposed alarming vulnerabilities in our system and our
supply chain. The United States relies heavily on imports of
key medical supplies and equipment, but China and other
countries restricted exports and focused solely on their own
national health response. As a result, supplies severely
dwindled, and our health care professionals, first responders,
and frontline workers were put at unacceptable risk.
Fortunately, American manufacturers took up the mantle.
They worked tirelessly to produce PPE, ventilators, and other
supplies. All around the country, companies began repurposing
existing manufacturing lines and investing in new equipment.
They often paid to upgrade their infrastructure out of their
own pockets during this crisis.
Gilman Gear is a model American success story. It is a
Connecticut story, but it also is a model for America. And I am
very proud of Neil Gilman's family and all of the companies in
Connecticut that stepped up, stood out, and spoke up to help
address this crisis. And they helped really address this public
health crisis.
In Shelton, Connecticut, Modern Plastics created a new
business division. They are currently producing 300,000 face
shields every day. By early next year, they aim to ramp up to 1
million face shields per day. They are growing. They are
planning to open a facility in Derby. They are going to hire
more employees to meet demand. I look forward to visiting with
them and other companies in Connecticut such as in South
Windsor, I spent some time at Preferred Protective Equipment.
They put their expertise as a global leader in manufacturing
high end retail stores display to public health use. Preferred
Protective Equipment heard first responders' complaints of
headaches and discomfort from extended face mask use, as well
as concerns about the single use nature. They used their
expertise to design a new face shield that is comfortable. It
can be reused. It is affordable, and it is a great public
service. The smart business sense and public service of Gilman
Gear, Modern Plastics, Preferred Protective Equipment, and
countless others that our first responders and essential
workers have been served by is really a great success story.
Safeguarding our supply of PPE is not only a matter of
public health and national security, it is also a consumer
protection issue. Throughout the pandemic, consumers and even
hospitals were desperate to find face masks and other crucial
equipment. Out of desperation, many turned to middlemen and
online marketplaces. Unfortunately, counterfeit PPE such as
fake 95 face masks flooded the market. There was little
information available to consumers that could guide them
through the morass of con artists and fakes. Online
marketplaces often took inadequate measures to find and remove
fake or suspicious PPE. The health consequences of fake medical
supplies are potentially life-threatening.
That is why it is so important to ensure a robust and
reliable domestic supply of PPE, to have products from trusted
companies close to their communities. Manufacturers can work
with State officials and hospitals in hand.
Congress and the Federal Government should do more for
these business leaders. The Defense Production Act provides
useful tools to the President to incentivize and require the
production of key medical supplies. Regrettably and really very
unfortunately for all Americans, the President has failed to
fully utilize the Defense Production Act and support American
manufacturers. They deserve it. So do the American people.
The House-passed HEROES Act would provide tens of billions
of dollars in funds to assist health care providers and boost
domestic supplies. It would also require the President to use
his authorities under the DPA to support more production of
diagnostic tests, medicine, and other crucial medical supplies.
I look forward to hearing from the witnesses.
Again, my thanks to the Chairman and Senator Moran for
holding this hearing. Nothing is more important than providing
this kind of affordable, reliable, and robust supply of PPE,
medical supplies, and other aid to our frontline workers and to
Americans as a whole. Thank you, Mr. Chairman.
Senator Moran. Senator Blumenthal, thank you. In my
mistaken view that you were at least temporarily absent, I
failed to compliment you and thank you for your cooperation and
work in putting this hearing together. When you and I first
discussed this, I think we thought this would be looking back.
Unfortunately, we have not escaped the challenges that lie
ahead, and so while we are looking at what has transpired in
the past, we are doing so in preparation to make sure that our
country is prepared for today and tomorrow. So thank you for
your cooperation and your assistance. Thanks for working
closely with me to see that this hearing took place.
We are going to now turn to witness testimony. The order
that our witnesses will testify is Mr. Bulusu, Mr. Gilman, Mr.
Krska, Ms. Stovall, and Mr. Wessel. So, Mr. Bulusu, I now call
on you for your 5 minutes of testimony. Welcome and thank you
for being here. I would report it is a Kansan who is in the
room testifying.
STATEMENT OF RAVI BULUSU, FOUNDER, MolMas, INC.
Mr. Bulusu. Chairman Moran. Thank you, Senator Blumenthal.
I much appreciate this opportunity and thanks a lot for all
your team that supported and guided us all through the way
here.
So we co-founded MolMas, Incorporated. I co-founded MolMas,
Incorporated, and we are based out of the greater Wichita area
in Kansas.
I would like to take us through the journey that we have
gone through so far since the COVID pandemic struck in the
early part of this year.
The COVID pandemic, which started at the beginning of this
year, continues to impact how we live as a society. It exposed
critical gaps in our health care system and opened up fault
lines that we never knew existed. At the root of all of this is
one sad, harsh reality. We do not have a strong manufacturing
base for PPE or the equipment that is used to make PPE.
At the ground level, single-use, disposable masks were
being reused, going against the established practice for well
over 50 years. Our PPE supply chain, including the machinery
used to manufacture them, is oversees dependent, from masks to
ventilators. They were throttled before and can be throttled
yet again.
For instance, we bought our machinery and raw material from
overseas at many times the pre-COVID prices. The raw material
was available at a minimum of 30 to 65 times from overseas.
Domestic production continues to not meet the demand, so we
rely on imports. However, do we have a handle on the quality?
Are there quality controls on the manufacturing process
overseas? We do not know. All these questions leave gaps in our
preparedness that need to be addressed.
How can we set up our economy and society for resilience in
this pandemic or, God forbid, future disasters? Sirs, the
simple mask was pioneered here in America. Why is it then that
we have a scarcity of good quality face masks today?
How can we achieve self-sufficiency? The only way to
actually achieve that is through producing our own medical
manufacturing equipment as well and to secure our raw materials
supply chain.
The very first case of COVID in our country was identified
in my home State of Washington. The factory itself is based out
of the greater Wichita area in Kansas. And this was a few miles
north of where I live. My wife, a physician, works on the front
lines in an underserved area. My younger daughter at that time
was 9 months old and was still nursing. So I requested her,
maybe selfishly, if she would consider quitting her job. She
shot me down immediately and said that was what I had signed up
for when I married her.
So I started looking for solutions, solutions to keep her
and also her colleagues safe. Quickly I realized that charity
was just not going to cut it. We had to manufacture it, and we
had to do that to address the three critical areas of
availability, product quality, and supply chain reliability. We
could not compromise on either. We needed to make PPE here in
America out of American raw material. So we pivoted to make
face masks.
A whole range of new discoveries ensued. We quickly learned
that the bulk buyers of PPE, that is, the State and local
governments, were by policy procuring them at the lowest price.
So the overseas product that is being dumped in the U.S. ends
up being the default choice. Ironically, the best opportunity
to strengthen our supply chain is instead perpetuating our
dependence, not weaning us off of it.
The direct-to-consumer sales front was very challenging as
well. Well-intended policies by our social media and the e-
commerce channels, aimed at preventing price gouging and
protecting the consumer, were inadvertently stifling start-up
American manufacturers like us. We were prevented from
directly--we still are prevented from directly advertising to
the consumer. We are forced to rely on old-fashioned cold
calling. Net-net, the American manufacturer, who in the true
American spirit of grit and fortitude, in the face of threat
and stood up to fix the problem, is facing pressure on either
end.
I take inspiration from the race to the Moon. 1961
propelled our dominance in space and the human race benefited.
The superior technology is what inspired me, a first generation
immigrant, to come to America, to contribute positively to
change. We look at this honorable chamber to help evolve policy
that unleashes the latent spirit of innovation, the prowess to
manufacture at superior quality, and the zeal to take the human
race forward. Let us not ask can America do it because America
has done it multiple times before and very successfully so.
I humbly submit a few recommendations for consideration.
Treat self-sufficiency in the production of medical
equipment as a national priority just like we treat national
security, economic security, and some nations do food security.
Incentivize startups in the area. Democratize to release
the animal spirits of the innovators.
Supportive policy in the immediate 3-year term will help
them thrive, especially so in the face of relentless dumping of
overseas product.
Reduce regulation. Statistically speaking, 99 percent of
startup businesses die in their infancy, and we are talking
about the first 1 to 2 years. Regulation during this phase can
be very detrimental to this very critical industry that is
already under significant stress. If we do have to regulate,
however, or restrict, let us remember that America has always
produced more than enough, not just for ourselves, but for the
entire world. The human race always benefited from America's
progress. This will still be the same.
As opposed to blanket restrictions, consider publishing a
very nuanced data-driven policy that keeps the doors open for
foreign markets. Such a major thrust of this nature will most
certainly result in secondary and tertiary benefits that, in
the post-pandemic world, will put us in a much, much better
position much like the goal to land on the moon did.
I take this opportunity to also urge my fellow
manufacturers let us fix this.
Thank you all for the opportunity.
[The prepared statement of Mr. Bulusu follows:]
Prepared Statement of Ravi Bulusu, Founder, MolMas Inc.--Face Mask
Manufacturer
The Covid19 pandemic which started at the beginning of this year
continues to impact how we live as a society. It exposed critical
faults in our healthcare system and opened up faultlines that we never
knew existed. At the root of all of this is one sad yet harsh reality--
We do not have a strong manufacturing base for PPE or the equipment
used to make PPE.
1. At the ground level, disposable masks, meant to be disposed off,
after a single use to prevent cross infections were being
reused. This goes against the prescribed and established
practice for well over 50 years.
2. Our PPE supply chains including the machinery used to manufacture
them, have been overseas dependent, whether for a simple mask
or life saving ventilators. These supplies can be throttled at
their origin like they were earlier this year, anytime!
As a startup, we have first hand experience of such challenges. We
bought our machinery and raw material from overseas at many
times the pre-covid prices. The raw material was available at a
minimum of 30--65 times from overseas. Worse, the prices were
moving upwards on a daily basis. Many times the spike driven by
apparent market forces, surprised us also in how there was not
much variation in prices across vendors.
3. Domestic production continues to not meet the demand. So, the
scarcity continued for months! While that might have since
improved due to imports, it is not very clear if we do have a
handle on their quality due to lack of adequate quality
controls on the manufacturing process. The supply itself
continues to be at risk as it may be throttled yet again like
it was before.
The above open questions leave gaps in our preparedness that need
to be filled.
States competed with each other to procure PPE at any price. When
availability itself is a challenge, quality and reliability are far
secondary considerations.
How can we set up our economy, nay our society for resilience in
this pandemic or God forbid, future disasters? Sirs, the simple mask
was pioneered here in America in the 1920s. Why is it then that we have
a scarcity of good quality masks? How can we achieve self-sufficiency
in PPE and medical equipment?
The only way to achieve that confidently and reliably is to produce
our own medical supplies and also the equipment used to manufacture
them and while simultaneously securing our supply chains for raw
materials as well.
Our journey
The very first case of Covid in our country was identified in my
home state, Washington, a few miles north of where I live. My wife, a
physician, is contributing on the frontlines, in an underserved area.
My younger daughter at the time was 9 months old, and still nursing.
So, I asked my wife maybe selfishly, if she would consider quitting her
job, because of the PPE scarcity. She immediately shot me down
reminding me that, that was what I had signed up for when I married
her. So, I started looking for solutions to keep her and also her
colleagues safe. Charity just wasn't going to cut it.
After some research it was clear that, to address the three
critical issues of 1) availability, 2) product quality and 3) supply
chain reliability, there was an urgent need to make face masks
ourselves. The decision was not too difficult to take. So, we pivoted
MolMas to manufacture face masks here in America!
That, however, was only the beginning of a whole range of new
discoveries in the process. We quickly learnt a few things:
1. The bulk buyers of PPE, especially face masks, i.e. the state and
local governments were by policy, procuring them at the lowest
price. This meant that overseas product that is being dumped in
the U.S. ends up being the default choice. Ironically, an
opportunity to strengthen our medical equipment supply chain is
instead, benefiting the very same unreliable overseas
manufacturers that we have over decades become accustomed to
relying on.
2. On the direct to consumer sales front, was challenging as well.
Well intended policies by our social media and e-commerce
channels, aiming to prevent price gouging, were inadvertently
stifling American manufacturers of the opportunity to directly
advertise to the end consumer. As a consequence of the above
two, our sales process was forced to rely on old fashioned cold
calling to distributors, or on e-mail campaign strategies from
20 years back.
As a net effect, American manufacturers like us are stifled not
because we are unable to manufacture but because the sales channels are
at the very best severely throttled.
Policy Recommendations
I take inspiration from the race to the moon! 1961 propelled our
dominance in space and the human race benefited. That is what inspired
me, a first generation immigrant to come to America, to contribute
positively to change. We look to this honorable chamber to evolve
policy that unleashes the latent spirit of innovation, the prowess to
manufacture at superior quality, the zeal to take the human race
forward. Let us not ask ``Can America do it?''. America has done it
multiple times before. Supportive policy making will accelerate it and
get us to where we need to be quicker. Below are a few recommendations
for consideration.
1. Treat self-sufficiency in the production of medical equipment,
including PPE as a national priority just like we treat
national security, economic security and some nations do food
security.
2. Incentivize startups in the area. Democratize to release the
animal spirits of the entrepreneurs and innovators.
3. Supportive policy in the short to medium term will helps these
startups thrive, especially in the face of relentless dumping
of overseas product.
4. Avoid regulation--Statistically speaking, 99 percent of startups/
new businesses die in their infancy, across sectors. Regulation
during the startup phase can be detrimental to a very critical
industry that is already under stress.
5. As opposed to blanket restrictions, consider publishing a nuanced
data driven policy that specifies the quantities of products
that could be allocated to exports.
Long term Benefits
Innovations for the pandemic will directly help improve the quality
of healthcare and quality of life of our baby boomers in specific and
the society in general. Merely through requiring stricter quality
checks and higher quality bar, cross contamination can be brought down.
Innovation in this space will further reduce it thereby directly
contributing to improving the quality of life and quality of care. That
will in turn reduce the stress on medicare and medicaid.
By going beyond incremental process improvements the medicare,
medicaid funding situation could benefit directly.
A major thrust of this nature will not merely improve our response
to the pandemic, it will also result in secondary and tertiary benefits
in the post-pandemic world much like the goal to land on the moon did.
Senator Moran. Mr. Bulusu, thank you for your testimony and
the passion with which you presented it.
Mr. Bulusu. Thank you.
Senator Moran. Let us now hear from Mr. Neil Gilman. Mr.
Gilman?
STATEMENT OF NEIL GILMAN, PRESIDENT, GILMAN GEAR
Mr. Gilman. Senator Moran, Ranking Member Blumenthal,
distinguished Senators, ladies and gentlemen, thank you for the
opportunity to provide testimony today on the urgency of
sustaining a domestic supply chain for PPE during the COVID
pandemic.
I come before you as a second generation business owner who
runs a manufacturing business in Connecticut. My ancestors
built one of the first textile mills in New England. My father
built a business that pioneered the development of football
training equipment, which he started in 1929. My company is the
nation's leading manufacturer of blocking and tackling dummies
and sleds.
When the pandemic struck and the nation's Governors were
issuing stay-at-home orders, most, if not all, the high schools
and colleges closed, as well as the entire National Football
League. The game of football was on hold. College football at
591 schools was canceled or moved to the spring. High school
football in 24 states was canceled or moved to the spring. Our
whole market cratered and collapsed. We were on the brink of
shutting down and laying off all of our employees and
potentially going out of business.
I thought of my grandfather, Nathan Gilman, who repurposed
his textile mill to make Army blankets during World War II. I
too wanted to contribute in some meaningful way to help the
medical professionals on the front lines battling this deadly
COVID virus. I read about the terrible shortage of PPE in our
hospitals, nursing homes, assisted living and urgent care
facilities. I saw pictures of doctors wearing rain ponchos as
gowns, using ski goggles as eye protection, and recycling N95
masks for days on end.
I later learned that the whole domestic PPE market had
moved their manufacturing mainly to China to take advantage of
cheap labor and material. At the time, the Chinese were dealing
with their own domestic pandemic and had decimated their own
supply of PPE. When COVID spiked in the United States,
hospitals found their normal supply chain choked off and the
Chinese market was unable to meet their demand.
Gilman Gear has a large cut and sew operation. I was
determined to make an isolation gown because we had the
equipment to cut and sew them.
[Pause.]
Senator Moran. I think we have lost Mr. Gilman. My
suggestion is that we probably need to recess anyway so that I
can go cast a vote, the other members can cast their votes.
There are two votes, and by leaving now, I will arrive at the
end of the first vote and vote the first one and return.
Senator Thune is expected to come here and replace me to
help accomplish that. If he arrives before I come back, he can
reconvene the hearing.
And, Mr. Gilman, if you can hear me, we will start that
second phase of our hearing with the conclusion of your
testimony. Thank you.
So the Committee will stand in recess till the sound of the
gavel.
[Recess.]
Senator Moran. There is a potential of a third vote now,
which we will not know until--I do not know--a half hour from
now whether that is happening, but maybe we can work it so that
we can tag team the chairmanship. Senator Blumenthal I think is
back with us, and I will make certain that maybe he and I can
trade positions so we can both vote at different times, if that
happens.
The Committee is reconvened.
Mr. Gilman, if you are available, you have about a minute
and a half time left. I think we heard your testimony to that
last point and would love to hear your concluding remarks.
Mr. Gilman. Senator Moran, can you hear me?
Senator Moran. Mr. Gilman?
Mr. Gilman. Yes. Can you hear me?
Senator Moran. Yes, sir.
Mr. Gilman. OK. So I am going to pick up my testimony from
where I left off.
Senator Moran. Yes, sir.
Mr. Gilman. OK.
I was determined to make isolation gowns because we had the
equipment to cut and sew them. I quickly got a sample from a
local hospital, designed my own pattern, researched the
materials the gowns were made of, and built a prototype. I sent
it over to Yale New Haven Hospital. They evaluated it and
awarded me my first big order. I was able to get business
because there was surge demand. The hospitals needed more gowns
than they could buy from their normal supply chain, and they
turned to me to bridge the gap.
The problem was twofold. The hospitals wanted the gowns
fast and they wanted them cheap. To meet the aggressive supply
schedule, I had to invest in new machinery and hire more
employees. We went from making 200 gowns a week to making more
than 12,000 gowns per week.
Pricing was an even more difficult hurdle. The hospitals
were reluctant to pay more than the price they had paid for the
product exported from China. I could not match that price
unless I moved my factory to China. My gowns are 100 percent
American made. I am at a competitive disadvantage. My labor
costs are higher. My material costs are higher. I am able to
mitigate some of the cost disparity with technology. But at the
end of the day, my American made gown is two to three times
more expensive than those made in China. However, my American
made gown is of a higher quality and meets a higher level of
protection. But in the PPE market, an isolation gown is
considered a commodity item and buyers in the medical community
are just looking for the cheapest price.
I am here with an urgent plea for the Federal Government to
do more to help the private sector sustain the PPE business in
the United States. China dominates the market for PPE. The
Chinese Government has made manufacturing PPE a priority not
only from a national security standpoint, but also with a view
to creating domination over a globally critical marketplace.
The Chinese Government has implemented this strategy by taking
the following measures:
First, factory owners get cheap land courtesy of the
Chinese Government.
Second, factory owners get loans and subsidies.
Third, Chinese hospitals are told to buy local, giving
China's suppliers a vast and captive market.
The Federal Government can play a vital role in sustaining
United States companies that have pivoted to making PPE if it
will do the following:
First, implement a Buy American preference across all
Federal agencies that purchase PPE.
Second, create a subsidy for companies investing in new
plant and equipment for manufacturing PPE.
Third, establish a tax credit for every job created to
manufacture PPE.
We are not looking for a handout. We want, to use a
football term, a level playing field so we can compete with
China.
What is at stake here is the future of manufacturing PPE in
Connecticut and, for that matter, across the United States. If
we let China dominate the market for PPE, if we let them
control the supply chain for PPE, does that not compromise our
ability to cope with this pandemic? Do we want to be at the
mercy of China when and if there is a pandemic in the future?
What is at stake here is jobs. The 50 jobs we support at
Gilman Gear are precious. If we lose them to China, they are
not coming back.
What is at stake here is our ingenuity and ability to pivot
on a dime from a mature business making football equipment to
making PPE to serve the medical community. We evolved and we
reinvented ourselves during a national emergency and sustained
50 jobs during the worst economic downturn in our history. Help
us to sustain this critically important business today and in
the future.
Thank you.
[The prepared statement of Mr. Gilman follows:]
Prepared Statement of Neil Gilman, President and CEO, Gilman Gear
Senator Moran and Ranking Member Blumenthal, distinguished
Senators, ladies and gentlemen, thank you for the opportunity to
provide testimony today on the urgency of sustaining a domestic supply
chain of PPE during the COVID pandemic.
I come before you as a second-generation business owner who runs a
manufacturing business in the State of Connecticut. My ancestors built
one of the first textile mills in Connecticut. My father built a
business that pioneered the development of football training equipment
in 1929. My company is the Nation's leading manufacturer of blocking
and tackling dummies and sleds. When the pandemic struck and the
Nation's governors were issuing stay at home orders, most, if not all,
the high schools and colleges closed, as well as all of the NFL. The
Game of Football was on hold. College football at 591 schools was
cancelled or moved to the spring. High School football in 24 states was
cancelled or moved to the spring. Our whole market cratered and
collapsed. We were on the brink of shutting down and laying off all my
employees, and potentially going out of business. I thought of my
grandfather, Nathan Gilman who re-purposed his textile mill to make
Army blankets during World War II. I, too, wanted to contribute in some
meaningful way to help the medical professions on the front lines
battling this deadly COVID virus. I read about the terrible shortage of
PPE in our Hospitals, Nursing Homes, Assisted Living and Urgent Care
Facilities. I saw pictures of doctors wearing rain ponchos as gowns,
using ski googles as eye protection and recycling N95 masks for days on
end. I later learned that the whole domestic PPE market had moved their
manufacturing mainly to China to take advantage of cheap labor and
material. At the time, the Chinese were dealing with their own domestic
pandemic and had decimated their supply of PPE. When COVID spiked in
the US, hospitals found their normal supply chain choked off and the
Chinese market was unable to meet their demand. Gilman Gear had a large
cut and sew operation. I was determined to make Isolation Gowns because
we had the equipment to cut and sew them. I quickly got a sample from a
local hospital. Designed my own pattern. Researched the materials the
gowns are made of and built a prototype using a non-woven polypropylene
material. I sent it over to Yale New Haven Hospital. They evaluated it
and awarded me my first big order. I was able to get business because
there was ``surge demand.'' The hospitals needed more gowns than they
could buy from their normal supply chain, so they turned to me to
bridge the gap.
The problem was twofold. The hospitals wanted the gowns fast and
they wanted them cheap. To meet the aggressive supply schedule, I had
to invest in new machinery and hire more employees. We went from making
200 gowns a week to more than 12,000 gowns per week. Pricing was an
even more difficult hurdle. The hospitals were reluctant to pay more
than the price they paid for the product exported from China. I
couldn't match that price unless I moved my factory to China. My gowns
are made 100 percent American made. I'm at a competitive disadvantage.
My labor costs are higher. My material costs are higher. I'm able to
mitigate some of the cost disparity with technology. But at the end of
the day, my American made Gown is two to three times more expensive
then those made in China. However, my American made Gown is a higher
quality and meets a higher level of protection. But in the PPE market
an Isolation Gown is considered a commodity item and buyers in the
medical community are just looking for the cheapest price.
I'm here with an urgent plea for the Federal Government to do more
to help the private sector sustain the PPE business in the United
States.
China dominates the market for protective and medical supplies. The
Chinese government has made manufacturing PPE a priority, not only from
a national security standpoint, but also with a view to creating
domination over a globally critical marketplace. The Chinese government
has implemented this strategy by taking the following measures:
Factory owners get cheap land courtesy of the Chinese
government.
Factory owners get loans and subsidies.
Chinese hospitals are told to buy local giving China's
supplier's a vast and captive market.
The Federal Government can play a vital role in sustaining U.S.
companies that have pivoted to making PPE if it will do the following:
Implement a Buy American preference across all Federal
agencies that purchase PPE.
Create a subsidy for companies investing in new plant and
equipment for manufacturing PPE.
Establish a tax credit for every job created to make PPE.
We're not looking for a hand-out. What we want, to use a football
term, is a level playing field, so we can compete with China.
What's at stake here, is the future of manufacturing PPE in the
State of Connecticut and for that matter, across the United States. If
we let China dominate the market for PPE. If we let them control the
supply chain for PPE. Doesn't that compromise our ability to cope with
this pandemic? Do we want to be at the mercy of China, when and if
there is a pandemic in the future?
What's at stake here is jobs! The 50 jobs we support at Gilman Gear
are precious. If we lose them to China, and they are not coming back.
What's at stake here is our ingenuity and ability to pivot on a
dime from a mature business making football equipment to making PPE to
serve the medical community. We evolved and re-invented ourselves
during a national emergency and sustained 50 jobs during the worst
economic downturn in our history. Help us to sustain this critically
important business today and in the future!
Senator Moran. Mr. Gilman, thank you for your testimony and
for the response that it describes that you provided to COVID-
19.
Mr. Krska, Mr. Rick Krska, is our next witness. Mr. Krska,
you are recognized for five minutes.
STATEMENT OF RICK KRSKA, PRESIDENT AND CHIEF EXECUTIVE SERVANT,
InkCycle, INC.
Mr. Krska. I am the founder of InkCycle located in Shawnee,
Kansas, and I would like to thank Senator Moran and Senator
Blumenthal for the opportunity to share my thoughts and
testimony.
After early careers in the industry of producing components
for nuclear weapons, we started InkCycle in 1992 in the
basement of our Kansas farm home. My wife Carol and I embarked
on a new quest to bring manufacturing jobs to Kansas by
starting a business which was and remains focused on four
primary principles: number one, operate with the principles of
servant leadership; two, serving our clients with high quality
products; build a significant business that positively impacts
a significant number of people internally and externally; and
strive to create area employment and economic development.
Prior to starting the business, my partners and myself were
working for Allied Signal where we were involved in the
production of components for nuclear weapons. We absolutely
loved the engineering, production, and quality roles that we
served in.
With the end of the cold war, the demand for our products
declined, and we, like thousands of others, found ourselves
looking for a job. So looking to the future, we found a sense
of purpose. We all had a deep love for manufacturing. We had a
desire to provide manufacturing jobs and employment to as many
people as possible. After all, we had personally experienced
firsthand what happens when a large employer has to downsize.
So here we are in 1992. We launched a new business. We
began remanufacturing printer cartridges and rapidly became one
of the largest toner cartridge remanufacturers in the USA. By
1995, 3 years later, we had become fourth out of 500 companies
and we began to expand in the growing inkjet market. So 10
years later, by 2005 we had become the largest inkjet cartridge
remanufacturer in the world employing over 800 people in
Lenexa, Kansas.
The demand for remanufactured cartridges was being fueled
by: number one, skyrocketing growth of laser and inkjet
printers both in the office and at home; two, consumer savings
of 25 percent or more versus name brand; and three, the
realization that hundreds of millions of empty name brand
cartridges were ending up in landfills and a more sustainable
solution was needed.
So as the demand for remanufactured products continued to
increase, this of course caught the eye of the Chinese. Many of
the remanufacturing components were starting to be developed in
China. Within a few years, China had become the dominant source
of remanufacturing components and then, probably 5 to 10 short
years later, the largest producer of newly built compatible
after market cartridges in the world.
They were called ``clones'' in those days because they were
basically knock-offs of the original cartridges that were
exported to the USA with absolutely no respect for intellectual
property and patent law. China quickly began to flood the
market to make it impossible for the U.S. remanufacturers to
compete. Over time, China, using infringing products, built
such a size and scale that they were becoming impossible to
compete with, and U.S. patents were expiring while Chinese
manufacturers developed their own intellectual property. As
time went along, the Chinese suppliers did begin to pay a lot
more attention to patents, but by that time, they had so much
scale it was unbelievable.
We found ourselves in a position where a Chinese product
was available in China for $5. The same product remanufactured
here would cost $20.
So by around 2015, 90 percent of the 5,000 U.S.
remanufacturing companies and their manufacturing jobs were
gone. Today that number of companies that are viable is
estimated to be no more than 100 companies in the U.S. that are
left.
So although we continue to remanufacture, we were forced to
choose between buying and reselling a line of Chinese products
or going out of business. I am proud to say that over the last
5 years, somewhere around two-thirds of the products that we
sell still continue to be remanufactured in our factory. But we
do supplement that with Chinese products in some areas where we
just cannot compete.
Today, the two China-based companies now control over 80
percent of all aftermarket cartridge chips which, of course, is
a technology barrier, and they set the global price. And what
we see is those two chip companies in China do things that are
against the law here in the United States where they
collaborate on the pricing. And I am sure there is a different
name for that here in the U.S.
But anyway, China-based Apex and affiliated companies is
now the largest producer of newly built aftermarket cartridges
and chips in the world.
Summarizing, China has decimated a U.S. remanufacturing
industry of over 5,000 companies of all sizes.
However, our love for manufacturing has never wavered. As
one of the last U.S. remanufacturing companies, we were
frustrated with China's chokehold on our industry, but we were
committed to producing what we could even if it meant also
buying some products from China.
So fast forward to this year. Early 2020, late January, we
were returning from a sourcing trip to Asia that started in
Wuhan, China. We obviously witnessed firsthand the beginning of
the global COVID pandemic. This inspired us to begin exploring
how we might serve and do a business pivot into manufacturing
PPE supplies. After all, we had filled hundreds of millions of
plastic objects with high quality fluid and powder. So quickly
we found that most of the PPE products came from China, as has
been mentioned in earlier testimony.
The first product that we launched in our factory was a
hand sanitizer that we used our manufacturing experience--and I
have to say much of our equipment here too--to bottle this hand
sanitizer in Kansas. Ironically, as we ramped up, we found that
we would need to buy some of our materials still from China
once again. The U.S. no longer has any real small bottle
manufacturing capabilities. So we had to go to China to get the
bottles.
As we continue to create opportunities for U.S.
manufacturing jobs, we are now engaged in a new and exciting
endeavor, the production and bottling of an ultra-effective and
very safe surface disinfectant called hypochlorous acid. It is
also known as HOCl. This is the safest, very safe for humans,
pets, plants, the environment, but 80 times more powerful than
bleach against all the viruses and all the pandemic bugs out
there, including COVID-19.
So we are partnered up with another Kansas company here
called Danolyte, and we are using our operations background and
making preparations to produce and bottle HOCl in our factory.
And we have been doing that now for some time. Our goal is to
grow our company and once again bring in more production jobs.
But interestingly, even in this area, we are still facing
pressures from China as plastic bottle production, as I
mentioned earlier, is still located primarily in China.
I am not here today to complain about China. They are smart
and ambitious people. One cannot blame them for taking
advantage of the opportunities that are in front of them and
the political realities. It has been my experience and
observation from spending much time in China that the top
manufacturing companies in China are strongly backed and
supported by their government. It is my belief that if we
seriously desire to bring manufacturing and critical supply
chains back to the U.S., it will require strong support and new
policy from Washington.
Moving forward, we welcome any discussions about how to
help bring manufacturing back to the U.S. Our core team
consists of experienced manufacturing engineers, production
teams, quality assurance, and labor. In short, we have a huge
passion for manufacturing products in Kansas, and we look to be
of service however we can.
Thank you for your time.
[The prepared statement of Mr. Krska follows:]
Prepared Testimony of Rick Krska, President and Chief Executive
Servant, InkCycle, Inc.
I would like to thank Senator Moran and Senator Blumenthal
for this opportunity to share my thoughts and testimony.
We love manufacturing and serving people with high quality
products
After early careers in the manufacturing industries of
Telecommunications and Nuclear Weapons, we started InkCycle in
1992 in the basement of our Kansas ranch home.
1992: My partners and I embarked on a new quest to bring
manufacturing jobs to Kansas City by starting a business which was (and
remains) focused on three primary principles:
1. Design and produce high quality/high demand products
2. Create area employment and economic development
3. Build a business of significance--solve significant challenges
and positively impact a significant number of people (internal
and external)
4. Operate with principles of Servant Leadership
Prior to starting the business, myself and my partners were working
for Allied Signal where we were involved in producing triggers for
nuclear weapons. The products we were directly responsible for,
properly functioning triggers, absolutely had to fire when they were
supposed to and not fire when they shouldn't. There was no margin for
error.
We absolutely loved the engineering, production and quality roles
we served in and the challenging work environment. Our products
demanded the utmost quality assurance and were subject to rigorous
testing and audits daily.
With the end of the Cold War, the demand for our products declined
and we, like thousands of others, found ourselves being downsized from
what was a large Kansas City employer. Looking to the future, we found
a sense of purpose.
1. A deep love for manufacturing. A passion that began for me in
high school when I went to work for Western Electric. A passion
that still exists to this very day.
2. A desire to provide manufacturing jobs and employment to as many
people as possible. We had experienced firsthand what happens
when a large employer has to downsize,
1992: We launch the new business. We began refurbishing printer
cartridges and rapidly became one of the US's largest toner cartridge
remanufacturers. By 1995 we had become the fourth largest in the
country and began to expand into the growing inkjet market. By 2005 we
had become the largest inkjet remanufacturer in the world, employing
over 800 people in Lenexa, KS.
The demand for remanufactured cartridges was being fueled by:
1. Skyrocketing growth of laser and inkjet printing, both at the
office and in the home.
2. Consumer savings of 25 percent or more vs. the name brand.
3. Realization that tens of millions of plastic and metal name brand
cartridges were ending up in the landfill and a more
sustainable solution (refurbishing) was needed.
As the demand for remanufactured products continued to increase,
many of the remanufacturing components were being developed in China.
Within a few years, China had become the dominant source of
remanufacturing components and then later, the largest producer of
newly built ``clone'' aftermarket cartridges in the world.
These early-stage ``clones'' were imported with absolutely no
respect for U.S. intellectual property and patent law. China quickly
began to flood the market to make it impossible for U.S.
remanufacturers to compete. Over time, China, using infringing
products, built such size and scale that they were becoming impossible
to compete with, and U.S. patents were expiring while Chinese
manufacturers developed their own intellectual property.
By this time, the prices for a newly built cartridge from China
were less than our direct remanufacturing costs here in the US.
The tipping point came when we saw that a cartridge that cost us
$21 to refurbish was available newly built for $5.95 in China. $5.95 to
cover all of their costs AND make a profit to produce something brand
new vs. $21 to refurbish! Seemingly impossible, yet this is what we
were competing with.
By around 2015, 90 percent of the U.S. remanufacturing companies
and their manufacturing jobs were gone. Today that number has dropped
from over 5,000 to an estimated 100 or fewer companies.
Until this time, we were producing in our Kansas factory 98
percent+ of everything we sold. However, as China began shipping more
and more newly built products into the US, we began to find ourselves,
like every other U.S. remanufacturer unable to compete. We were forced
to choose between buying and reselling a line of Chinese products or
going out of business.
Today, estimates are that over 90 percent of the U.S. aftermarket
cartridge business is produced in China compared to less than 5 percent
15 years ago. And prices continue to come down, along with U.S.
refurbishing jobs.
Yet it was not just that China was selling newly manufactured
products at less than what it costs in the U.S. to refurbish those
products. China was beginning to acquire the necessary technology for
U.S. remanufacturing companies to refurbish the cartridges, giving
China the ability to strangle the U.S. remanufacturing industry.
In 2016, US-based Lexmark (printer manufacturer) was purchased by a
Chinese consortium led by Apex Technology and PAG Asia Capital. Apex
had already purchased the global leader in aftermarket print chips (US-
based Static Control).
Two China-based companies now control over 80 percent of all
aftermarket cartridge chips and set the global price. APEX (and
affiliated companies) is now also the largest producer of newly built
cartridges in the world.
As Apex/Lexmark controversial acquisition was finalized, it was
apparent that China would control the U.S. aftermarket cartridge
industry.
1. Set their new build prices at far under the cost for a U.S.
remanufactured cartridge.
2. Provide chips only on specific models so there could be no
competition from a U.S. reman company.
3. Control the cost of components so that their new-build cartridges
would always remain priced under a U.S. reman version.
Summarizing, China has decimated a U.S. re-manufacturing industry
of over 5,000 companies of all sizes.
Our love for manufacturing has never wavered. As one of the last
U.S. remanufacturing companies, we were frustrated with China's
chokehold on our industry, but we were committed to producing what we
could, even if it meant also buying in some products from China.
2020: In late January we were returning from a sourcing trip to
Asia that started in Wuhan, China. We obviously witnessed firsthand the
beginning of global COVID pandemic. This inspired us to begin exploring
how we might serve and do a business pivot into manufacturing PPE
supplies. Quickly we found that most of the PPE products came from
China. Very few U.S. produced products were available.
The first product we launched was a hand sanitizer that we used our
manufacturing experience to bottle here in Kansas City. Ironically, as
we ramped up, we found that we would need to buy materials from China
once again. The U.S. no longer had any real small bottle manufacturing
capabilities anymore.
Interestingly, the strange Chinese ``economics'' we had seen in our
core business was to be found in Chinese bottle manufacturing industry
as well. Forced to buy bottles in China, we were purchasing our labels
from a local Kansas label manufacturer at around $0.15. The Chinese
bottle supplier offered to print and apply the labels for a single
cent. The cost to print a label in the U.S.--15 cents. The cost to
print the same label AND apply it to the bottle in China--1 cent. The
U.S. loses label printing jobs and manufacturing application jobs.
As we continue to look to create opportunities for U.S.
manufacturing jobs, we are now engaged in a new endeavor, Hypochlorous
Acid. At 500 ppm, the EPA recognizes certain registered brands of
Hypochlorous Acid as an ultra-strong and ultra-safe way to kill
bacteria, germs, and viruses, including COVID-19.
We are moving forward with preparations to produce and bottle HOCL
in our factory. Our goal is to grow our company and once again bring in
more production jobs. Interestingly, we are again facing pressures from
China as plastic bottles' production is controlled primarily by China.
It has been our experience and observation that manufacturing
companies in China are strongly supported by their government. It is my
belief that if seriously desire to bring manufacturing and critical
supply chains back to the US, it will require strong support from
Washington.
Moving forward, we welcome any discussions about how to help bring
manufacturing back to the U.S. and insulate our country from unfair
trade practices of other countries. Our core team consists of
experienced manufacturing engineers, production teams, quality
assurance, and labor. In short . . . we have a huge PASSION for
manufacturing products in KANSAS!
Please let us know how we can be of service,
Rick Krska,
President and Chief Executive Servant,
TonerCycle InkCycle, Inc.
Senator Moran. Mr. Krska, thank you. Thank you for your
passion for what you do and for Kansas, as you mentioned.
Ms. Tiffany Stovall is the Chief Executive Officer of the
Kansas Manufacturing Solutions. And Ms. Stovall, you are
recognized now as well for 5 minutes.
STATEMENT OF TIFFANY M. STOVALL, CEO, KANSAS
MANUFACTURING SOLUTIONS, KANSAS MANUFACTURING
EXTENSION PARTNERSHIP (MEP)
Ms. Stovall. Good afternoon, Chairman Moran and Ranking
Member Blumenthal and members of the Subcommittee. Thank you so
much for this opportunity to appear before you to discuss the
manufacturing community's response to the COVID-19 pandemic.
I am Tiffany Stovall. I am the CEO of Kansas Manufacturing
Solutions, and as Senator Moran said, we are the MEP center for
Kansas.
I am sure the Subcommittee is familiar with the
Manufacturing Extension Partnership, also called MEP, but as a
reminder, we are the nation's only program providing hands-on,
in-depth support to small and medium sized manufacturers to
help them compete more effectively in the global marketplace.
As a public-private partnership, the MEP national network
has 51 centers. We have got one in every state plus Puerto
Rico. MEP also has 1,300 manufacturing experts on staff, 400
service locations, and nearly 2,100 third party service
providers and partners. We interact with over 28,000
manufacturers per year. MEP centers truly are the go-to experts
for advancing U.S. manufacturing.
It is because of this history of working with manufacturers
as trusted advisors that KMS, Kansas Manufacturing Solutions,
and the MEP network was uniquely positioned to help support
U.S. manufacturers when they had to adapt to this exceptional
challenge that was presented to them during the COVID-19
pandemic. Manufacturers have had to respond to COVID-19
challenges within their own facilities, like we have heard
about today, but they are also helping our Nation respond to
the COVID-19 pandemic by producing critically needed personal
protective equipment, PPE, ventilators, and other equipment and
goods essential to the nation's public health efforts.
We heard stories today of manufacturers shifting their
capabilities to meet U.S. PPE needs, and the stories that we
have heard are very similar to what is happening all across
Kansas, as well as all across the United States.
When the lockdowns began in March, manufacturers across the
country had to close their doors. Their suppliers could not
supply them. Their customers could not buy from them, and they
faced a series of mortal threats, none of which had been seen
before. KMS and the other MEP centers across the national
network have been here for them, and we are here for them now
as manufacturing continues to lead the way toward economic
recovery.
I would like to acknowledge and thank Congress for
providing temporary cost share relief to the MEP for the 2020
Fiscal Year. Ordinarily the cost share requirement leverages
Federal funding with a non-Federal match, but this temporary
cost share relief has allowed KMS and the other MEP centers
across the national network to provide much needed services to
manufacturers during these unprecedented times.
Over the course of the last several months, thanks to the
CARES Act funding and the temporary cost share relief, the MEP
centers have done incredible work with manufacturers to help
them retool, stay afloat, modify their processes and
procedures, and to adapt to the new health and safety
protocols. Many centers remain working remotely and have had to
adjust their service delivery to protect their own staff and
adjust to the changing protocols that are happening at
manufacturing clients, as they are trying to protect their own
staff as well. So, again, thank you, Congress, for the
temporary cost share relief.
Supply chain issues have also been heightened because of
the pandemic. Believe it or not, there is no national supply
chain data base. So organizations were scrambling to figure out
where to go to get specific parts, materials, and PPE. KMS and
other MEP centers worked around the clock in the early days of
the pandemic and beyond to keep manufacturers viable by
matching companies to suppliers and getting them the supplies
they needed. We were building supply chain data bases
particularly around PPE and critical need equipment as we went
state by state and we linked them through our National Supplier
Scouting System.
An example of that and how that has worked in Kansas with
the MEP is with the manufacturer Fuller Industries. They
produce FDA-approved disinfectants, hand sanitizers, soaps, and
other industrial strength janitorial products and cleansers.
They also sell dispensers for soap and sanitizers. These
dispensers had previously been sourced overseas, and Fuller was
suddenly facing long lead times, short supplies, and a reduced
ability to deliver this product to clients, along with medical
centers after the onset of the pandemic. We were able to
quickly match them with another manufacturer in southeast
Kansas that could help them bring the production of the
sanitizers not only back to the United States but in-house. So
by connecting Kansas manufacturers, we were able to really keep
the supply chain going.
We just heard from Rick at InkCycle about the issues with
bottling. That is another thing that we are really working
across the national network with connecting manufacturers to
those that are manufacturing bottles and those that have
expanded their capabilities to meet the bottling needs of
manufacturers.
Workplace safety is also a huge concern for manufacturers
during the best of times, and it has really heightened during
the COVID pandemic. While a portion of the U.S. workforce could
shift to remote work, manufacturers could not do that. So the
MEP centers have helped manufacturers really understand the
safety protocols and adjust everywhere from the front office
all the way to the production floor and shipping facilities and
beyond.
In helping manufacturers respond to COVID-19, we are
helping them build resiliency and to keep their workforce
steady. As we know, manufacturers are driving economic recovery
while also suffering an economic hit and uncertainty
themselves. And so the role of KMS and the entire MEP national
network is to help manufacturers get back on their feet and to
deliver the tools to them to address the uncertainty while they
help our country continue to get back on its feet by providing
the critically needed equipment, as well as continue everything
else that we need to have produced from our food supply to
everything else that the manufacturers in the United States
make.
In the face of so much economic uncertainty, we really have
worked hard to help manufacturers look forward. An example of
one of these programs is a service developed by KMS called
Future State Optimization. It really works to help
manufacturers look forward and sustain profitability throughout
the pandemic while building for their future. It provides a
three-part framework delivering expert consultancy,
comprehensive manufacturing centered assessment, and a
strategic road map for manufacturers to ensure the future of
their facilities, as well as the future for their employees.
I hope that what I have shared today has given some insight
on how KMS has responded to these unprecedented conditions here
in the United States with COVID-19 and how the MEP national
network has responded across the United States. In a strong and
coordinated response to this pandemic, together we are
partnering with manufacturers on their top COVID-19 concerns.
And I certainly appreciate the opportunity to appear before
the Subcommittee today, and I look forward to answering any
questions you might have. Thank you.
[The prepared statement of Ms. Stovall follows:]
Prepared Statement of Tiffany M. Stovall, CEO, Kansas Manufacturing
Solutions, Kansas Manufacturing Extension Partnership (MEP)
Good afternoon Chairman Moran, Ranking Member Blumenthal and
members of the Subcommittee. Thank you for the opportunity to appear
before you to discuss the manufacturing community's response to the
COVID-19 pandemic.
I am Tiffany Stovall. I am the CEO of Kansas Manufacturing
Solutions (KMS), the Kansas Manufacturing Extension Partnership (MEP)
Center. I have been with MEP since 2010 and began leading, as CEO, in
2017.
I am sure that the Subcommittee is familiar with the Manufacturing
Extension Partnership, but as a reminder, we are the Nation's only
program providing hands-on, in-depth support to small and medium-sized
manufacturers to help them compete more effectively in the global
marketplace. The MEP National Network has 51 centers--one in every
state plus Puerto Rico. MEP has over 1300 manufacturing experts on
staff, 400 service locations, nearly 2100 3rd party service providers
and partners, and we interact with over 28,000 manufacturers per year.
MEP Centers are the go-to experts for advancing United States
Manufacturing.
As a public-private partnership, MEP delivers a high return on
investment to taxpayers. The Upjohn Institute for Employment Research
conducted a study of MEP this past year and found that the program
generates a 14.4:1 return on investment. Each year, an independent firm
surveys manufacturers regarding the impact they have achieved from MEP
Center services. In 2019, MEP clients reported $15.7 billion in new and
retained sales and the creation or retention of 114,650 jobs.
Considering that the average U.S. manufacturing worker earns more than
$87,185 in wages and benefits per year, MEP clients are economic
drivers in their communities. MEP clients are also increasing their
capacity for the production of goods. MEP clients reported $4.5 billion
in new investments directly attributed to their work with MEP.
It is because of its history of working with manufacturers as
trusted advisors that MEP was uniquely positioned to support U.S.
manufacturers when they had to adapt to the exceptional challenges
presented to them during the COVID-19 pandemic. Manufacturers have had
to respond to COVID-19 challenges within their own facilities, but they
are also helping our Nation respond to COVID-19 by producing
critically-needed personal protective equipment (PPE), ventilators, and
other equipment and goods essential to the Nation's public health
efforts. I would also like to mention the other manufacturing
industries that have kept our food supply going as well as all of the
other essential goods that may not be directly related to COVID-19
response but need to stay in production.
When the lockdowns began in March, manufacturers across the country
had to close their doors. Their suppliers could not supply them, and
their customers could not buy from them. They faced a set of mortal
threats, none of which they had seen before. KMS and the other MEP
Centers were there for them then, and we are there for them now as
manufacturing leads the way to economic recovery. We helped
manufacturers create new supplier networks, navigate stay-home orders,
apply for Paycheck Protection Program (PPP) funds, develop and
implement best practices for internal COVID-19 safety, and in many
cases, retool their factories to make COVID-19-related products.
I would like to acknowledge and thank Congress for providing
temporary cost share relief to MEP for the 2020 Fiscal Year.
Ordinarily, the cost share requirement leverages Federal funding with a
non-federal match. When the pandemic hit, our non-federal funding
stopped, which would have prevented us from unlocking the Federal
funds. Temporary cost share relief has allowed KMS and the other
Centers across the National Network to provide much-needed services to
manufacturers during these unprecedented times. Over the course of the
last several months, thanks to CARES Act funding and temporary cost
share relief, the MEP Centers have done incredible work with
manufacturers to help them re-tool, stay afloat, and modify their
processes and procedures to adapt to the new health safety protocols.
Many Centers remain working remotely; they have had to adjust their
service delivery to protect their own staff and adjust to the changing
policy protocols of their manufacturing clients. The temporary cost
share relief has been critical in allowing them to do so.
Some examples of the kinds of work that Kansas Manufacturing
Solutions and other MEP Centers have been able to do as a result of the
temporary cost share relief:
Work with companies that needed to invest in pivoting their
operations instead of paying for MEP services in the short
term;
Keep specialized expertise on staff at MEP Centers to
provide guidance to manufacturers during this critical time;
Provide webinars, instructional materials, and guidelines to
manufacturers about how to get specific PPE and information
regarding critical resources like PPP;
Focus solely on meeting the needs of U.S. manufacturers and
provide them with critical services at their time of greatest
need, without worrying about the Center meeting payroll or
paying rent; and
Shift the delivery of direct services and training to online
and virtual platforms when we could not meet with companies in
person.
Supply Chain and Supplier Matching
Supply chain issues have been heightened because of the pandemic.
Believe it or not, there is no national supply chain database, so
organizations were scrambling to figure out where to go to get specific
parts, materials, and PPE. KMS and other MEP Centers worked around the
clock in the early days of the pandemic and beyond to keep
manufacturers viable by matching companies to suppliers and getting
them supplies they needed. We built supply chain databases as we went,
state by state, and linked them through our National Network Supplier
Scouting system.
KMS and the MEP National Network have been working tirelessly to
build and strengthen PPE supply chains to ensure the United States has
the critical PPE to meet the needs of our citizens during this
unprecedented pandemic.
One example of how this has worked here in Kansas is with a
manufacturer, Fuller Industries, that produces FDA approved
disinfectants, hand sanitizer, soaps and other industrial strength
janitorial products and cleaners. They also sell dispensers for soap
and sanitizer. These dispensers had been previously sourced overseas
and Fuller Industries was suddenly facing long lead times, short
supplies and a reduced ability to deliver this product to clients
including medical centers after the onset of the pandemic. Fuller
reached out to KMS with the urgent need to gain more control over their
supply chain.
KMS was able to quickly match them with another manufacturer in
Kansas that could help them bring production of the sanitizer
dispensers in-house. While the project is still ongoing, this a great
example of the supply chain building that is happening by connecting
one manufacturer to another--reshoring a production capability that
helps meet the Nation's PPE needs. This effort will generate more U.S.
investment, U.S. revenue, and U.S. jobs. An upside for Kansas is that
it also is a significant investment in a rural community.
This is the kind of work MEP is doing right now, every day, every
month and as long as we need to help manufacturers weather the COVID-19
storm.
Adjusting to New Safety Protocols
Workplace safety is a huge concern for manufacturers during the
best of times, and is incredibly heightened during the COVID-19
pandemic. While a portion of the U.S. workforce shifted to remote work,
this is not an option for the manufacturing sector. MEP Centers helped
manufacturers understand the recommended safety protocols and adjust
everywhere from the front office to the production floor to shipping
facilities and beyond.
Centers have helped by creating and updating Safety Guides for
manufacturers on COVID-19 practices in their facilities based on
current best practices, including the appointing an infection control
officer, use of thermometers, face shields, masks, and other PPE to
keep staff safe.
These safety protocols also include considerations on plant layouts
to increase safety of the workforce and encourage six-foot distancing
when possible, without disrupting production or efficiency. Again, MEP
staff was already well positioned for this type of work because of the
ongoing trusted advisor relationships we have had with manufacturers
and the shop floor expertise within the Centers. MEP and KMS
understands their business and has earned this trust.
KMS has provided manufacturers throughout the state with COVID-19
safety guidelines and updated COVID-19 policies for HR handbooks. This
helps give companies peace of mind that they are doing the right things
to keep their employees safe and communicating expectations effectively
to their employees.
Moving Forward: Sustaining and Growing U.S. Manufacturing
In helping manufacturers respond to COVID-19, we are helping them
build operational resiliency and keep their workforce steady.
Manufacturers are driving economic recovery while also suffering an
economic hit and uncertainty themselves. The role of MEP is to help
manufacturers get back on their feet, deliver tools to address the
uncertainty so the Nation can continue to get back on its feet.
Throughout this pandemic, MEP Centers like KMS are continuing to
provide critical services to help sustain and grow manufacturing, even
if those services have to be delivered in different ways. We have long
been known for working elbow-to-elbow with companies anywhere from
strategy in the board rooms to process and efficiency on the shop
floor. While we miss the face-to-face interaction, we have been able to
pivot to meet the restrictions many manufacturing companies have had to
set by putting our existing services on virtual platforms and
developing new services that can be effectively delivered remotely.
An example of one of these newly developed services from KMS is an
on point new program called Future State Optimization. It is a
proprietary multi-faceted program to help manufacturers sustain
profitability throughout the pandemic while building for their future.
This program provides a three-part framework for delivering expert
consultancy, a comprehensive manufacture centric assessment and a
strategic roadmap for manufacturers to ensure their future and the
future of their employees.
This comprehensive program will help manufacturers understand
through the deployment of the assessment what will and has to change
only temporarily, what will need to change permanently, and how to make
good strategic decisions without full information in rapidly changing
economic environments with the help of high level consultation from
planning experts, financial scenario planning and a roadmap of how to
pivot to sustained profitability.
In the face of so much economic uncertainty, this program is
designed to ensure manufacturing leaders get back into the driver's
seat and be proactive with their current business strategies instead of
reactive. The process can make the future much less daunting, and the
feedback from the first few companies that have gone through the hands-
on, intensive process has been outstanding. In the words of one early
participant:
``KMS was able to take a very complex set of opportunities
facing Mid-State Aerospace, distill them down to very
understandable and prioritized list of actions to grow our
business as well as develop a roadmap to address the COVID-19
impacts from both an operational and economic standpoint.''--
Robert Rogers, President, Mid-State Aerospace
I hope the foregoing information has given insight on how Kansas
Manufacturing Solutions has responded to the unprecedented COVID-19
pandemic in Kansas and how the MEP National Network has responded
across the United States. In a strong and coordinated response to this
pandemic, together we are partnering with manufacturers on their top
COVID-19 concerns about adjusting to new safety protocols, building
operational resilience, supply chain concerns, and workforce needs
while giving critical insight into investment plans and regional
infrastructure need. Manufacturing generates the kind of jobs that come
with benefits and a paycheck. Manufacturing matters to the health of
Kansas and to the health of the US. Whenever, wherever, and however we
can, we need to support domestic manufacturing. KMS does that and MEP
does that!
I sincerely appreciate the opportunity to appear before this
Subcommittee. I look forward to answering any questions you may have.
Senator Moran. Ms. Stovall, thank you. We appreciate your
testimony, your willingness to appear.
Our final witness is Mr. Michael Wessel, Commissioner,
U.S.-China Economic and Security Review Commission. Mr. Wessel?
STATEMENT OF MICHAEL WESSEL, COMMISSIONER, U.S.-CHINA ECONOMIC
AND SECURITY REVIEW COMMISSION
Mr. Wessel. Chairman Moran, Ranking Member Blumenthal,
members of the Subcommittee, thank you for the invitation to
appear here today.
My name is Michael Wessel, and I am appearing as a
Commissioner on the U.S.-China Economic and Security Review
Commission, but as the normal Washington disclaimer, I am only
speaking for myself.
The pandemic has put stress on supply chains and our
manufacturing base, and it has spurred a debate about our
preparation, the availability of public resources and public
policy responses. We need to address today's needs and prepare
for a possible future pandemic.
Early on in the pandemic, I was contacted by some
manufacturers wanting to contribute in confronting the crisis,
much as my colleagues on this panel discussed earlier. The
Federal Government was overwhelmed, and it became easier to
match some of these firms up directly with States and hospital
systems to meet their needs including, I should point out, Yale
New Haven Hospital, Senator Blumenthal's home.
Our nation owes a great debt of gratitude to our
manufacturers and their workforce who have come to the aid of
our country to meet the critical needs of our sick, our health
care workers, first responders, and our entire population in
this time of crisis. Today, as we all know, while supplies are
more available, there are still shortages. Health care workers
and others are having to reuse equipment, stressing safety
protocols and putting their health at risk. America must do
better to support our manufacturing base to help them protect
our citizens.
The Chinese Communist Party's industrial policies and our
own shortsightedness in some ways have added to an unacceptable
and dangerous reliance on China for our pharmaceuticals, active
pharmaceutical ingredients, APIs, medical devices and
equipment, including PPE.
The virulence, breadth, and impact of the coronavirus was
unexpected. But our increasing dependency on China is not news,
and China is willing to use and abuse their manufacturing
power. For example, the CCP leadership was willing to engage
in, quote/unquote, mask diplomacy by using shipments of PPE to
garner political support and foster diplomatic gains. The CCP
has been willing to weaponize supply chains. We cannot allow
the health and safety of our people to be held hostage during a
diplomatic, economic, or military confrontation.
We are overly dependent on China for our medical needs. We
no longer have the fermentation capacity in the U.S. to make
penicillin and are completely dependent on foreign sources. 80
percent of the APIs we use come from abroad with a substantial
portion coming from China. Of the 10 active ingredients in
remdisivir, one of the therapeutics for treating COVID-19,
eight come from China. For many other products, we are
partially or entirely dependent on China. One DOD official
testified that, quote, the national security risks of increased
Chinese dominance on the global API market cannot be
overstated. Unquote.
Since China joined the WTO, U.S. business operations have
expanded dramatically. China's policies were designed to
promote that. But troubling is not just the loss of production
but the expansion of R&D. U.S. multinational firms increased
their R&D spending in China at roughly twice the rate of their
domestic R&D spending. U.S. R&D expenditures in China on the
improvement of manufacturing capability of chemicals, including
pharmaceuticals, surged nearly 30fold between 2000 and 2017.
Chinese state-directed and -controlled entities have
engaged in massive cyber intrusions in the U.S., with many
focused on the health care sector, including efforts to obtain
vaccine information. Actors in China have used legal and
illegal means to obtain the longitudinal health data of U.S.
citizens that may allow their firms to dominate the
increasingly important biosynthetic sector. Today the focus is
on medical supplies, but our dependence on China for many
products, some of them critical products, is broad and deep. In
certain areas, this dependence reduces our potential
resilience. Congress should carefully evaluate supply chain
risks to determine what the potential impact is on our national
health and economic security.
Again, thank you for the opportunity to testify today. Your
work on these critical issues will help lay a base for making
sure that we never face these challenges again.
[The prepared statement of Mr. Wessel follows:]
Prepared Statement of Michael Wessel, Commissioner, U.S.-China Economic
and Security Review Commission
Chairman Moran, Ranking Member Blumenthal, Members of the
Subcommittee. I want to thank you for the invitation to appear before
you today to examine the American manufacturing industry's response to
the COVID-19 pandemic. Clearly, the COVID-19 pandemic has put stress on
supply chains and our manufacturing base, and has spurred a debate
about our preparation, the availability of public resources, and public
policy responses. Your Subcommittee's jurisdiction covers many of the
key issues that demand attention and forward-leaning approaches to
better prepare America for the future. Our citizens want to know that
our ability to respond to the ongoing pandemic, and to contain a future
pandemic, should it occur, is being addressed.
My name is Michael Wessel and I am appearing before you today as a
Commissioner on the U.S.-China Economic and Security Review Commission
(Commission), where I have served since its creation 20 years ago. But,
as a disclaimer, I am speaking for myself, although my comments are
informed by my service on the Commission and other work I have been
involved in for many years.
The Commission was created by Congress in 2000 in conjunction with
the debate about the grant of Permanent Normal Trade Relations (PNTR)
to China, paving the way for its accession to the World Trade
Organization (WTO). The Commission was tasked with monitoring,
investigating and submitting to Congress an annual report on the
national security implications of the bilateral trade and economic
relationship between the United States and the People's Republic of
China, and to provide recommendations, where appropriate, to Congress
for legislative and administrative action.
The grant of PNTR ended the annual debate about whether to extend
most favored nation status to China. But as it passed PNTR, Congress
created the Commission because it did not want to forego the annual
review of our relationship with China. Since the creation of the
Commission, our mandate has been extended and altered as the U.S.-China
relationship evolved.
The Commission is a somewhat unique body: We report to and support
Congress. Each of the four Congressional leaders appoint three members
to the Commission for two-year terms. The Commission is scheduled to
release this year's report in a couple of weeks, with unanimous
support. In eight of the last ten years, we have issued unanimous
reports. In the two years where it was not unanimous, there was only
one dissenting vote. In many ways, the evolving challenges and
opportunities posed by the relationship with China have united us in
our analysis. All of our hearings, testimony, annual reports and
research are available at our website www.uscc.gov.
Our nation owes a huge debt of gratitude to our manufacturers and
their workforce who have come to the aid of our country to meet the
critical needs of our sick, our healthcare workers, first responders
and our entire population in this time of crisis. Many worked
tirelessly to retool and revamp operations to produce personal
protective equipment (PPE), ventilators and other needed products and
equipment.
Indeed, early on in the pandemic, I was contacted by companies and
their representatives wanting to contribute in confronting the crisis.
A group of textile firms in the Northeast wanted to know what
specifications they should use in producing masks, gowns and other
equipment. A firm in Mississippi similarly wanted to know what they
could do. The Federal government was overwhelmed, and it became easier
to match some of these firms up directly with states and hospital
systems to meet their needs.
Today, as we all know, while supplies are more available, there are
still shortages. Healthcare workers, and others, are having to reuse
equipment, stressing safety protocols. And, as experts suggest a surge
in cases will continue in the coming months, manufacturers will
continue to face rising demand and limited capacity.
Mr. Chairman, I want to focus my comments on questions relating to
U.S.-China policy and its impact on meeting the crisis and future
challenges. Other panelists can add to the Subcommittee's examination
of the critical issues you have identified for this hearing.
The debate about the impact of China's policies and practices on
the U.S. continues to be divisive. There are some who view China's
willingness to subsidize and dump products into the U.S. makes our
people better off because it lowers consumer costs. While fewer and
fewer people subscribe to this view, some still cling to it.
I couldn't disagree more and believe that the wealth of opinion has
concluded that China's predatory and protectionist trade and economic
policies undermine U.S. economic, health and national security
interests. The cost of products cannot be the only measure of economic
benefit. The public understands that while the flat screen television
in their living room may be cheaper, the manufacturing jobs to support
that product are not here in the U.S. They know, all too well, that
globalization has increased the downward pressure on wages and our
standard of living. It has contributed to rising income inequality.
And, if we lose all these jobs, few will have the income to even
purchase the subsidized and dumped products.
As predatory pricing drives outsourcing of jobs and offshoring of
production, it can lead to a severe loss of domestic productive
capacity. Industry after industry has faced this problem. Steel,
aluminum, solar cells, rare earths have gotten the bulk of the
attention. But China's industrial policies, as well as our own short-
sightedness, have also created an unacceptable and dangerous reliance
on China for our pharmaceuticals, active pharmaceutical ingredients
(APIs), medical devices, and equipment, including PPE. In the early
days, as we all know, the offshoring of manufacturing limited our
capacity to surge production of ventilators and other critical
equipment.
China's economic policies, driven by the Chinese Communist Party
(CCP), have contributed to the hallowing out of the U.S. industrial
base. After years of these policies, the reality of our dependence, as
well as the impact on our own capabilities, has been all-too-evident in
the response to the current pandemic.
While the virulence and impact of the coronavirus was unexpected
and, to some degree, our unpreparedness is a function of
underestimating how broad a health crisis could be, our increasing
dependency on China is not news.
In putting the spotlight on supply chains for medical equipment,
the COVID-19 crisis taught the American public not only about our loss
of productive capacity, but also China's policies that contributed to
that problem and its ability to control supplies and use them as
foreign policy leverage. The Chinese government's failure to conduct
adequate inspections of manufacturing facilities and lack of quality
control all became nightly news stories. Masks sold as meeting the N95
standard were often found to be almost ineffective--possibly less
effective than simply using a bandana as a face mask.
We also saw that the CCP was willing to engage in ``mask
diplomacy'' using shipments of PPE to garner political support and
foster diplomatic gains.\1\ For many, it raised significant questions
about the CCP's actions. We have seen prior examples of the CCP's
willingness to ``weaponize'' supply chains, most notably with regard to
rare earth exports to Japan in 2010. We cannot allow the health and
safety of our people to be held hostage during a diplomatic, economic
or military confrontation.
---------------------------------------------------------------------------
\1\ Brian Wong, ``China's Mask Diplomacy,'' The Diplomat, March 25,
2020.
---------------------------------------------------------------------------
While the COVID-19 crisis brought all of this to the front pages
and to the nightly news, the threats to our economic health and
security have been building for years. In 2014, the Commission held a
hearing entitled ``China's Healthcare Sector, Drug Safety, and the
U.S.-China Trade in Medical Products.'' In July 2019, former Senator
Jim Talent and I co-chaired a hearing on ``Exploring the Growing U.S.
Reliance on China's Biotech and Pharmaceutical Products.'' Our work,
and the witness testimony we heard, along with staff research,
identified broad and deep dependence on China for our medical needs and
deep vulnerabilities.
We no longer have the fermentation capacity in the U.S. to make
penicillin and are completely dependent on foreign sources. Eighty
percent of the APIs we use come from abroad,\2\ with a substantial
portion coming from China. Of the ten active ingredients in Remdisivir,
one of the therapeutics for treating COVID-19, eight come from
China.\3\ For many other products, we are partially, or entirely,
dependent on China. As Christopher Priest, the Acting Deputy Assistant
Director of the Defense Health Agency told our Commission, ``the
national security risks of increased Chinese dominance of the global
API market cannot be overstated.'' \4\
---------------------------------------------------------------------------
\2\ U.S. Food and Drug Administration, FDA at a Glance: FDA-
Regulated Products and Facilities, April 2017.
\3\ Mary Denigan-Macauley, written testimony for U.S. House of
Representatives Subcommittee on Oversight and Investigations, Committee
on Energy and Commerce, Hearing on Securing the U.S. Drug Supply Chain:
Oversight of FDA's Foreign Inspections Program, December 10, 2019, 1.
\4\ Christopher Priest, testimony for U.S.-China Economic and
Security Review Commission, Hearing on Exploring the Growing U.S.
Reliance on China's Biotech and Pharmaceutical Products, July 31, 2019.
https://www.uscc.gov/sites/default/files/Priest%20US-China%20Commis
sion%20Statement.pdf.
---------------------------------------------------------------------------
Today, the focus is on medical supplies, but our dependence on
China for many products--some of them critical products--is broad and
deep. In certain areas, this dependence reduces our potential
resilience. Last year, despite rising trade tensions and the imposition
of Section 301 tariffs, the U.S. ran a trade deficit in advanced
technology products with China of more than $100 billion and an overall
goods deficit of $345 billion. As has been seen with 5G, the predatory
actions of China's Huawei have undermined the ability of market-
oriented firms to develop the technology to ensure safe sources of
supplies. Our dependence on China for telecom products has created
dangerous vulnerabilities that our nation--and an increasing number of
our allies--is only now really grappling with.
Mr. Chairman, this Subcommittee's jurisdiction over consumer
protection issues is also important in this area. There were numerous
reports of masks and other supplies that were imported from China, but
which did not meet appropriate regulations and safety standards. We saw
this in the past with imports of tainted heparin that killed numerous
citizens. We learned about blood pressure medications that were tainted
with traces of rocket fuel, as both the APIs in the medication and
rocket fuel were produced in the same facilities. The quality,
efficacy, and safety of many Chinese-produced medical products must be
addressed.
Congress should carefully evaluate supply chain risks to determine
what the potential impact is on our national, health and economic
security.
U.S. Business Activity in China and Its National Security Implications:
At the beginning of July, the Commission issued a staff paper
entitled ``Trends in U.S. Multinational Enterprise Activity in China,
2000-2017.'' \5\ Since China's accession to the WTO in 2001, U.S.
business operations in China have expanded dramatically. The staff
report found that ``as U.S. MNE [multinational enterprise] activity in
China increasingly focuses on the production of high-end technologies,
the risk that U.S. firms are unwittingly enabling China to achieve its
industrial policy and military development objectives rises.'' \6\
---------------------------------------------------------------------------
\5\ Kaj Malden and Ann Listerud, ``Trends in U.S. Multinational
Enterprise Activity in China, 2000-2017,'' U.S. China Economic and
Security Review Commission, July 1, 2020. https://www.uscc.gov/sites/
default/files/2020-06/
US_Multinational_Enterprise_Activity_in_China.pdf.
\6\ Ibid, at 3.
---------------------------------------------------------------------------
Several of the report's findings are relevant to today's hearing:
China's vast consumer market and the Chinese government's
coercive policies have incentivized many U.S. MNEs to move
their manufacturing operations to China. U.S. Department of
Commerce Bureau of Economic Activity (BEA) data explored in
this report indicates the major destination for goods and
services supplied by U.S. MNEs in China is the Chinese market
itself. In 2017, U.S. MNE foreign affiliates in China sold 82
percent of the goods and services produced in China directly to
Chinese customers. At the same time, trade barriers, including
localization requirements and export restrictions on key raw
materials, have further induced production within China. Sales
to Chinese consumers may also constitute sales of intermediate
goods and services which might be used in final goods for
export to the United States.
China is the fourth-largest destination for U.S. MNE
research and development (R&D) expenditure and increasingly
competes with advanced economies in serving as a key research
hub for U.S. MNEs. The growth of U.S. MNE R&D expenditure in
China is also comparatively accelerated, averaging 13.6 percent
year-on-year since 2003 compared with 7.1 percent for all U.S.
MNE foreign affiliates in the same period. This expenditure is
highest in manufacturing, particularly in the production of
computers and electronic products, but has diversified over
time. For example, R&D expenditure on the improved manufacture
of chemicals, including pharmaceuticals, surged nearly 30-fold
from a low base of $13 million in 2000 to $392 million in 2017.
China has grown from the 20th-highest source of U.S. MNE
affiliate value added in 2000 ($5.5 billion) to the fifth
highest in 2017 ($71.5 billion), driven primarily by the
manufacture of computers and electronic products as well as
chemicals. The surge is especially notable in semiconductors
and other electronic components, which accounted for $5.6
billion of total manufacturing value added in 2017, up 250
percent from $1.6 billion in 2009. Separately, pharmaceutical
manufacturing serves as the largest chemical sector in terms of
value added, accounting for $2.6 billion in 2017.
The impact of the CCP's industrial policies is broad and deep.
China's government uses an ``all of the above'' approach to advancing
its interests. For example, work by private sector forensic accounting
experts \7\ uncovered acts of espionage to undermine the market value
of firms which were later acquisition targets for Chinese firms. In
other words, they undermined a company's value to put it into a
``distress'' situation, to reduce its attractiveness to other companies
and to make it cheaper for them to acquire.
---------------------------------------------------------------------------
\7\ Jeffrey Z. Johnson, testimony for the U.S.-China Economic and
Security Review Commission, Hearing on Chinese Investment in the United
States: Impacts and Issues for Policy Makers, January 26, 2017.
---------------------------------------------------------------------------
Chinese state-directed and -controlled entities have engaged in
massive cyber intrusions in the U.S. The first major indictment on this
was brought forward by David Hickton, U.S. Attorney for the Western
District of Pennsylvania, who alleged in 2014 that between 2006 and
2012 five People's Liberation Army hackers had accessed the computer
networks of the United Steelworkers union and five major U.S. firms to
obtain trade secrets and other information.\8\ The next year, President
Obama reached an agreement with General Secretary Xi whereby China
agreed that they would not engage in hacking for economic gain. The
premise of the agreement was faulty from the start as China treats
economic and national security as inextricably intertwined. In short,
all hacking undertaken by entities directed or controlled by the
Chinese government was for national security reasons and, therefore,
not covered by the agreement.
---------------------------------------------------------------------------
\8\ U.S. Department of Justice, ``U.S. Charges Five Chinese
Military Hackers for Cyber Espionage Against U.S. Corporations and a
Labor Organization for Commercial Advantage,'' May 19, 2014. https://
www.justice.gov/opa/pr/us-charges-five-chinese-military-hackers-cyber-
espionage-against-us-corporations-and-labor.
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Massive hacking continued with incalculable harm. Indeed, press
reports indicate that China, as well as Russia, has been trying to hack
into our major medical firms to obtain vaccine information. As former
FBI Director James Comey said, ``There are two kinds of big companies
in the United States. There are those who've been hacked by the
Chinese, and those who don't know they've been hacked by the Chinese.''
\9\ The current FBI Director, Christopher Wray, recently said ``The
greatest long-term threat to our Nation's information and intellectual
property and our economic vitality is the counterintelligence and
economic espionage threats from China . . . It's a threat to our
economic security and, by extension, to our national security.'' \10\
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\9\ Maria Tadeo, ``FBI's James Comey accuses China of hacking into
every major American company,'' The Independent, October 6, 2014.
\10\ Christopher Wray, Director, Federal Bureau of Investigation,
``The Threat Posed by the Chinese Government and the Chinese Communist
Party to the Economic and National Security of the United States,''
remarks as delivered, Hudson Institute, July 7, 2020.
---------------------------------------------------------------------------
In the area of medicine, multiple hacks attributed to actors in
China, have obtained the longitudinal health data of U.S. citizens.
While today's medicines are largely composed of APIs and other chemical
compounds, tomorrow's medicines are likely to be biosynthetics. With
the massive amount of data that Chinese entities collect--legally and
illegally--they have the opportunity to develop new drugs and
biosynthetics as a faster pace because of ``big data.'' Industries that
fall under the umbrella of biotechnology are worth hundreds of billions
of dollars annually, and their development will have a profound impact
on U.S. economy and national security. There is also the potential to
enable personalized medicine, to produce vaccines faster and more
effectively and develop other products which have enormous national
security implications. Earlier this year, the Theodore Roosevelt
aircraft carrier was sidelined because of COVID-19. The implications
are endless.
The Chinese government is aggressively working to obtain America's
secrets. The Chinese government maintains many talent recruitment
programs, with the Thousand Talents Program being the most prominent
example, that are aimed at attracting high-quality researchers, often
with expertise in emerging technologies or areas with potential
military applications.\11\ These programs offer a variety of
incentives, including salaries, recruitment bonuses, and living
allowances of up to $150,000.\12\ Chinese government guidance funds--
more than 1,800 \13\ of them according to some estimates--seek to
invest in, and obtain, technology and trade secrets to support the
CCP's industrial policies.
---------------------------------------------------------------------------
\11\ Anastasya Lloyd-Damnjanovic and Alexander Bowe, ``Overseas
Chinese Students and Scholars in China's Drive for Innovation,'' U.S.-
China Economic and Security Review Commission, October 7, 2020. https:/
/www.uscc.gov/sites/default/files/2020-10/Overseas_Chinese_Students_
and_Scholars_in_Chinas_Drive_for_Innovation.pdf.
\12\ In the indictment of former Harvard professor Charles Lieber,
the Justice Department alleged that under the terms of Lieber's three-
year Thousand Talents contract, Wuhan University of Technology (WUT)
paid Lieber a salary of up to $50,000 per month, living expenses of up
to $150,000 and awarded him more than $1.5 million to establish a
research lab at WUT. It is alleged that in 2018 and 2019, Lieber lied
to Federal authorities about his involvement in the Thousand Talents
Plan and his affiliation with WUT. U.S. Department of Justice,
``Harvard University Professor Charged with Tax Offenses,'' July 28,
2020. https://www.justice.gov/opa/pr/harvard-university-professor-
charged-tax-offenses.
\13\ Karen Sutter, `` `Made in China 2025' Industrial Policies:
Issues for Congress,'' Congressional Research Service, August 11, 2020.
https://fas.org/sgp/crs/row/IF10964.pdf.
---------------------------------------------------------------------------
In many other areas the Chinese government and the CCP are
aggressively pursuing opportunities to advance their interests, often
at the cost to our own national, health and economic security.
Conclusion
The policies of the CCP and the actions of their government have
already triggered a reaction by the U.S. While the honeymoon period
after China's entry into the WTO lasted too long, and the period of
engagement and dialogue yielded too few results, policy makers have
identified many actions that will make a difference.
But the challenges posed by China's policies and practices are
broad and deep and countering their negative impact on our interests
will require concerted and long-term action. Action is needed not only
in the economic policy realm, but on the diplomatic, human rights,
health policy, military and other fronts.
Mr. Chairman, Ranking Member Blumenthal, Members of the
Subcommittee, thank you for the opportunity to testify today. Your work
on these critical issues will help lay a base for making sure that we
never face these challenges again. The Commission members and our staff
and at your, and your staff's, disposal.
Senator Moran. Mr. Wessel, thank you for your testimony. I
know you indicated you speak for yourself, not the Commission,
but I understand that in a short period of time, there will be
a--first of all, let me say I agree with your assessment that
China's predatory and protectionist trade and economic policies
undermine U.S. economic health and national security interests.
I appreciate you saying that and agree with you.
But your Commission is expected to release this year's
report in the next few weeks. Can you describe any formal
recommendations that you would expect to be included in terms
of assessing and improving production capacity in the United
States, the manufacturing industry producing PPE, medical
supplies, and even pharmaceuticals? What would those
recommendations--what do you expect them to be?
Mr. Wessel. Thank you for your question, and let me point
out that in fact we have had already a public report on this
matter. Former Senator Jim Talent of Missouri and I co-chaired
a hearing on this issue in 2019, and the China Commission
unanimously, six Democrats and six Republicans, released its
report in 2019 and were unanimous behind a number of
recommendations regarding this sector.
Let me quickly review just three of those, if I could,
which is Congress has the ability to dive deep, as you are
doing today and as we have all been forced to as we look to
address this pandemic. But we can harness Federal procurement
policy through Medicare, Medicaid, Veterans Affairs, DOD to buy
American products, to use our existing authorities and leverage
those to try and bring these supply chains back to the U.S.
Second, we have to do a much better job of having the FDA
use its existing authority to ensure that we are protecting
Americans in terms of their safety for many of these products.
You are well aware of the heparin products that caused a number
of deaths here in the U.S. coming from China. Two years ago, we
found that the blood pressure medicine, valsartan, was actually
tainted with rocket fuel because both the APIs and the rocket
fuel were being produced at the same facility, and that product
made its way to U.S. consumers.
The FDA should be allowed to go into every facility in
China that is sending their products to the U.S., and we need
to make sure that that happens or that those products are
unable to come here.
Finally, we need to disclose where essential drugs and
products are coming from, and again, we can do that through
Federal procurement standards so that citizens and our
officials know where the supply chains are linked, where the
products are coming from, and how we can best prepare and
protect.
Senator Moran. Thank you very much for explaining that to
me.
Let me ask Mr. Bulusu and Mr. Krska and Mr. Gilman. Your
companies have worked to create PPE manufacturing capabilities
here in the U.S. in response to COVID-19 with the goal of
creating a homegrown American product. However, not only does
China dominate global PPE production, they also dominate PPE
component and manufacturing equipment sectors. You have
described some of those circumstances or at least those facts
to us in your testimony. I wondered if you could go into more
detail describing the challenges in finding PPE components and
manufacturing equipment.
Mr. Krska, you mentioned the bottles that are unsourceable
in the United States. I just want to hear more about the
challenges that you face. I would tell you that we had numerous
Kansas counties, hospitals, nursing homes, and others call our
office and ask for help in locating PPE. Often when it was
discovered what they had purchased--what we discovered was
sitting in a port in California waiting to be approved by the
FDA, which was, in many instances, denied based upon quality.
So I also would give you the chance to tell me or tell our
committee about the quality nature of your competitors and
their products from China.
Mr. Krska. So one of the stories that I had in my
testimony, but my testimony was too long already--I cut it out.
But when we started our bottling operation, we started looking
for bottles in the U.S. and we could not find manufacturers of
it, and distributors were all sold out for 3 or 4 months. So
having a lot of experience in China, we did go to China and
start looking and narrowing down the field to find the right
company. But here is an example of, you know, to give you an
idea of the situation we ran into.
So we found a bottle manufacturer in China that could
produce the bottles for us. We inspected them. The samples were
fine, and we started buying the bottles. We were currently
purchasing a label from a Kansas label manufacturer for 15
cents. The Chinese bottle manufacturer offered to make the
label, print the label, and apply the label for one penny.
So I think those are the kind of headwinds that we run
into, and we have to change the game in regard to how we source
and buy these products. And I think it is going to take some
type of government involvement because right now it is all
about just--as Mr. Gilman talked about, it all boils down to
the mighty penny. Right? And if we get some type of help from
our politicians to help us with this, I think it could change
that.
Anyway, that was an example that I wanted to share earlier.
Here we have got a bottle that we are buying. We got a label
that we have sourced in the U.S., and we have been buying it
here in Kansas, but here this Chinese company offered to print
the label, apply the label for one penny compared to 15 cents.
Those are the kind of pressures that you run into.
Senator Moran. [Inaudible] but what you would tell me is
that they would be more expensive?
Mr. Krska. Yes.
Senator Moran. Mr. Bulusu or Mr. Gilman?
Mr. Krska. What I was saying earlier--sorry--was that the
bottles were not available in the United States at all. So this
was just kind of an extension of that process of buying the
bottles and then getting into the process of buying the label
versus the labor and the extra process to apply the label. But
here the Chinese supplier of the bottle was willing to do it
for 1 penny versus probably spending somewhere around 20 cents
in the United States to do it.
Senator Moran. Thank you.
Senator Moran. Mr. Bulusu?
Mr. Bulusu. I will answer this in two different aspects.
The first one, which is right now the most critical aspect,
is that anecdotally what I understand from our counterparts in
some of the best testing facilities in America, SGS, Nelson, is
that the testing lines are really clogged up right now. And if
we take a product, if we iterate on top of it, another testing
cycle to complete on it takes months, and that slows us down.
Part of the reason why is because there is so much product that
is being tested which is not necessarily manufactured in
America and is, what I hear, not of very good quality but is
constantly clogging these lines. The net loser is the American
consumer because the American product is not going to get to
them faster and, two, whatever product they get is going to
continue to be of inferior quality. This is not good.
And the second aspect I am going to touch on is the abuse
of dominant position. Back when we started, about 6 to 7 months
back, the machines that we were trying to procure were
available at least 5 to 10 times their pre-COVID prices. A
typical machine which would cost $70,000 pre-COVID from China
was costing us $75,000, and that was a bargain, by the way, to
$150,000. We still went ahead.
And the other thing is the raw material. Raw material pre-
COVID that used to cost about $1,000 to $2,000 was being sold,
offered to us at $115,000. If I remember right, I might have
even seen $135,000 price on it. That is like 65,000, 67,000
times more.
The worst part, while I cannot really claim to put my
finger on this, is that as we watched these prices go up day
after day after day, week after week, we wanted to get into the
market quickly because we did not want to be priced out. Every
day these prices went out. No matter whether we spoke to one
vendor or to half a dozen vendors, the prices were almost
within a band. Are these guys marching to a beat? I do not
know, but they were definitely very synchronized. Will market
forces alone really achieve that kind of synchronization? I do
not know. That is an open question I have not been able to
figure out.
But these are the kind of things that we have to brave. And
we were still putting our faith in the American consumer, and
we continue to believe that the American consumer, while they
know what a bargain is, they still prefer quality.
Thank you.
Senator Moran. Let me turn to Senator Blumenthal for his
questions. And, Senator Blumenthal, I am on my way to the
Senate floor to vote.
Senator Blumenthal. OK. I will be shortly as well.
Senator Moran. Senator Sullivan is here, Senator
Blumenthal, if we need to turn to him to chair the hearing
while both of us are gone.
Senator Blumenthal. OK. I will be brief in my questions
because we do have a vote that is ongoing.
I just want to make a quick point about Neil Gilman and
about Gilman Gear just to impress some of my colleagues,
including my friend from Kansas. Gilman Gear actually led the
Nation in developing a product called ``pylon cam'' that was
developed with ESPN, which now is an indispensable part of
every NFL and college game day broadcast. And in 2015, Mr.
Gilman designed and brought to market the roll tackle ring,
which revolutionized the way tackling and blocking are taught
in high school and elsewhere for the game of football to
prevent concussions from being as prevalent as they have been.
So he is a highly talented designer and manufacturer in that
area of sports equipment but then had to pivot using what we
know in Connecticut as good old Yankee ingenuity, not always
Yankee ingenuity, but certainly innovative and inventive
spirit, and began making the isolation and surgical gowns,
isolation hoods, hairnet caps, and other PPE, which is now
serving to protect countless health care workers across
Connecticut and the country.
I want to thank again Neil Gilman for being here and want
to ask him and other members of the panel whether they think
that the Defense Production Act would be useful in developing
the supply chain and providing the kind of support that you
have made reference to because it would, in fact, help to
develop and make more robust that supply chain and perhaps even
reduce the cost of the raw materials and equipment that you
need to produce the equipment that you do?
Mr. Wessel. Senator, I do not see Mr. Gilman responding, so
let me jump in very quickly, and thank you for your question.
I think the DPA is a critical part of what the solution
needs to be. I think we saw in this pandemic that it was not
utilized quickly enough, effectively enough, and there has been
a lack of transparency and accountability. For many of the
small businesses, all the way up to the big businesses, but
small businesses, as you heard today, are in need of quick
capital that can be effectively deployed to meet many of the
gaps that exist in the supply chains to retool and do what they
need to do. So DPA I think is a critical tool but needs to be
enhanced for the future.
Senator Blumenthal. Thanks for that comment, Mr. Wessel.
I do not know whether Mr. Gilman is on. Probably not. I
apologize that those technical difficulties have prevented us
from connecting.
Mr. Krska, I do not know whether you have any comment on
the DPA.
Mr. Krska. I personally like the idea. I think that when
you are starting a new industry and you are competing with the
Chinese, very established businesses with a lot of leverage, a
lot of volume--you know, having purchased items in China for a
long time, it is hard to figure out the pricing even, the
expense. How could it be so cheap? Right? When I first started
going there, the cost of labor was somewhere around 80 cents an
hour. Now in some areas, it is $7-$8 an hour, but still the
pricing is so low that you cannot even make sense of it.
So if we were to have some environment, some part of the
economy that was set aside to allow us to achieve momentum and
get leverage--right--in all parts of the supply chain, it would
go a long way to restarting many of these industries to get
them going. That is my impression.
Senator Blumenthal. Those comments are very, very pertinent
and timely because as you know--or there is no reason you
should know, but we have been pushing the President to use the
Defense Production Act. In fact, in the HEROES Act, there is a
specific measure that has been led by our colleague, Senator
Baldwin, a member of this committee--we will be hearing from
her shortly--that would compel the President to use the DPA
which, for reasons difficult to comprehend, he has not done.
But the points that you make and others, Mr. Krska, are
very, very powerful. They relate to unfair competition from
China. Some of us have been complaining about it for years.
They affect Kansas. They affect every State in the country,
including Connecticut. We hear the same kind of complaints, and
using the Defense Production Act I think is an essential part
of the picture and also developing the skilled labor that is
needed to provide the human resources that you need. It is not
only parts and components that are in the supply chain. It is
very much the men and women who do these jobs and who have to
learn new skills. When you convert to new PPE, when you
reengineer your assembly lines, I think that is an important
part of the picture.
So thank you all for being a part of this panel. I have to
go vote. You can see that just like you, we as Senators have to
multitask. I am going to turn, I think, the gavel over to--I
guess I am being told we are going to have to take a short
recess. That is the last direction from our Chairman, Senator
Moran, who is now on the floor voting, but he has communicated
to me through the wonders of a text that I am instructed to
declare a recess. So we will be in recess I hope for just a few
minutes. Thank you all. Thanks for your patience and thanks for
being a part of this hearing.
[Recess.]
Senator Moran. The Subcommittee will reconvene. This is the
most clunky hearing I have ever participated in let alone
chaired, and that is saying a lot for the U.S. Senate for
clunky. So I apologize to our witnesses in particular but to
all who are paying attention to this hearing how challenging it
has been with a series of votes.
I think it is Senator Cantwell who is next to question.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Well, thank you, Mr. Chairman. So thank
you for inviting a witness that is both a business owner in
Kansas and a Washington State resident to boot.
Senator Moran. [Inaudible] well for you and I to work
closely together.
Senator Cantwell. Exactly. And I do want to work with you
on the manufacturing workforce issue that you and Senator
Warner have introduced as it relates to helping keep the supply
chain in aviation manufacturing.
So I appreciate this hearing, and I know that we are all
dealing with an increase in the number of cases and the
challenges that we face. I am very proud that our State has
kept our rates of infection and hospitalizations down and
appreciate the ongoing efforts there.
But I am also impressed by the manufacturing efforts in our
State, everybody working together. Outdoor Research converted
one of its Seattle facilities into making surgical masks. They
used to make outdoor equipment. Now they are making 400,000
surgical masks and 60,000 N95 respirators per week, creating
200 new jobs. Aerospace manufacturers, GlobalTech Plastics in
Fife and Tool Gauge in Tacoma, worked with Design that Matters,
a Redmond nonprofit, on other medical expert designs to help
with the shields. At one point in time, I know that Boeing was
creating face shields as well. Kent-based Flow International
produces high pressure jet cutting systems and has delivered
over 200,000 medical grade face shields to the state and nearly
40,000 different distributors--I am sorry--distillers,
including the Chehalis Tribe that had just opened up this great
new facility, switched over immediately to hand sanitizer. So I
feel like the American spirit is alive and well by these
manufacturers who had adjusted their production levels.
So I wondered if our witnesses, Mr. Bulusu or any of the
others, could talk about--obviously, we have had a lot of
frustration here on the Defense Production Act. But what do we
need to do to give clear indications to manufacturers that we
still need this production level, and how can we gain their
help now that we are seeing a spike again on this necessary
equipment?
Mr. Bulusu. Could you please repeat the first part of the
question, please?
Senator Cantwell. What do we need to tell manufacturers?
What kind of guidance, directive do we need to give them to get
these production levels up that we need because of the changing
conditions we are now facing for the next several months?
Mr. Bulusu. If I may take this opportunity. The biggest
challenge that we face is being able to sell. There are two
different channels that we pursued. One was to go after the
opportunity to sell to governments at the local levels or the
Federal level. The biggest challenge we ran into there was by
default the policy favored the lowest price, which just meant
that the product that is being dumped into the United States is
the default choice.
I would not say that we cannot necessarily compete, and I
am not going to necessarily say that the American consumer has
to pay a higher price. But before we achieve that level of
economies of scale, there is a need for the American
manufacturing industry to be supported. That is not going to
happen over a day or two. It is a process through which we have
to buildup scale to achieve the economies of scale.
But the first helping hand could come from modifying policy
to at least set aside a part of the procurement funds to go to
American manufacturers. That will help us put our roots in the
medium term.
And the second one, which is probably not super relevant
right here but is nevertheless affecting us significantly, is
our organic growth is unfortunately--it is stifled given the
fact that we cannot advertise directly to the consumer. The
prominent search engines, Google, Bing, or social media like
Facebook, Twitter--none of them really allow us to advertise
because they are worried about price gouging. And the barriers
that are established are making it difficult for us to
establish ourselves, put our roots by reaching out directly to
the consumer at least.
Senator Cantwell. I am pretty sure this mask I am wearing
right now--I am sure it was gotten off of Amazon. So what do
you mean? There are manufacturers that are producing supplies
and they are unable to sell them because----
Mr. Bulusu. The modern way in general, if I wanted to reach
the customer, would be to advertise on Google, maybe make it
available on Amazon, and then send a link that would appear on
Google and put an advertisement there or maybe on Facebook. And
I come from the technology industry initially. So I worked to
some extent on Bing, the search engine by Microsoft. All of
these opportunities are blocked because the companies are
worried--and rightly so--that there is price gouging practices
that are due to false advertisement and everything.
But the matter of fact is that American manufacturers, once
we have a company on American soil, are completely traceable.
So it is not like we should be scared of or we are not so prone
to--or we cannot easily abuse the ability to sell to an
American customer like maybe others could.
Senator Cantwell. Yes. So basically we need something of a
clearinghouse----
Mr. Bulusu. Yes, ma'am.
Senator Cantwell.--besides the funding.
I know of another case, Mr. Chairman, of a point-of-care
technology that just needed a little bit of funding to go to
scale on what would be, you know, an airport test within 20
minutes, which for aviation would be incredibly important. So
we do have these manufacturers that are trying.
So I agree with your first point about the funds. I agree
that we should help with some sort of clearinghouse on making
you feel comfortable that you can advertise these products. You
need to know that they meet a standard.
Was there a third point on this?
Mr. Bulusu. That was it. And I tried, by the way, by
reaching out to executives in Amazon. My partner--he actually
worked for a very long--if for 3 and a half to 4 months we find
it difficult and we cannot get into Amazon, then there is a
problem.
Senator Cantwell. OK. So basically funding and some way to
make sure that you feel comfortable that you are meeting the
standards and then advertising that people will feel
comfortable that you are meeting that standard. OK, great.
Thank you, Mr. Chairman.
Senator Moran. Ranking Member, thank you very much.
Senator Thune.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman.
Commissioner Wessel, throughout the COVID-19 pandemic, we
have seen the United States supply chain and manufacturing
industry face a number of challenges to keep up with the demand
of certain resources particularly personal protective
equipment. What steps should the United States take today to
ensure we have a more resilient supply chain?
Mr. Wessel. Thank you for your question, Senator. And I
think we face it all too clearly in this sector, PPE,
medicines, et cetera, that has raised public attention, but
this exists across a broad cross section of industries.
First of all, in this sector I think we need to make sure
that we have a strategic national stockpile that is adequate to
the task. Again, as I said earlier, no one expected the
virulence and breadth of this pandemic, but I think we have to
understand that similar situations could arise in the future
and we need to make sure that we are prepared. That means
having domestic production available, including surge capacity.
It may be idle, but we need to support it potentially with
Federal funds. And we need to make sure that we have the
stockpiles necessary to quickly deploy to meet needs. The fact
is our health care workers, those on the front lines, should
not be having to search for equipment, having to potentially
use substandard equipment or having to reuse that equipment.
The DOD has been looking at how to make sure that our
industrial base is able to meet surge needs for any of a number
of defense procurement needs. We need to focus more on our own
security and what types of manufacturing capabilities must
exist here to support our national economic health and
agricultural security.
Senator Thune. Thank you.
Ms. Stovall, in your testimony you highlighted at the
beginning of the pandemic, several manufacturers struggled
finding suppliers to support their business needs. What other
issues did you see with the supply chain, and how has the
Manufacturing Extension Partnership program at NIST been able
to help alleviate some of those issues?
Ms. Stovall. Thank you for the question.
Like I mentioned in my testimony, there is no national
supply chain data base. And so early on in the pandemic, we all
were looking around. Right? We all were saying where can we
find ventilators, where can we find more masks, where can we
find hospital gowns, hospital curtains, all of the things that
were critically essential needs to help this public health
emergency.
So what we did very early on--I am reminded of a story that
happened. I will never forget it. It was a Sunday afternoon
back in March, and we got a call. We, center directors across
the national network, got an e-mail from our executive director
of the MEP program, Carol Thomas. And she sent out an e-mail.
There was a request from the White House looking for what
manufacturers across the United States could manufacture PPE
equipment. We were very early in this pandemic. Everybody was
trying to still kind of figure out what this was and what the
needs were going to be.
We had 2 hours to respond on a Sunday afternoon. And within
2 hours, we as a national network were able to look in our
own--each of the center directors were able to look into our
own states, see what was being manufactured, even though there
was not a national database and even though we did not have,
frankly, at the State levels data bases of who manufactures PPE
equipment in our state. Because of the relationships that we
have, because of the work that we had done in our state and
across the national network, we were able to come up with a
pretty exhaustive list just within a couple of hours on what
manufacturers, not just in Kansas but across the United States,
could meet these PPE needs. So that is one of the things that
we have been doing.
One of the other things that we have been doing is we heard
earlier from InkCycle from Mr. Krska talking about the need for
bottles. We hear those kinds of needs all over the place.
Manufacturers have really invested on their own to pivot their
production to critical need PPE goods, but there are still gaps
in the supply chain. And so what we at the State level MEP
centers, as well as linking across the national network, have
done are really build an understanding of what capabilities are
in our states, what capabilities that are in our states that
can help meet this crisis. And that is anything from bottles
and caps to dispensers, hand sanitizers, masks, N95 masks, all
of the things that might go into any part of this supply chain.
So we have been doing this state by state, but we have also
been linking that through the national network that we have. So
we were able to help meet the needs not just in our state but
across the country.
Senator Thune. Thank you.
And, Mr. Chairman, my time has expired. Thank you, and I
will perhaps have some questions to submit for the record.
Senator Moran. Senator Thune, thank you very much.
The next Senator to inquire is Senator Klobuchar. You are
recognized.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Well, thank you very much, Mr. Chairman.
Thank you to all the witnesses on this really important topic
of manufacturing.
A few days ago, I talked to a number of manufacturers in my
state, smaller companies who are really struggling in the
pandemic because of employees with coronavirus, quarantines,
everything. And so I would urge all of my colleagues that it is
time to do pandemic relief in the next month, that we cannot
wait until a new President comes in. I really think we have to
do it now. So that is my only political statement here, Mr.
Chair.
So I will start with you, Mr. Gilman. Bold action is
required to help newly unemployed American people who did not
actually think they were going to lose their jobs. And then we
are going to, I think, have--when we get to the day after
tomorrow when a vaccine comes out, we will have different types
of jobs available. And we were already seeing we did not have
enough people in manufacturing to fill some of the jobs. We
still have openings right now actually in my own state.
So we have a bill for a skills training credit. It is
bipartisan with Senators Sasse, Booker, and Tim Scott that I
have led, and it can be applied to cover the cost of a wide
range of training programs that build skills.
Mr. Gilman, do you believe that increasing a worker's skill
set through appropriate training will help workers to reenter
the workforce now or after we get on the other side of this?
[Pause.]
Senator Klobuchar. Hello?
Mr. Wessel. I am not sure, Senator, that Mr. Gilman is
still there. Let me just say that is critical. If we do not
have the skills, we cannot meet the needs of the manufacturers
to get things back on line, get people back to work, and meet
our needs.
Senator Klobuchar. Very good.
Anyone else want to chime in on this? Thank you, Mr.
Wessel. That was very kind.
Ms. Stovall. Hi, Senator. This is Tiffany Stovall.
Senator Klobuchar. Yes.
Ms. Stovall. I would like to comment on that as well.
One of the things that--so we know that the workforce issue
is one that is ongoing. It is not new to the COVID pandemic,
obviously. Finding a skilled workforce has been a challenge for
manufacturers for quite some time, and I think the
manufacturers on the call would agree with that.
But one thing that has been a particular challenge and a
particular concern during this COVID pandemic is--as
manufacturers have had to navigate how they keep operations
going, one of the things that they are really worried about is
keeping their work force.
Senator Klobuchar. Some people are at home and they could
go, and especially for smaller ones, it is hard.
Ms. Stovall. Yes, absolutely.
And so they are trying to avoid layoffs at all costs.
We have helped, and I know it is not just us, just KMS, the
Kansas MEP, but other MEPs across the network--we have really
been hands on and helpful with manufacturers trying to get them
access to the PPP and other resources that are available to
them so that they can stay open and keep their folks employed.
Senator Klobuchar. All right. Very good. Thanks. And I am a
big fan of the MEP and thank you for the work you do.
I have one last question and I will give this one to Mr.
Wessel. Back in July when you testified before the full
Commerce Committee, you talked about the importance of standing
up to illegal and unfair trade practices such as steel dumping,
particularly important to my state. My grandpa was an iron ore
miner. Our northern part of our state--that is a large part of
the workforce up there.
Now we are going to have a new President coming in who I
believe can usher in, I will say, the somewhat strategic era of
U.S. trade policy, kind of go away from the ?go it alone?
approach.
But what should Congress do, Mr. Wessel, to best work with
the new administration to stand up to unfair trade?
Mr. Wessel. Well, thank you for your question. And that,
you know, is the $64,000 or $64 trillion question I guess.
First of all is not move quickly to dismantle what this
administration has put in place. As you noted, there is
questions about strategy, but that strategy must be based on a
long-term approach and not simply responding to the tactics of
the day.
As you know, clearly over-capacity in steel, in aluminum,
in fiber optics, and 15 or 18 other industries, mostly caused
by China's economic policies, is what is threatening so many
industries. We need specific disciplines that are enforceable,
and those need to be done in a multilateral setting.
But we have not had enough support from our allies and
partners in the past. We have had, as you know, the Global
Steel Forum and the OECD Steel Committee. I think they now
understand that America is serious about addressing unfair
trade. We want to do so with their support and cooperation. And
I believe Congress is going to be a strong bipartisan partner
with the incoming administration to do that.
But no one should be confused by America's resolve to
support our producers and our workers. That is steadfast. The
question is what the long-term strategy is.
Senator Klobuchar. OK. Very good. Thank you.
Thank you, Mr. Chair.
Senator Moran. Thank you, Senator Klobuchar.
Now I will recognize Senator Baldwin.
STATEMENT OF HON. TAMMY BALDWIN,
U.S. SENATOR FROM WISCONSIN
Senator Baldwin. Thank you very much, Mr. Chair.
Commissioner Wessel, I am going to ask some questions, but
I also just want to note for the record, as I have been
shuttling back and forth to the floor to take votes, as
sometimes happens, they may have been things you have tackled
already, but that is OK.
Look, we are 9 months into this pandemic, and I am still
hearing on a routine basis from Wisconsin health care workers
who cannot get a reliable supply of N95 masks that they need to
protect themselves and provide care for their patients. And
that is absolutely unacceptable in the United States of
America.
Since the pandemic began, I have been calling on the Trump
administration to use the full power, all the power, of the
Defense Production Act to alleviate these supply shortages,
including the shortages of PPE that our essential workers need.
So far, it is my observation that the Trump administration has
only used it sporadically, well short of its full potential,
failing to use all the tools that are available under the
Defense Production Act.
Also, I have been concerned that supposed DPA contracts
have gone to shady middlemen, and when priority orders were
issued to major U.S. companies under Title I, they failed to
utilize the full weight of the U.S. Government backing to
incentivize these companies to truly expand their manufacturing
capacity.
So, Commissioner Wessel, what would it have meant and what
would it mean going forward to fully unlock the power of the
Defense Production Act specifically from a manufacturing
perspective?
Mr. Wessel. Thank you for your question, Senator. Also
thank you for your leadership on this issue. You have helped
provide some critical thinking and policy approaches to address
this issue.
I think it would have been of immeasurable benefit to
Americans, to the economy, to our health care workers, first
responders, as well as patients avoiding sickness and worse, if
we had utilized DPA effectively quickly with accountability and
transparency. It is not only about getting the funds, which you
have been a leader on and those authorities should have been
triggered early, there was no accountability, no transparency
as to where contracts were going for production or where the
products were being deployed. And that needs to be fixed. We
need legislation to make sure that never happens again.
Senator Baldwin. Well, I appreciate that.
I will note that in May of this year, I introduced the
Medical Supply Transparency and Delivery Act with my colleague,
Senator Chris Murphy, and many others, which does lay out a
framework for an effective COVID-19 response by Federalizing
and adding critical oversight and transparency to the supply
chain for critical medical supplies and equipment. It also
unlocked the full array of authorities under the Defense
Production Act. I certainly hope that when President-elect
Biden takes office in January, that he will use executive
action to implement this framework and unleash that power as we
will still have work to do.
I know I have just a few seconds left but, Commissioner
Wessel, the Trump administration claims to prioritize economic
security as a national security issue. Peter Navarro in a 2018
op-ed in Real Clear Politics stated that we are in an era of
intense economic competition and that into this breach comes
Donald Trump with a new organizing principle for strategic
policy. Economic security is national security.
In April, Acting Director of DHS Chad Wolf tweeted that
economic security is homeland security and has made similar
statements in testimony to Congress.
Can you elaborate on how--well, when push comes to shove,
it was a lot of talk and little action. While China views
economic and national security as inextricably linked, as you
note in your testimony President Trump has failed to underpin
his economic policies with the national security concern. Can
you elaborate on how this failure put us in a strategic
disadvantage in relation to great power competition with China?
Mr. Wessel. That is a great question--thank you--and a
potentially long answer, but I will shorten it.
Those interests are inextricably intertwined, and the
workers in your state who provide countless benefits for making
sure that we support a strong economy, that we are able to
support industries, critical industries, critical
infrastructure--their interests, their ability to support
America has been undermined by China's non-economic, predatory
policies over a long period of time. But the impact of those
has accelerated as China has passed its industrial policies,
Made in China 2025, its 5-year plan, which will be updated in
March.
We have seen tactics applied to China's policies but not a
long-term strategy to address the overall problems. You know,
tariffs, which I have supported, are not a long-term strategy.
We need to, again, multilateralize our responses. We need to
make sure they are sustainable, and we need to make sure that
we have the ability here--manufacturers and others--to compete
on a level playing field. So it is an all-of-the-above strategy
that needs a coherent framework which we join with our allies
on and where Congress is a true partner.
Senator Baldwin. Thank you, Commissioner.
And I yield back.
Senator Moran. You have nothing to yield back.
Senator Rosen is the last Senator I think to be able to
question our witnesses, and we need to conclude our hearing
shortly thereafter. This committee room is to be occupied
again, and the preparation to do so needs to take place soon.
Senator Rosen.
STATEMENT OF HON. JACKY ROSEN,
U.S. SENATOR FROM NEVADA
Senator Rosen. Thank you, Mr. Chairman. I want to thank
everyone here for being here, for what you are doing.
I want to build a little bit upon what my colleagues have
already asked you about workforce training and retraining
because during the pandemic, of course American ingenuity has
been a bright spot, and our Nation has exhibited with many of
your companies and those in my State the ability to tackle
these insurmountable problems.
For example, when the pandemic hit, there was a plastics
manufacturer in Sparks, Nevada. They started making face
shields and safety partitions for casinos, restaurants, and our
government agencies. The University of Nevada-Reno's Innovation
Center teamed up with our State's MEP center, Nevada Industry
Excellence, to produce gowns for local health care workers.
This August I had the opportunity to virtually visit with Frey
Ranch. It is in Churchill County--their distillery. They make
whiskey and bourbon and they shifted to producing hand
sanitizer, and similarly a Las Vegas distillery--in the
Henderson area in the greater Las Vegas area--they pivoted
their operations from vodka, rum, and whiskey to produce hand
sanitizer.
And so I want to thank you for addressing some of the
challenges that we have doing this for PPE and some of the
other things, workforce training, because you know that having
a skilled workforce that is able to be nimble and readily adapt
is going to impact how quickly our businesses come back.
But I would like to build on that a little bit because I
also believe that we have to build consumer confidence for
going back indoors. What are we all worried about? The quality
of our air. Indoor air quality is what stops us from going to
restaurants, to marinas, to concerts, hotels and casinos like I
have in Nevada.
So, Ms. Stovall, in your experience working with small and
medium sized manufacturers, do you know of companies that are
working to produce the very important type of HEPA filters and
the filtration systems that we are going to need, those
electronic air cleaners that will help jump start an economy
and make us feel more confident to go back indoors through this
pandemic?
Ms. Stovall. Thank you for the question.
Yes, as a matter of fact. So one of the things--early in
your comments, you referenced ingenuity and the ingenuity of
manufacturers. Manufacturing is built on innovation. Right? We
are a country of makers. We make things. And so it is in times
like this where we have critical needs, needs that may be a
little bit different than they were 6 months prior to that,
that companies are looking to say how can we do better at
meeting the need. That is where this innovation comes from.
The companies are doing this on their own. I keep pointing
that out because I want you all to really understand that the
time, the dollar investment, what manufacturers are doing on
their own and what we need to be able to do to support them.
So back to your question of, are there companies that are
looking at indoor air quality? Absolutely, they are because
that is a need. So while we are looking at what are our needs
right now, masks, ventilators, those kinds of needs, we are
also looking at what gets us back to some sense of normalcy,
which is what will make the public comfortable with going into
buildings and to retail spaces and office spaces. And that is
an increased focus on air quality. So, yes, that is something
that is being looked at by manufacturers not only in Kansas but
across the country.
Senator Rosen. Well, I thank you for that. I would like to
speak a little bit more about that, but I know that there is
another committee coming in right after us, so I will submit
those questions for the record. I think it is really important
that we talk about indoor air quality because it is key to
getting folks back to sports and school and all of the things
that we all miss so dearly. So I will yield back my last few
seconds, and I thank you all for being here today.
Senator Moran. Senator Rosen, thank you for your
cooperation. Thank you for your participation today.
We are just about to conclude this hearing, but it is
always my practice to ask any of our witnesses if they have
anything they want to try to clarify or something they wish
they would have been asked, something that they wish they would
have said.
[No response.]
Senator Moran. Very good. Thank you all for joining us this
afternoon. This is a very important topic, and we need to
figure out the policies that are necessary to strengthen and
grow our manufacturing economy, creating jobs in Kansas and the
United States, but also a better way to protect our citizens
from the pandemic and other emergencies and crises that will
occur by having access to the various manufactured products
that are necessary for our country's well-being, both health
and economic.
Senator Blumenthal. Mr. Chairman?
Senator Moran. Yes, sir.
Senator Blumenthal. Mr. Chairman, I note that Neil Gilman
evidently is back on the line. I want him to know that I was
bragging about him. He may not have heard it. I want to say to
him how much I admire what he has done and all the
entrepreneurs and manufacturers on this call. I think this
hearing has really been very inspiring to see the kind of
ingenuity and creativeness and innovativeness, which is really
the hallmark of America.
The Chinese can steal our intellectual property. They can
exploit their workers, and they can try to undercut us, but I
think in the long run our system will beat theirs and we will
be safer in terms of our health care and our economy because of
the patriots that we had at this hearing today you and I had a
chance to talk about a little bit on the floor.
And I think that your leadership here has been very
important. I hope that you and I can work together in
continuing showing how manufacturing of PPE and these health
care supplies is so important to our country. So my thanks to
you for holding this hearing and to all of our witnesses.
Senator Moran. Senator Blumenthal, thank you for your
assistance, your leadership, and I look forward to continuing
our efforts to pursue this topic and others within the
Subcommittee's jurisdiction.
We are going to conclude. The hearing record will remain
open for two weeks. During this time, Senators are asked to
submit any questions for the record. Upon the receipt of those
questions, the witnesses are requested to submit their written
answers to the Ccommittee as soon as possible. That concludes
today's hearing.
And again, I thank our witnesses. I thank our staff, and I
apologize for the on again/off again nature of today's hearing
through no fault of anyone in this room's efforts. We just had
a disjointed chance to have the testimony told, but it was very
compelling and very useful and I am grateful for that.
With that, the hearing is now adjourned.
[Whereupon, at 4:42 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. Jacky Rosen to
Ravi Bulusu
Question 1. During this devastating pandemic, American ingenuity
has been a bright spot, demonstrating our capacity as a nation to
tackle seemingly insurmountable problems. Having a skilled workforce
that is ready to quickly adapt to rapidly changing conditions has made
a difference for these businesses and will impact how quickly our
economy will recover from the pandemic.
a.) How did you go about retraining your workforce to manufacture
health and safety products? What do you recommend to small and medium-
sized manufacturers who want to pivot into the PPE space and that need
to do workforce retraining?
a. We are a startup that started from scratch and so are primarily
focused on adding employees. Recommendations for manufacturers
who want to pivot into PPE would be as follows:
i. Study the market and the players in the market. This will
help establish a niche in a chaotic market in unusual
times.
ii. Reach out to potential buyers, find out their requirements
and also quantify potential demand.
iii. Ensure there is a reliable supply chain of the raw
materials needed. Establish sufficient redundancy to avoid
interruption in manufacturing.
iv. Traditional marketing strategies might not always work for
your product. In such cases, the flexibility to think out
of the box becomes important.
v. Get the product certified as early as you can.
b.) How can Congress best assist manufacturers in providing a
trained workforce? What actions can Congress take to support small
manufacturers' efforts to meet product demand and retrain their
employees to respond and adapt quickly to an evolving pandemic?
a. To help build a trained workforce, incentivizing training
programs would be very helpful. The post-pandemic world is
likely to be very different.
b. To help small manufacturers:
i. Allocate some percentage of government procurement to
domestic PPE and medical equipment manufacturers for 5
years. It will help our companies get competitive. Due to
the established practice of procuring at the lowest price,
most American small manufacturers of PPE are by default not
able to compete with China made PPE despite significant
difference in the quality.
ii. Establish a priority channel for American manufacturers in
the testing and certification process during national
emergency situations either through DPA or a different act.
Despite having made a product, the certification pipeline
is very crowded causing 3-4 months of delays. EUA is
helpful but most consumers in the market prefer a certified
product.
______
Response to Written Questions Submitted by Hon. Jacky Rosen to
Tiffany M. Stovall
Question 1. During these challenging times, Nevada's manufacturers
and their workers have been resilient in ensuring that our communities
have the protective equipment they need to keep our first responders,
frontline workers, and families safe. However, despite these efforts to
ramp up PPE production, as COVID-19 cases continue to climb, challenges
remain--particularly our overdependence on global supply chains. I am
curious, however, if American companies--through innovation--can help
pave the way to creating new, domestic supply chains.
a.) Are there COVID response-related sectors where small and
medium-sized businesses can still step up and fill domestic supply
chain needs? Where are the biggest gaps where American manufacturers
can jump in to not only contribute, but even create jobs because unmet
demand is so high? What would failure to fill these gaps mean for the
American economy as a whole?
There are absolutely COVID response related sectors where small and
medium sized businesses can still step up and fill domestic supply
chain needs. Notably, supplies related to prevention of spread as well
as medical professionals such as masks, shields, gloves, gowns, hand
sanitizer and such will continue to be in high demand for some time to
come. Additionally, supplies that allow our country to remain in
business are also critical such as physical barriers like those seen in
retail check out lines, janitorial cleaners, and disinfectants for use
in a wide variety of spaces and types of businesses from medical
facilities and restaurants to manufacturing and distribution.
Further, within the manufacturing industry there are a number of
small and midsized companies with knowledge, expertise, and facilities
to manufacture various scales of biological materials and
biopharmaceuticals within sterile environments. Biomanufacturing is the
application of manufacturing processes and biotechnology to produce
products from biological origins. Through biomanufacturing, companies
are able to produce important biologics and biomaterials that have
broad applications across medicine, research, construction,
engineering, foods and beverages, and other industrial application.
The Biotechnology Innovation Organization and Boston Consulting
Group identified three bottlenecks that need to be prioritized to
manufacture COVID-19 related biologics:
Biologics drug substance production
Sterile fill and finish capacity
Lyophilization capacity
To increase capacity, existing biopharma and biologics
manufacturers can partner or contract with small to mid-sized contract
drug manufacturing companies (CDMOs/CMOs) to increase capacity to
address supply shortages. Even in the absence of increased demand due
to COVID-19, the changing biopharmaceutical industry will continue to
have an increased demand for these types of manufacturing capabilities.
By leveraging and building upon our existing companies that have
the above capabilities, we can create additional jobs while also
increasing the U.S. market share of the manufacturing and
biomanufacturing industry.
b.) What actions can Congress take to strengthen our Nation's
domestic supply chains?
Congress can strengthen our Nation's domestic supply chains by
establishing and funding a National Supply Chain Database as proposed
in the National Defense Authorization Act of 2020. COVID-19 has
demonstrated the devastating effects of a global pandemic on public
health and safety, our local economies, and global markets. Plant
closures, a reduction in manufacturing operations, and in some cases,
retooling of manufacturing plants to produce Personal Protective
Equipment (PPE) and other products highlight the critical need to have
a nationwide real-time understanding about the strengths and
vulnerabilities of our national supply chain across various industries.
Global pandemics are not the only threat to our supply chain.
Natural disasters, cyber threats, trade agreements, and raw material
shortages are but a few examples of threats to our supply chain. Since
March, we have watched as our states, hospitals, and employers have
struggled to secure access to PPE and other products necessary to
protect our communities during the COVID-19 outbreak. It is clear that
we need a centralized source of information on our Nation's supply
chain of PPE and other products.
Establishing a National Supply Chain Database will ensure the
Nation's ability to minimize disruptions in the supply chain by having
an accurate and real-time assessment of U.S. manufacturers'
capabilities and inventories.
______
Response to Written Questions Submitted by Hon. Dan Sullivan to
Michael Wessel
Question 1. The U.S.-China Economic and Security Review
Commission's July 1 report on U.S. Multinational Enterprise Activity in
China identified a number of concerning trends from our growing
reliance on China for the production of goods. Globalization has not
led to reliability through supply chain diversification across numerous
countries in various parts of the world. Instead, we have increased our
reliance on a single country--China, in ways that make us vulnerable to
catastrophic supply chain disruptions like those that we see with the
pandemic.
1. The U.S.-China Economic and Security Review Commission's July 1
report on U.S. Multinational Enterprise Activity in China identified a
number of concerning trends from our growing reliance on China for the
production of goods. Globalization has not led to reliability through
supply chain diversification across numerous countries in various parts
of the world. Instead, we have increased our reliance on a single
country--China, in ways that make us vulnerable to catastrophic supply
chain disruptions like those that we see with the pandemic.
a. What initiatives are underway to encourage U.S. multinational
enterprises to diversify outside of China?
The U.S. government is considering strategies to bring
supply chains in critical industries closer to home. Some
initial steps have focused on addressing U.S. supply chain
dependence on Chinese medical supplies \1\ and critical
minerals.\2\ For example, in May 2020, the Trump administration
authorized the Development Finance Corporation to execute loans
using the Defense Production Act's Title III authorities to
shore up domestic production of strategic resources needed to
respond to the pandemic.i A separate Executive Order
issued in September directed the Departments of Defense,
Treasury, Commerce, Energy, and others to produce reports
offering guidance on how to reduce U.S. overdependence on China
for critical minerals. The reports, among other things, should
include recommendations on potential incentives to promote
domestic mining and processing of such minerals.ii
Administration officials have also reportedly considered
establishing a $25 billion ``reshoring fund'' to subsidize U.S.
companies' movement of manufacturing activity out of
China.iii
---------------------------------------------------------------------------
\1\ According to research conducted by the Congressional Research
Service, China accounted for over 15 percent of U.S. imports of medical
ventilators and over 70 percent of imports of medical protective
articles like masks. Karen M. Sutter, Andres B. Schwarzenberg, and
Michael D. Sutherland, ``COVID-19: China Medical Supply Chains and
Broader Trade Issues,'' Congressional Research Service R46304, April 6,
2020, 17-18. https://crsreports.congress.gov/product/pdf/R/R46304.
\2\ China produces more than 80 percent of rare earth elements
globally, and broad provisions in Beijing's recently passed Export
Control Law could see the Chinese government restrict exports of these
elements as a tool of coercion. Jamie Smyth, ``Industry Needs a Rare
Earths Supply Chain Outside China,'' Financial Times, July 27, 2020.
https://www.ft.com/content/fc368da6-1c86-454b-91ed-cb2727507661; Lester
Ross, Kenneth Zhou, and Tingting Liu, ``China Publishes Draft Export
Control Law,'' WilmerHale, January 15, 2020. https://www.jdsupra
.com/legalnews/china-publishes-draft-export-control-law-58113/.
b. How do we incentivize businesses to pursue materials and
manufacturing elsewhere while the People's Republic of China
---------------------------------------------------------------------------
artificially keeps costs lower than other competing venues?
The supply chain realignment process is in its early stages
and will be challenging. The United States and other countries
are just beginning to formulate and implement supply chain
reshoring and diversification initiatives. Unfortunately, with
supply chains in China, the outsourcing and offshoring that has
occurred is also a result of deeply-embedded and supported
industrial policies designed to promote China's interests often
at the expense of other countries. While many of the
dependencies have existed for some time, the current pandemic
has elevated attention on these issues in the United States and
in other nations.
Some governments are providing subsidies and other
investment incentives to encourage companies to diversify
production away from China. The Japanese government has
earmarked $2.2 billion to subsidize Japanese manufacturers'
relocation of production out of China to diversify supply chain
risks.iv So far, 57 Japanese companies have received
a total of $535 million to open new factories in Japan, while
another 30 companies have received $220 million to expand
production in Vietnam, Myanmar, Thailand, and other Southeast
Asian countries.v European leaders are also seeking
to reshore supply chains in some critical industries, such as
medical supplies.vi For example, in June French
President Emmanuel Macron submitted a proposal to European
Commission President Ursula von der Leyen asking Brussels to
develop investment incentives to encourage the reshoring of
active pharmaceutical ingredient production capacity to the
EU.vii
Despite its diminished competitiveness as a low-cost
manufacturing base, China's extensive industrial ecosystem
makes the complete transfer of supply chains out of the country
a difficult prospect. China's ecosystem of suppliers, skilled
labor, and efficient transportation infrastructure is difficult
to match, cementing dependencies on production networks there.
According to research from Bank of America, the cost to U.S.
and European companies of moving manufacturing out of China
could reach $1 trillion over the next five
years,viii a hefty expense as the pandemic strains
corporate finances and crimps investment. Preliminary trade
data and market research suggests the diversification of
discrete portions of production in select industries away from
China, rather than a complete uprooting of supply chains out of
the country, is more likely.\3\ Any movement of manufacturing
production outside of China is made more difficult in the short
term as resumption of industrial activity and economic recovery
in China outpaces that of other countries still grappling with
the pandemic and the fact that China's industrial policies and
state-led market intervention creates incentives for Western
companies to continue to rely on that country.
---------------------------------------------------------------------------
\3\ For example, according to the World Trade Organization Economic
Research and Statistics Division, in the first half of 2019 about $21
billion in U.S. imports diverted from China to Mexico ($6.9 billion),
the EU ($6 billion), Taiwan ($4.5 billion), and Vietnam ($2.8 billion).
Looking forward, consulting firm McKinsey estimates that the production
of 16 to 26 percent of globally traded goods could move to new
countries over the next five years as companies and governments pursue
supply chain resilience. Susan Lund et al., ``Risk, Resilience, and
Rebalancing in Global Value Chains,'' McKinsey Global Institute, August
2020, 61; Eddy Bekkers and Sofia Schroeter, ``An Economic Analysis of
the U.S.-China Trade Conflict,'' World Trade Organization Economics and
Statistics Division, February 26, 2020, 9. https://www.wto.org/english/
res_e/reser_e/ersd202004_e.pdf.
c. What more can be done to protect against supply chain
vulnerabilities created by an overreliance on a single foreign nation
---------------------------------------------------------------------------
like we have with China?
The U.S. government must strengthen its ability to analyze
U.S.-China economic relations. Our country's economic linkages
with China are deepening beyond trade to include portfolio
investment which is likely to create enhanced vulnerabilities
and dependencies. As China's financial authorities
strategically open China's financial sector to utilize foreign
capital in shoring up China's economy, it becomes more urgent
for the U.S. government to track and monitor U.S. exposure to
risks and vulnerabilities in China's financial system and to
ensure that U.S. investors, as well as our national interest,
are protected. To that end, the Commission recommended in 2020:
Congress enact legislation establishing a China
Economic Data Coordination Center (CEDCC) at the Bureau of
Economic Analysis at the U.S. Department of Commerce. The
Center would be mandated to collect and synthesize official
and unofficial Chinese economic data on developments in
China's financial markets and U.S. exposure to risks and
vulnerabilities in China's financial system, including:
Data on baseline economic statistics (e.g.,
gross domestic product [GDP]) and other indicators of
economic health;
Data on national and local government debt;
Data on nonperforming loan amounts;
Data on the composition of shadow banking
assets;
Data on the composition of China's foreign
exchange reserves; and
Data on bank loan interest rates.
There are also many questions concerning the scope and scale of
U.S. multinational firms' business in China that are left unanswered by
data aggregated by the U.S. Department of Commerce. Enhanced collection
of data on U.S.-China commercial ties will enable U.S. policymakers to
more readily identify and assess supply chain vulnerabilities with
respect to China and determine where we should prioritize our efforts
to defend against related vulnerabilities. The Commission thus
recommended in 2019:
Congress enact legislation requiring the collection of
data on U.S.-China economic relations. This legislation
would:
Direct U.S. economic statistics-producing
agencies, including the U.S. Census Bureau, the U.S.
Department of Commerce's Bureau of Economic Analysis,
and the U.S. International Trade Commission, to review
methodologies for collecting and publishing not only
gross trade flows data, but also detailed supply chain
data to better document the country of origin for
components of each imported good before it reaches U.S.
consumers.
Direct the U.S. Census Bureau to restart
data releases in its Current Industrial Reports at the
ten-digit industry level.
Direct the U.S. Department of the Treasury
to coordinate with the U.S. Census Bureau to match U.S.
firm-level data with their U.S. employees' data.
Develop new analytic tools to more effectively monitor
supply chain vulnerabilities for materials critical to the U.S.
manufacturing base. China dominates global supply of numerous
critical minerals and metals used in energy storage and other
advanced technologies, creating supply risks for materials,
components, and end products sourced from China. The Chinese
government's approach to establishing dominance in global
supply chains has been systematic, requiring coordination
between industrial policy, domestic geological exploration, and
commercial engagement in resource-rich developing countries,
all supported by substantial state funding. As China's control
over these materials expands, risks to the United States of
impaired or narrowed access to them heightens. To address this
challenge, the Commission recommended in 2019:
Congress direct the U.S. Geological Survey, in
coordination with the U.S. Department of Energy, U.S.
Department of Commerce, U.S. Department of the Interior,
and U.S. International Trade Commission to develop and
maintain a risk assessment framework that identifies
materials used in manufacturing industries critical to both
national security and commercial vitality. Such a framework
should provide an early warning mechanism for any threats
to the U.S. supply of these critical materials, including
an increasing concentration of extraction and processing by
another country or entity and acquisition of significant
mining and processing facilities; increasing export
restrictions by another country; large gaps between
domestic prices for these materials in another country
versus prices on international markets; sharp increases or
volatility in price; and substantial control in supply of
minerals used within the same industry or related minerals
that serve as substitutes by another country.
Incentivize U.S. enterprises to invest more in the basic
research that underpins U.S. innovation and technological
leadership. While the U.S. government funds some basic research
and offers incentives like the research and development tax
credit to spur innovation, the Chinese government uses
prescriptive and interventionist methods to build supply,
generate demand, and guarantee a market for nascent industries.
The CCP broadly supports licit and illicit technology and
talent acquisition strategies and programs. Beijing's statist
approach helps new technologies overcome obstacles to
commercialization. A U.S. policy environment that expands
support to U.S. companies conducting innovative early-stage
research in emerging industries will enable the United States
to more effectively rise to the challenge of economic and
technological competition with China. The Commission thus
recommended in 2019:
Congress amend Internal Revenue Code Section 41 to
extend the research and development tax credit to initial
stages of deployment for new products, processes, computer
software, techniques, formulae, or inventions that increase
the production of final and intermediary goods manufactured
primarily in the United States. The tax credit should also
extend to precompetitive commercial development of basic
and applied research performed in the United States,
particularly in industrial sectors where the People's
Republic of China threatens the technological leadership of
the United States.
Question 2. Beijing has leveraged an array of economic incentives
to induce U.S. companies to increase production in China, and U.S.
companies have done so to realize their fiduciary duty to their
shareholders. The U.S. government is increasingly asking U.S. companies
to consider how their decisions can serve not just their shareholders'
interests but also those of U.S. policy as strategic competition with
China heightens.
a. How can the U.S. government better engage with U.S. companies to
enlist industry in shoring up U.S. economic competitiveness with
respect to China?
The COVID-19 pandemic is putting business and government on
the same page with respect to resolving the risks of
overreliance on China-based production networks. Shortages
caused by the COVID-19 pandemic are sparking renewed interest
on the part of multinational companies in reshoring or
nearshoring production closer to home markets. As the
international business community re-evaluates China as a
production base, U.S. policymakers are presented with
opportunities to elevate the attractiveness of the United
States as an investment destination for U.S. and other
multinational companies. According to a May 2020 survey of
global supply chain executives conducted by McKinsey, about 40
percent of companies intend to nearshore and increase their
supplier base to bolster resilience.ix Analysts
anticipate critical supply for strategic industries, such as
healthcare products, personal protective equipment, or
pharmaceuticals, may begin to reshore as governments and
companies prioritize resilience and redundancy over
cost.x Congress and the Administration must engage
in a broader discussion to advance and accelerate these efforts
and broaden them to other sectors.
Continued formalization of rules and regulations to mitigate
selected risks of U.S.-China commercial engagement may guide
U.S. companies to make business decisions that more closely
align with the national interest. U.S. policy efforts to halt
the flow of U.S. advanced technologies to Chinese companies
that pose a national security threat or are involved in human
rights abuses in Xinjiang province, for example, signal to U.S.
companies what kind of business activity runs counter to U.S.
policy interests and harms U.S. national security in the long-
run. As these companies may not consider risks to U.S. national
security when conducting business in China, U.S. policy steps
to defend against those risks can define the appropriate bounds
for U.S. commercial activity in China as strategic competition
between the two countries heightens.
The United States can also work with likeminded partners to
bolster supply chain resilience and develop alternatives to
China-centric production networks. Supply shortages wrought by
the COVID-19 pandemic have led some governments to explore how
they can work together to assure supply chain security. For
example, the Japanese, Australian, and Indian governments are
mulling the establishment of a trilateral supply chain
resilience initiative focused on securing supply chains in the
Indo-Pacific region,xi while the British government
has proposed the formation of a ``D10'' group of ten
democracies to jointly develop 5G technology and reduce
dependence on Huawei.xii U.S. engagement in these
multilateral efforts can both strengthen U.S. supply chain
security and bolster U.S. economic competitiveness with respect
to China. Taiwan firms' central role in global information and
communications technology supply chains makes Taiwan an
attractive partner to the United States in this effort. To this
end, the Commission recommended in 2020:
Congress encourage the Administration to include
Taiwan in multilateral efforts to coordinate and strengthen
supply chain cooperation and security. This could be done
through the expansion of Global Cooperation and Training
Framework programming or a new multilateral arrangement
with likeminded democracies. This multilateral engagement
should focus on securing critical inputs and assuring
supply chain resilience in strategic industries critical to
economic competitiveness and national security, including
information and communications technology, integrated
circuits, and electronic components.
Policymakers must make clear to multinational enterprises
and companies that rely on China as either a location for
production, or a supplier, that there are significant costs to
producting in, or obtaining supplies from, that country. Short-
term profits are not the only determinant for a fiduciary;
rather, the long-term health and success of the enterprise are.
The COVID-19 pandemic and the focus on supplier relationships
with China has made clear that dependency on China creates
enormous risks. China's technology acquisition strategies have
undermined the value of many of our companies as their
competitors have obtained technology, R&D, and manufacturing
capabilities from multinational's activities in that country.
The subsidies that China provides to many domestic champions
also harm long-term competitiveness of U.S. companies. and in
addition, the relationships that many U.S. firms have with
Chinese companies now on the Entities List or identified by the
Department of Defense as promoting the PLA, may expose U.S.
companies to risks under U.S. law and undermine U.S. national
security.
Question 3. U.S. laws, regulations, and practices afford Chinese
companies certain advantages that U.S. companies do not enjoy. For
example, Chinese firms that raise capital on U.S. stock markets are
subject to lower disclosure requirements than their U.S. counterparts.
a. Can you describe other benefits Chinese companies enjoy in the
United States, especially in cases where U.S. companies do not enjoy
reciprocal advantages in China?
U.S. firms compete with unfairly subsidized Chinese
companies both in the United States and abroad. Chinese firms'
U.S. operations may pose competitive challenges if they receive
below-cost financing or subsidies from the Chinese government.
For example, state-owned China Railway Rolling Stock
Corporation (CRRC), China's largest rail-car manufacturing
company, reported that it received $37.1 million in government
grants--including loans at below-market rates--in
2017.xiii In the United States, CRRC has won four
out of five major U.S. contracts for new railcars in the cities
of Chicago, Philadelphia, Boston, and Los Angeles since
2017.xiv U.S. firms can operate at a disadvantage in
global markets as well. For example, Chinese construction firms
operating in African countries have benefited from significant
government subsidies, allowing them to submit lower bids for
many construction projects.xv According to Aubrey
Hruby, Senior Fellow at the Atlantic Council's Africa Center,
Chinese firms have won 42 percent by value of all World Bank
open bid contracts with bids that are often 40 percent less
expensive than competitor firms.xvi The early entry
of Chinese firms Huawei and ZTE into Africa's
telecommunications sector, aided by generous subsidies from the
Chinese government, has also helped Chinese companies gain an
advantage over competitors in the continent's
telecommunications and mobile phone markets. In order to equip
the U.S. government with information needed to better address
the ways in which Chinese government subsidies unfairly
advantage Chinese companies, the Commission recommended in
2020:
Congress expand the authority of the Federal Trade
Commission (FTC) to monitor and take foreign government
subsidies into account in premerger notification processes.
The FTC shall develop a process to determine
to what extent proposed transactions are facilitated by
the support of foreign government subsidies.
The definition of foreign government
subsidies shall encompass direct subsidies, grants,
loans, below-market loans, loan guarantees, tax
concessions, governmental procurement policies, and
other forms of government support.
Companies operating in the United States that
benefit from the financial support of a foreign
government must provide the FTC with a detailed
accounting of these subsidies when undergoing FTC
premerger procedures.
If the FTC finds foreign subsidies have
facilitated the transaction, the FTC can either propose
a modification to remedy the distortion or prohibit the
transaction under Section 7 of the Clayton Act, which
prohibits mergers and acquisitions where the effect
``may be substantially to lessen competition, or to
tend to create a monopoly.''
U.S. firms have no existing tools to address the
anticompetive practices of Chinese state-owned or state-
supported firms operating in our market. To be actionable,
existing U.S. laws against unfair competition require the
pricing and market activities of a competitor be based on the
theory of recoupment. In short, if a Chinese entity does not
plan to recoup lost profits, their competitive strategies may
not violate our existing laws. Therefore, a subsidized Chinese
SOE, with little to no cost of capital, may be able to invest
in plant and equipment at dramatically lower costs than their
U.S. counterparts. This is an issue that Congress should
examine.
b. Does the ability of Chinese companies to access U.S. capital
markets give them an advantage when competing against U.S. firms
globally?
Like all foreign issuers, Chinese firms that raise capital
on U.S. exchanges have been subject to lower disclosure
requirements than their U.S. counterparts, thereby affording
them unfair advantages when competing with U.S. firms. This
situation is particularly challenging because Chinese companies
do not comply with U.S. regulations on disclosure requirements.
Chinese firms have benefitted from the United States' deep and
highly liquid capital markets without complying with U.S.
disclosure standards and despite failing to disclose basic data
on ownership, operations, and political ties to U.S.
regulators. This noncompliance not only enables these companies
to unfairly outcompete U.S. firms, but also erodes the
integrity of U.S. capital markets and exposes U.S. investors to
fraud, as the recent Luckin Coffee accounting scandal and
numerous other past examples have demonstrated. The Commission
is therefore heartened by the recent passage in the House of
Representatives of the Holding Foreign Compaines Accountable
Act, and looks forward to strengthened enforcement of listing
standards on U.S. exchanges.
ENDNOTES
i White House, ``EO on Delegating Authority Under the
DPA to the CEO of the U.S. International Development Finance
Corporation to Respond to the COVID-19 Outbreak,'' May 14, 2020.
https://www.whitehouse.gov/presidential-actions/eo-delegating-
authority-dpa-ceo-u-s-inter
national-development-finance-corporation-respond-covid-19-outbreak/.
ii Jeffrey G. Weiss et al., ``U.S. and EU Actions to
Address Supply Chain Threats Caused by Reliance on Critical Mineral
Inputs,'' Steptoe, October 8, 2020. https://www.steptoe.com/en/news-
publications/us-and-eu-actions-to-address-supply-chain-threats-caused-
by-reliance-on-critical-mineral-imports.html; White House, ``Executive
Order on Addressing the Threat to the Domestic Supply Chain from
Reliance on Critical Minerals from Foreign Adversaries,'' September 30,
2020. https://www.whitehouse.gov/presidential-actions/executive-order-
addressing-threat-domestic-supply-chain-reliance-critical-minerals-
foreign-adversaries/.
iii Andrea Shalal, Alexandra Alper, and Patricia
Zengerle, ``U.S. Mulls Paying Companies, Tax Breaks to Pull Chains from
China,'' Reuters, May 18, 2020. https://www.reuters.com/article/us-usa-
china-supply-chains/u-s-mulls-paying-companies-tax-breaks-to-pull-
supply-chains-from-china-idUSKBN22U0FH.
iv Isabel Reynolds and Emi Urabe, ``Japan to Fund Firms
to Shift Production out of China,'' Bloomberg, April 8, 2020. https://
www.bloomberg.com/news/articles/2020-04-08/japan-to-fund-firms-to-
shift-production-out-of-china?sref=FlHD1WjR.
v Hiroyuki Akiyama, ``Japan Companies Line Up for `China
Exit' Subsidies to Come Home,'' Nikkei Asian Review, September 9, 2020.
https://asia.nikkei.com/Economy/Japan-companies-line-up-for-China-exit-
subsidies-to-come-home; Simon Denyer, ``Japan Helps 87 Companies to
Break from China after Pandemic Exposed Overreliance,'' Washington
Post, July 21, 2020. https://www.washingtonpost.com/world/asia_pacific/
japan-helps-87-companies-to-exit-china-after-pandemic-
exposedoverreliance/2020/07/21/4889abd2-cb2f-11ea-99b0-
8426e26d203b_story.html.
vi European Commission, ``Introductory Statement by
Commissioner Phil Hogan at Informal Meeting of EU Trade Ministers,''
April 16, 2020. https://ec.europa.eu/commission/commissioners/2019-
2024/hogan/announcements/introductory-statement-commissioner-philhogan-
informal-meeting-eu-trade-ministers_en; Philip Blenkinsop, ``EU Trade
Chief Urges for More Diverse Supply Chains after Crisis,'' Reuters,
April 16, 2020. https://www.reuters.com/article/us-health-coronavirus-
eu-trade/eu-trade-chief-urges-for-more-diversesupply-chains-after-
crisis-idUSKCN21Y27P.
vii Leila Abboud and Michael Peel, ``Covid-19 Hastens
French Push to Bring Home Medicines Manufacture,'' Financial Times,
July 29, 2020. https://www.ft.com/content/80a4836b-ca25-48e0-996d-
458186e968dc.
viii Candace Browning Platt et al., ``The USD1 Trillion
Cost of Remaking Supply Chains: Significant but Not Prohibitive,'' BofA
Securities, July 22, 2020.
ix Knut Alicke, Richa Gupta, and Vera Trautwein,
``Resetting Supply Chains for the Next Normal,'' McKinsey Global
Institute, July 2020, 3. https://www.mckinsey.com/ /media/McKinsey/
Business%20Functions/Operations/Our%20Insights/
Resetting%20supply%20chains%20for%20the%20next%20normal/Resetting-
supply-chains-for-the-next-normal.pdf?shouldIndex=false.
x Shefali Kapadia, ``The 5 Ws of Reshoring Supply
Chains,'' Supply Chain Dive, July 13, 2020. https://
www.supplychaindive.com/news/5-ws-reshoring-supply-chains-diversify-
localization/579943/.
xi Rajeswari Pillai Rajagopalan, ``Australia-Japan-India
Trilateral Sets Sights on Supply Chain Resilience,'' Diplomat, October
2, 2020. https://thediplomat.com/2020/10/australia-japan-india-
trilateral-sets-sights-on-supply-chain-resilience/.
xii South China Morning Post, ``Britain Wants U.S. to
Form a 10-Nation 5G Alliance to Cut Reliance on China's Huawei,'' May
29, 2020. https://www.scmp.com/news/world/europe/article/3086774/uk-
wants-us-form-10-nation-5g-alliance-cut-reliance-chinas-huawei.
xiii CRRC Corporation Limited, ``CRRC Corporation
Limited Annual Report 2018,'' March 2019, 121. https://www.crrcgc.cc/
Portals/73/Uploads/Files/2019/4-26/636918870297486290.pdf.
xiv Alexandra Alper and Allison Lampert, ``China to Bid
on D.C. Metro Rail Deal as National Security Hawks Circle,'' Reuters,
May 9, 2019. https://www.reuters.com/article/us-usa-china-trains-crrc-
focus/china-to-bid-on-d-c-metro-rail-deal-as-national-security-hawks-
circle-idUSKCN1SF0Y5; Faiz Siddiqui, ``China's State-Owned Rail-Car
Builder Looks Close to Bidding on Metro Contract; Also Eying New York
Subway Work,'' Washington Post, February 11, 2019. https://
www.washingtonpost.com/local/trafficandcommuting/chinas-state-owned-
rail-car-builder-looks-close-to-bidding-on-metro-contract-also-eyeing-
ny-subway-work/2019/02/11/77c6da4c-2a53-11e9-984d-
9b8fba003e81_story.html.
xv DW, ``Building Africa: Can Europe's Construction
Firms Compete with China's?'' February 21, 2020. https://www.dw.com/en/
building-africa-can-europes-construction-firms-compete-with-chinas/a-
52435595.
xvi Aubrey Hruby, ``Deconstructing the Dragon: China's
Commercial Expansion in Africa,'' Atlantic Council, July 2019, 10.
https://www.atlanticcouncil.org/wp-content/uploads/2019/09/
Deconstructing_the_Dragon-Chinas_Commercial_Expansion_in_Africa.pdf.
______
Response to Written Questions Submitted by Hon. Jacky Rosen to
Michael Wessel
Question 1. During these challenging times, Nevada's manufacturers
and their workers have been resilient in ensuring that our communities
have the protective equipment they need to keep our first responders,
frontline workers, and families safe. However, despite these efforts to
ramp up PPE production, as COVID-19 cases continue to climb, challenges
remain--particularly our overdependence on global supply chains. I am
curious, however, if American companies--through innovation--can help
pave the way to creating new, domestic supply chains.
a.) Are there COVID response-related sectors where small and
medium-sized businesses can still step up and fill domestic supply
chain needs? Where are the biggest gaps where American manufacturers
can jump in to not only contribute, but even create jobs because unmet
demand is so high? What would failure to fill these gaps mean for the
American economy as a whole?
Although American small and medium enterprises (SMEs) stepped up to
address PPE shortfalls at the start of the coronavirus crisis, ongoing
PPE shortages mean their role remains critical in meeting domestic
demand and protecting jobs. According to a December 9, 2020 report by
the Wall Street Journal, despite an increase in PPE production since
January (up to 150 million N95 masks a month from 20 million a month
prior to the pandemic) there are still widespread shortages of N95
masks and other personal protective equipment.\1\ Supplies of medical
products that require certification, including testing kits, N95 masks,
needles, and reagents, continue to be limited.\2\ According to a survey
conducted by the Government Accountability Office (GAO) in September
2020, one-third to one-half of the states reported shortages of testing
supplies and one-third of states reported being very concerned about
having sufficient supplies to administer COVID-19 vaccines.\3\ Even
following the pandemic, concerns about reliance on China for medical
equipment and supplies prompted by the experiences of COVID-19 may
create a longer-term demand for U.S. sourcing that may create an
opportunity for U.S. manufacturers. We must ensure that domestic
capacity exists to meet our Nation's needs.
---------------------------------------------------------------------------
\1\ Stephanie Armour, Betsey McKay, and Susan Pulliam, ``U.S.
Supplies of Covid-19 PPE Fall Short of Targets,'' Wall Street Journal,
December 9, 2020. https://www.wsj.com/articles/u-s-supplies-of-covid-
19-ppe-fall-short-of-targets-11607509800.
\2\ Cheyenne Haslett, ``Nonpartisan Report Warns of COVID-19
Testing Shortages in Over Half U.S. States, Territories,'' ABCNews,
November 30, 2020. https://abcnews.go.com/Politics/nonpartisan-report-
warns-covid-19-testing-shortages-half/story?id=74469015.
\3\ Government Accountability Office, ``COVID-19: Urgent Actions
Needed to Better Ensure an Effective Federal Response,'' GAO-21-191,
November 30, 2020. https://www.gao.gov/reports/GAO-21-191/.
---------------------------------------------------------------------------
Another area where SMEs could contribute is in production of
medicines and active pharmaceutical ingredients (APIs). The COVID-19
outbreak highlighted the United States' reliance on China for APIs,
some of which are critical for the production of therapeutics used to
treat COVID-19, which may prompt demand for APIs processed in the
United States. Willy Shih, a professor at Harvard Business School who
focuses on manufacturing, notes that innovations in the production of
APIs, including biomanufacturing, could allow existing businesses to
pivot to the production of APIs at a competitive price point.\4\
Generally, SMEs represent a growing share of the pharmaceutical
development pipeline, increasing from 52 percent of late-stage product
pipelines in 2003 to 73 percent in 2018. These companies' smaller size
may allow them to pivot quickly to meet emerging health needs,
indicating the capability of SMEs to play a critical role in addressing
API shortages and diversifying the United States' pharmaceutical supply
chains.\5\ These SMEs should have quick access to capital to shift
production in the future, should their capabilities and production
capacity be needed.
---------------------------------------------------------------------------
\4\ Willy Shih, ``Companies That Want to Make Pharmaceutical APIs
will be Producing Commodities. Here's What They Should Consider,''
Forbes, July 29, 2020. https://www.forbes.com/sites/willyshih/2020/07/
29/companies-who-want-to-make-pharmaceutical-apis-will-be-producing-
commodities-heres-what-they-should-consider/?sh=2d0677d9af0f.
\5\ IQVIA Institute for Human Data Science, ``Emerging Biopharma's
Contribution to Innovation: Assessing the Impact,'' 2019. https://
www.iqvia.com/insights/the-iqvia-institute/reports/emerging-biopharmas-
contribution-to-innovation; Danielle Navarro, ``Research Synthesis:
Role of Small and Medium-Sized Enterprises,'' Graduate Institute of
Geneva Global Health Center, October 28, 2019. https://
www.knowledgeportalia.org/small-and-medium-enterprises.
---------------------------------------------------------------------------
In 2019, the United States imported 80 percent of its APIs, many of
which were sourced from China or from third party countries that
ultimately source from China.\6\ Generic drugs are particularly
vulnerable to disruption: 40 percent of generic drugs sold in the
United States only had one manufacturer.\7\ As highlighted in the
Commission's 2019 annual report, the Food and Drug Administration (FDA)
has faced difficulties inspecting China-based API production
facilities, which may expose U.S. consumers to the risk of using APIs
that have not been produced to acceptable standards.\8\ Efforts to
diversify the United States' pharmaceutical supply chains and ensure
sourcing from facilities inspected by the FDA in response to problems
highlighted by the pandemic may create new market opportunities for
U.S. manufacturers.
---------------------------------------------------------------------------
\6\ U.S. Food and Drug Administration, FDA at a Glance: FDA-
Regulated Products and Facilities, April 2017.
\7\ Economist, ``A Dire Scarcity of Drugs Is Worsening, in Part,
because They Are So Cheap,'' September 14, 2019. https://
www.economist.com/international/2019/09/14/a-dire-scarcity-of-drugs-is-
worsening-in-part-because-they-are-so-cheap.
\8\ U.S.-China Economic and Security Review Commission, 2019 Annual
Report to Congress, November 2019, 259.
---------------------------------------------------------------------------
Failure to diversify supply chains for pharmaceutical products and
medical protective equipment would make the United States vulnerable to
future supply chain disruptions and risk potential exposure to products
manufactured in facilities that do not meet U.S. health and safety
standards.
b.) What actions can Congress take to strengthen our Nation's
domestic supply chains?
The Commission has generated several recommendations to strengthen
domestic supply chains by preventing the abuse of the United States'
open market system by Chinese actors backed by Chinese government
subsidies, supporting U.S.-based innovation, and reducing reliance on
China-based suppliers that may pose a risk to U.S. consumers and
industry.
Strengthen regulatory oversight: A key recommendation from the
Commission's 2020 Annual report is that Congress expand the authority
of the Federal Trade Commission (FTC) to monitor and take foreign
subsidies into account in premerger notification processes.\9\ This
recommendation would limit the ability of companies aided by foreign
government subsidies to engage in acquisitions that would reduce
competition. This follows a 2018 recommendation that Congress direct
the Office of the U.S. Trade Representative to identify the trade-
distorting practices of Chinese state-owned enterprises and develop
policies to counteract their anticompetitive impact.\10\
---------------------------------------------------------------------------
\9\ U.S.-China Economic and Security Review Commission, 2020 Annual
Report to Congress, December 2020, 536.
\10\ U.S.-China Economic and Security Review Commission, 2018
Annual Report to Congress, November 2018, 483.
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Shore up supplies of critical materials: In 2020 the Chinese
government revised its export control law to include provisions
allowing for blocking foreign access to strategic resources like rare
earths, furthering highlighting the risk that the Chinese government
may use its dominance in the production of rare earth materials as a
tool for coercion.\11\ China produces more than 80 percent of rare
earth elements globally.\12\ In contrast, U.S. export controls are
limited to dual-use technologies and do not include raw materials. A
2019 Commission recommendation would help the United States identify
and respond to risks associated with the Chinese government's control
of the supply of rare earth materials. The Commission recommended that
the U.S. Geological Survey develop and maintain a risk assessment
framework that identifies materials used in manufacturing industries
critical to both national security and commercial vitality. This
framework would provide an early warning mechanism for any threats to
the U.S. supply of these critical materials.\13\ This could provide an
initial step toward diversifying production of rare earth materials
when necessary, insulating U.S. manufacturing industries from coercion
and unexpected disruptions to the supply of rare earth minerals.
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\11\ Lester Ross, Kenneth Zhou, and Tingting Liu, ``China Publishes
Draft Export Control Law,'' WilmerHale, January 15, 2020. https://
www.jdsupra.com/legalnews/china-publishes-draft-export-control-law-
58113/.
\12\ Jamie Smyth, ``Industry Needs a Rare Earths Supply Chain
Outside China,'' Financial Times, July 27, 2020. https://www.ft.com/
content/fc368da6-1c86-454b-91ed-cb2727507661.
\13\ U.S.-China Economic and Security Review Commission, 2019
Annual Report to Congress, November 2019, 207.
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Boost U.S. innovation: Several Commission recommendations would
support U.S. innovation and initial development in emerging tech
sectors, creating an environment that is conducive to U.S.-based
innovative industries. In the 2019 annual report, the Commission
recommended that Congress amend IRS Section 41 to extend the research
and development tax credit to initial stages of development.\14\
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\14\ U.S.-China Economic and Security Review Commission, 2019
Annual Report to Congress, November 2019, 207.
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Secure the pharmaceutical supply chain: The Commission has also
highlighted several steps that Congress could take to ensure that the
United States has access to safe and secure supplies of critical
lifesaving and life-sustaining drugs and medical equipment. This
includes a recommendation from the 2019 Annual Report that Congress
require Medicare, Medicaid, the U.S. Department of Veterans Affairs,
the U.S. Department of Defense, and other Federal funded health systems
to purchase their pharmaceuticals only from U.S. production facilities
or from facilities that have been certified by the FDA to be in
compliance with U.S. health and safety standards and that actively
monitor, test, and assure the quality of the APIs and other components
used in their drugs, unless the FDA finds the specific drug is
unavailable in sufficient quantities from other sources.\15\ These
actions would ensure that domestic health supply chains are sourced
from facilities whose health and safety can be verified by the FDA.
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\15\ U.S.-China Economic and Security Review Commission, 2019
Annual Report to Congress, November 2019, 249.
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