    [Senate Hearing 119-144]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 119-144

                     BARRIERS TO SUPPLY CHAIN MODERNIZATION
                     AND FACTORY PRODUCTIVITY ENHANCEMENTS
    =======================================================================

                                    HEARING

                                   BEFORE THE

                            JOINT ECONOMIC COMMITTEE

                                     OF THE

                         CONGRESS OF THE UNITED STATES

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  JUNE 5, 2025

                                   __________

              Printed for the use of the Joint Economic Committee

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    61-392                       WASHINGTON : 2025
    -----------------------------------------------------------------------------------

                            JOINT ECONOMIC COMMITTEE

        [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

    HOUSE OF REPRESENTATIVES             SENATE
    David Schweikert, Arizona, Chairman  Eric Schmitt, Missouri, Vice
    Jodey C. Arrington, Texas                Chairman
    Ron Estes, Kansas                    Tom Cotton, Arkansas
    Lloyd K. Smucker, Pennsylvania       Ted Budd, North Carolina
    Nicole Malliotakis, New York         David McCormick, Pennsylvania
    Victoria Spartz, Indiana             Marsha Blackburn, Tennessee
    Donald S. Beyer Jr., Virginia        Ashley Moody, Florida
    Gwen Moore, Wisconsin                Margaret Wood Hassan, New
    Sean Casten, Illinois                    Hampshire, Ranking Member
    Dave Min, California                 Amy Klobuchar, Minnesota
                                         Martin Heinrich, New Mexico
                                         Mark Kelly, Arizona

                         Ron Donado, Executive Director
                     Laura Epstein, Minority Staff Director

                                C O N T E N T S

                                  ----------

                         Opening Statements of Members

                                                                       Page
    Ranking Member Maggie Hassan.....................................    11

                                   Witnesses

    Dr. Patrick McLaughlin, Research Fellow, Hoover Institution Palo
      Alto, CA.......................................................     2
    Dr. Yossi Sheffi, Elisha Gray II Professor of Engineering
      Systems, MIT Director, MIT Center for Transportation and
      Logistics, Cambridge, MA.......................................     4
    Dr. Jean-Paul Rodrigue, Professor, Department of Maritime
      Business Administration, Texas A&M University at Galveston,
      Galveston, TX..................................................     6
    Dr. Sujai Shivakumar, Senior Fellow and Director, Renewing
      American Innovation, Center for Strategic and International
      Studies, Washington, DC........................................     9

                           Submissions for the Record

    Opening Statement of Ranking Member Maggie Hassan................    11
    Prepared statement of Dr. Patrick McLaughlin, Research Fellow,
      Hoover Institution, Palo Alto, CA..............................    39
    Prepared Statement of Dr. Yossi Sheffi, Elisha Gray II Professor
      of Engineering Systems, MIT, Director, MIT Center for
      Transportation and Logistics Cambridge, MA.....................    45
    Prepared Statement of Dr. Jean-Paul Rodrigue, Professor,
      Department of Maritime Business Administration. Texas A&M
      University at Galveston Galveston, TX..........................    47
    Prepared Statement of Dr. Sujai Shivakumar, Senior Fellow and
      Director. Renewing American Innovation, Center for Strategic
      and International Studies Washington, DC.......................    57

        BARRIERS TO SUPPLY CHAIN MODERNIZATION AND FACTORY PRODUCTIVITY
                                  ENHANCEMENTS

                                  ----------

                             THURSDAY, JUNE 5, 2025

                                United States Congress,
                                      Joint Economic Committee,
                                                        Washington, DC.
        The committee met, pursuant to call, at 10:00 a.m., in Room
    210, Cannon House Office Building, Hon. David Schweikert
    [chairman of the committee] presiding.
        Present: Representatives Schweikert, Estes, Spartz, Beyer,
    Casten, and Min. Senators Hassan, Klobuchar, Blackburn.
        Staff Present: Ron Donado, Laura Epstein, Nic Aguelakakis,
    Cam Healy, Alexander Schunk, Matthew Cernicky, Jaxson Dealy,
    Garrett Wilbanks, Oliver Sibal, Colleen Healy, Jeremy Johnson,
    Sebi Devlin-Foltz, Hannah Ceja, and Tamara Fucile.
        Chairman Schweikert. All right. Why don't we get
    ourselves--because we are right on time, which is a rarity
    around here. Just want to adjust that volume.
        Okay. And my understanding is Senator Hassan is leaving the
    Senate and on her way over, and if not, Mr. Beyer can always
    just manage everything.
        I appreciate this is one of those--yeah, we have a really
    weird echo. I am going to turn that off for right now, and we
    can survive without. This is a small enough room.
        I first want to thank the staffs. My understanding, at
    least from my Republican staff, is that they were great with
    some of the Democrat staff, that because this is actually--for
    the way we tried to approach it, this is a technology hearing.
        We tried to do something: Instead of trying to make
    everything partisan, can we actually understand the potential
    technologies here? For a couple of you, we have sent you some
    unusual articles of everything from automated rail to--I have a
    whole collection of binders of automated port structures around
    the world--to other things going on; what does the future look
    like?
        Chairman Schweikert. And, with that, I am going to
    introduce the witnesses. When the Senator gets here, I am going
    to have her introduce the Democrat witness. If you also have
    parts of your testimony, articles, other things that you also
    attribute towards the research part of the record, please, even
    if you send it to us in a couple days, we would most appreciate
    that.
        We have a couple people on the Joint Economic Committee,
    researchers, that have been trying to study this issue of, if
    we would get some of the technology adoption policy correct,
    what would it be additive to long-run GDP growth, and what does
    that future look like?
        And so often our debate around here is debating investments
    in previous structure technology models, and we are trying to
    push what it looks like in the future.
        So our first witness is Dr. Patrick McLaughlin, a research
    fellow at the Hoover Institution who specializes in smart
    regulation with a focus on the railroad industry. His past
    research has analyzed how overzealous regulations have
    prevented--okay. You just turned me on. We will--and let me
    know if it starts to echo like crazy--regulation has prevent--
    yeah, that is still horrible--has prevented our supply chain
    from working more efficiently--and adding to the cost of
    domestic production.
        Dr. Yossi----
        Dr. Sheffi. Sheffi.
        Chairman Schweikert. Sheffi. ``Sheffi'' I would have got.
        Dr. Sheffi. Yossi is fine.
        Chairman Schweikert. Yossi is fine?
        ----is an Elisha Gray II--wasn't he the true inventor of
    the telegraph?
        Dr. Sheffi. Who knows.
        Chairman Schweikert. Okay--a professor of engineering
    systems at the Massachusetts Institute of Technology and
    director of the MIT Center for Transportation & Logistics. He
    has authored nine books, including ``The Resilient
    Enterprise,'' and he is an expert on supply chain labor force.
        Dr. Jean-Paul Rodrigue is a professor of maritime business
    administration at Texas A&M University at Galveston. He has
    authored and co-authored a number of research publications on
    transportation, geography, logistics, and port management.
        Before joining Texas A&M University at Galveston, he was a
    professor at Hofstra----
        Dr. Rodrigue. Hofstra.
        Chairman Schweikert [continuing]. Hofstra, which is Dutch,
    I think--University. And I am going to let the Senator, when
    she shows up, give you your introduction.
        Doctor, have at it.
        Dr. McLaughlin. Thank you, Chairman Schweikert, members of
    the committee. My name is--echo on my side too, I guess.
        Chairman Schweikert. Yeah, and we will turn it on and off a
    couple times and see--do we have a----
        Ms. Healy. Yes, the House Recording Studio staff is on
    their way to check all the wonderful mics.
        Chairman Schweikert. All right. Well, let's have it.

     STATEMENT OF DR. PATRICK McLAUGHLIN, RESEARCH FELLOW, HOOVER
                       INSTITUTION, PALO ALTO, CA

        Dr. McLaughlin. All right. I will speak loudly. As you
    said, I am a research fellow at Stanford University's Hoover
    Institution. I am also a visiting research fellow at the
    Pacific Legal Foundation. My testimony today highlights four
    key points.
        First, regulatory accumulation slows investments,
    innovation, and productivity growth; second, regulations can
    hinder emerging technologies; third, permitting delays
    significantly hamper productivity growth; and, fourth, uniform
    Federal regulations are sometimes necessary to avoid a
    fragmented regulatory landscape.
        But, first, let's discuss regulatory accumulation. Since
    1970, regulatory restrictions--the words ``shall,'' ``must,''
    and ``may not''--occurring in the Code of Federal regulations
    have grown from about 400,000 on the books to about 1.1 million
    today.
        A study that I published in 2020 showed that this
    accumulation of regulations slows economic growth by nearly 1
    percentage point annually.
        Specifically, and relevant to this hearing today, the study
    found that the build-up of Federal rules over time distorted
    business investment decisions. These investments include
    research and development expenditures, new machinery, new
    buildings and locations, and new business formation itself.
        In the long run, such business investments are key drivers
    of innovation and therefore productivity growth. So regulation,
    by distorting, is sometimes deterring business investment, also
    slows productivity growth. And that slower growth in
    productivity means slower overall economic growth.
        We found in that study that the slowdown was about 0.8
    percentage points annually loss from annually GDP growth. That
    sounds like a small number, but over time, that adds up to
    quite a bit.
        That slower growth, caused by regulatory accumulation,
    resulted in an economy that was about $4 trillion smaller in
    2012 than it could have been without regulatory accumulation.
        Second, my second point is on regulations and emerging
    technologies. Regulations can sometimes block the adoption of
    new technologies. For instance, automated track inspection
    technologies in freight rail have been successfully piloted and
    shown to be at least as safe as manual inspections, while
    enhancing productivity.
        Yet the Federal Railroad Administration, the FRA, denied
    Norfolk Southern's request for broader implementation, citing,
    quote, uncertainty and potential risks.
        Ironically, this stance delays not just productivity
    enhancements but also actual safety improvements relative to
    manual inspections.
        Third, the average time to complete an Environmental Impact
    Statement, required under the National Environmental Policy
    Act, NEPA, is about 4.5 years.
        A large portion of major infrastructure projects also
    encounter significant NEPA-related challenges typically adding
    another 1 to 3 years to the process.
        Such delays not only postpone but sometimes completely
    discourage investment in crucial infrastructure projects and
    the productivity gains that those projects would deliver.
        Fourth, if there is going to be some form of regulation,
    then uniform regulatory standards can be crucial for network
    industries. This is particularly true in transportation
    networks. I will use another example from the FRA.
        In 2024, the FRA issued a rule that mandated a minimum crew
    size of two. The FRA's final rule made the point, quote, ``If
    the issue of crew size safety is left to be governed by a
    patchwork of State laws, logistically, it may become impossible
    for a railroad to even consider operations with fewer than two
    crew members,'' end quote.
        At the time, at least 11 States required most freight
    trains to operate with at least two-person crews. The FRA's
    final rule preempts these State laws in its at least attempts
    to offer a path for a railroad to demonstrate that a one-person
    crew can meet the same safety requirements as a two-person crew
    and seek approval of a one-person operation.
        Now, the FRA's crew-size rule remains imperfect as its
    requirement for a risk assessment that must identify and assess
    all possible hazards in a proposed operation is unnecessarily
    fraught with uncertainty and egregiously burdensome.
        But the concept is a good one. Regulations should have a
    pathway for technological improvement built into them.
        In the railroad industry, human error is the greatest
    source of risk in train operations, and if the goal is safety,
    the FRA should hope that railroads continue to invest in
    technologies that minimize the opportunities for human error,
    including more automation.
        In conclusion, I have the following recommendations.
        One, use AI to build a comprehensive database on permitting
    frictions and delays created by Federal regulations and
    regulatory guidance. This database could let us identify
    regulations that contribute to permitting delays.
        In some cases, it may not be the requirement for a permit
    itself but other regulations that inadvertently limit how
    quickly a permit can be processed.
        And, second, regulators ought to make regulations more
    accommodating to innovation and advances in technology.
    Regulations should outline a process that allows a business to
    demonstrate that a different approach than the one designated
    by a regulation can achieve the same or better outcomes without
    having to get a waiver.
        Thank you for convening a hearing on such an important
    topic, and I look forward to your questions.
        [The statement of Dr. McLaughlin appears in the Submissions
    for the Record.]
        Chairman Schweikert. Thank you.
        Doctor, we are going to do an experiment with you, and we
    won't start the clock yet. Can you turn your mic on--and we
    have our recording engineer over here--and let's say hi.
        Dr. Sheffi. Hi, recording engineer.
        Chairman Schweikert. Is it--we are back?
        Voice. Should be good to go.
        Chairman Schweikert. All right.
        Dr. Sheffi. You think it is fine?
        Chairman Schweikert. You are perfect.

      STATEMENT OF DR. YOSSI SHEFFI, ELISHA GRAY II PROFESSOR OF
          ENGINEERING SYSTEMS, MIT, DIRECTOR, MIT CENTER FOR
              TRANSPORTATION AND LOGISTICS, CAMBRIDGE, MA

        Dr. Sheffi. Okay. Thank you. Thank you, Chairman, and
    distinguished members. My name is Yossi Sheffi. I am a
    professor of engineering system at MIT, director of the MIT
    Center for Transportation Logistics.
        I was asked to inform the committee on two subject: the
    challenges to increase domestic manufacturing and specifically
    about the required workforce skill for efficient manufacturing.
        The views here are mine and not MIT's.
        So what can be done to support reshoring of manufacturing.
    First of all, investing in automation--robotics, AI, machine
    learning, whatever. You know, this reduce somewhat the reliance
    on manual labor, which we have a problem with. Most
    manufacturing plants cannot hire enough workers.
        Invest; but, from supply chain point of view, it is not
    enough to talk about reshoring because you have to invest--we
    have to invest in domestic resources of material and
    intermediate processing.
        Just moving the last stage of manufacturing assembly into
    the United States is meaningless because we don't change the
    reliance on the--from China and others. This is expensive, of
    course, but we have to decide if we want to depend on China and
    possibly relax some environmental regulations.
        And I like, you know, clean air and clean water just like
    the next guy. I also don't like reliance on China. So it is a
    tradeoff.
        We have to build this. We have to do some of it, but it
    seems that one side argue for green; another side argue--we
    cannot get the balance here.
        We talk about, another point is targeted help, like part of
    the Defense Production Act, which are aimed directly at
    supporting domestic manufacturing--sorry to say, you guys
    always load it with unrelated ideas and unrelated things, which
    is kind of, I don't know, doesn't focus on the problem. I am
    trying--I am not political, really not, but some of it, just
    cannot avoid it.
        Of course, investing in infrastructure, and, again, my
    colleague talk about regulation, which are hampering investment
    in high tech, investment in infrastructure.
        Something on the short term right away that will help every
    company--again, try not to be political--but reduce tariff
    uncertainty. It is the uncertainty that is killing us, killing
    companies.
        It is--supply chain executive can deal with any hand that
    is--that you throw at them. You tell them what the tariff is,
    50 percent, whatever. But don't change it every other Friday,
    please.
        I mean, because if people buy and create too much inventory
    and lose money, and they just freeze. They don't invest. They
    don't hire people. So it is an issue.
        Now, the second related issue, very much related to this,
    is the skills of the U.S. workforce. One of the main challenges
    in reshoring is the lack of manpower. Who will exactly work in
    all these new plants? I can give you some examples later if we
    have time.
        There are two contravening issues here. First of all, all
    the plants that they are going to come are going to be new
    plants. They are going to be high-tech plants. So they are not
    going to need as many workers, but we still don't have enough
    workers with the right qualification to run these plant.
        The education, I don't have to tell you, this is all in the
    media. The U.S. is falling behind on K-12 education. Johnny
    cannot read with the exception of special schools. So you see
    here; what can we do?
        Religious, private, magnet school, in many States, parents
    do not have the funds. In my State, Massachusetts, you don't
    have the funds to go--if you want your kid to go to a special
    school, you can do it on your own, which means that we
    bifurcate the population.
        The people who can afford it will send the kid to special
    school. The people who do not will send their kids to school
    controlled by union. Again, try not to be political, but just
    mentioning facts.
        Universities. You were not here before when I had two
    people with--attacking me, about 20 minutes ago. They were
    escorted out. Ridiculous. They are disrupting studies in
    Harvard, in MIT, in Columbia, in all of these places.
        So universities became obsessed with things other than
    merit and learning and coming up with the best research and the
    best student education. So it is not--it is K-12. It is also
    universities.
        So what is missing the most? I am sorry I am running out of
    time. Give me one more minute, 60 seconds. So--give me one more
    minute.
        So people always ask me, friends always ask me, ``Where
    should I send my kid to school?'' Sometimes I tell them, send
    them to Texas. Other times, I tell them, ``Don't send them to
    university. Send them to trade school. Send them to people who
    will be plumber, electrician, or operator of numerical control
    machinery, operator of factory robots.''
        So high-level trade schools, better trade school is what is
    desperately needed.
        These, by the way, are the last positions that AI is going
    to replace. AI may replace people like us.
        Chairman Schweikert. And, Doctor, we are going to go down
    this in our----
        Dr. Sheffi. Of course, but it is not going to replace the
    plumber who comes to your home to fix the stuff. By the way, my
    plumber drives a Rolls-Royce. Just saying. It is absolutely
    true.
        Today, last point, last point--talking about nonpolitical--
    changing immigration laws. Advanced countries are thinking
    about what they need. So the U.K. allow nurses to come in
    because they don't have enough nurses.
        Tom Friedman wrote that, several years ago, a person gets a
    physics degree from MIT; we should staple a green card on their
    diploma because these are people that we need.
        So what do we do? We educate them, and we send them to make
    China a big competitor. Anyway, let me stop here.
        [The statement of Dr. Sheffi appears in the Submissions for
    the Record.]
        Chairman Schweikert. Doctor, thank you for your endorsement
    of my talent based (inaudible) immigration bill.
        Doctor Rodrigue.

     STATEMENT OF DR. JEAN-PAUL RODRIGUE, PROFESSOR, DEPARTMENT OF
       MARTIME BUSINESS ADMINISTRATION, TEXAS A&M UNIVERSITY AT
                        GALVESTON, GALVESTON, TX

        Dr. Rodrigue. Okay. My turn. Can we reset the clock,
    please.
        Okay. So I am going to hear--talk to you about, mostly a
    focus about ports and their relationship with logistics, and I
    will start with a blunt statement that United States is no
    longer a commercial maritime power.
        Its power, or its capability to project trade, has been
    outsourced and offshored to the usual suspects. So that is one
    thing we have to bear this in mind. We have very limited level
    of control on our maritime trade. Our ports, it is a different
    story.
        And we are going to talk about what I think about six major
    barriers to port logistics in the United States. The first one
    is pretty obvious. It is we are victims of our success in some
    ways.
        That is we are a very strong generator of wealth and
    economic growth. And, therefore, each time we have wealth and
    growth, we have port traffic, growth TEUs. And, each year, we
    add about close to 1.6 million TEU, twenty foot equivalent
    unit. That is a lot of boxes.
        And, each time you have traffic, you need infrastructure,
    and the ports are struggling to keep up with this. There are
    phases of growth and decline, but we have a limited problem.
        So, let's say since 2010, we added three Canadas--or the
    equivalent of three Canadas or two Mexicos in terms of volume.
    So that is the first barrier. We have a difficult time to
    provide infrastructure to support port logistics.
        And, of course, this infrastructure is subject to
    vulnerabilities. That is one of my greatest fears, is port
    infrastructure failure.
        The latest one was when a ship hit a bridge in Baltimore,
    which completely messed up port, railroad, and car supply
    chain. So that is the first barrier.
        The second one is the scale. The whole business is based
    upon the concept of economies of scale: The bigger the better--
    which makes a lot of sense.
        However, the ships are getting so big these days that the
    great majority of them cannot enter ports on the East Coast,
    and the ports on the East Coast, since the expansion of the
    Panama Canal in 2016, are now trying to restructure themselves
    around a new standard.
        And we have a little bit of a tough time because the
    shipping lines are privately owned. The ports are essentially
    public infrastructure. So we provide investment in public
    infrastructure to benefit, in some ways, private interests,
    which is okay.
        However, it is a little bit of a catch-up game. It is
    excessively expensive. We have a problem with dredging as well.
    So this is another very important issue, the scale of the
    things in the United States.
        Then the third barrier I see is the composition of the
    traffic. What comes in is completely different of what comes
    out in containers. What comes in? Retail goods, the usual
    Walmart, Target, all that stuff. It is the great majority of
    our imports.
        Exports, commodities and cultural goods, even recycled
    goods. The leading exporter of American port is fresh air. That
    is empty boxes that comes out. So we have a very big problem
    between the composition of what comes in and the composition of
    what comes out.
        It is only very strong seasonality to it, which creates
    what level of infrastructure need to provide according to the
    fluctuations--the retail cycle fluctuations. That is a little
    bit of the problem.
        How do we address that? You cannot. That is the problem
    with ports. We are addressing issue which cannot--maybe
    reshoring is, I would say, a strategy behind this. But, still,
    we have a little bit of a problem.
        The other problem we have also is the issue of imbalances.
    We have staggering imbalances in our trade. That is what comes
    in, in terms of container, is basically full container. What
    comes out are empty containers.
        And the problem is the shipping lines want their container
    on the ocean. They don't want the containers to go inland. And,
    therefore, it has a detrimental effect on--sometimes to
    exporters that have difficulties finding boxes because the
    priority is to have port-centric logistics, bring the container
    in, empty them, and bring them back to the sea, across the
    Pacific to be reloaded. So that is also another challenge that
    we are facing.
        And solution, there is none, unless the trade regime
    changes. That is another issue.
        Fifth barrier is technology and labor. We have a very--two
    powerful, very powerful labor unions that control, I would say
    port; I would say labor. And that creates some problem because
    their stance have been continuously anti-innovation, anti-
    automation these days.
        Their goal is quite logical, really easy to understand.
    They want to protect their constituent, but they are now in the
    rent extraction business. That is they are becoming as some
    kind of a struggle on trade; you know, the ports of the United
    States have a very difficult time to automate. There are
    restrictions to what automation, and we are running out of
    land. We cannot build new port infrastructure.
        The only way you can increase the density--the productivity
    is through automation. It has to come up down the line. But
    obviously we are going to have serious issues and negotiation
    with labor to do something like that. And, again, very
    difficult time.
        The last barrier is a matter of efficiency. Unfortunately,
    from a time ending perspective, American ports are among the
    not very, very productive. Actually, I have shocking evidence
    that the United States are 30 percent less efficient than the
    global average.
        Most Chinese port are 100 percent more efficient than the
    global average in terms of time it takes to turn around a ship.
        So, again, all of this is related to the trade imbalances,
    the lack of automation, logistical issues at ports. So we have
    some problem. So, in a sense, that is my assessment of the
    situation.
        We need some kind of a better or coordinated national port
    infrastructure strategy. We have--part of the maritime academy.
    Our enrollment is declining while the demand--we cannot--the
    supply of labor compared to demand does not match. There is a
    huge demand, and we don't have enough labor.
        [The statement of Dr. Rodrigue appears in the submissions
    for the Record.]
        Chairman Schweikert. Thank you, Doctor.
        Madam Senator.
        Ranking Member Hassan. Well, thank you very much, and good
    morning to everybody. I am pleased to introduce Dr. Sujai
    Shivakumar, director of Renewing American Innovation at the
    Center for Strategic and International Studies, where he also
    serves as a senior fellow.
        Dr. Shivakumar is an expert in U.S. competitiveness and
    innovation. Prior to his current role, he directed the
    Innovation Policy Forum at the National Academies of Sciences,
    Engineering, and Medicine, and led major studies of U.S.
    policies on advanced manufacturing, small business growth,
    workforce development, and entrepreneurship.
        Welcome, Dr. Shivakumar, and I look forward to your
    testimony, and you are now recognized for your opening
    statement.

    STATEMENT OF DR. SUJAI SHIVAKUMAR, SENIOR FELLOW AND DIRECTOR,
        RENEWING AMERICAN INNOVATION, CENTER FOR STRATEGIC AND
                INTERNATIONAL STUDIES, WASHINGTON, D.C.

        Dr. Shivakumar. Thank you for that kind introduction,
    Chairman Schweikert, Ranking Member Hassan, and distinguished
    members of the committee.
        CSIS, as you mentioned, is a bipartisan nonprofit policy
    research organization dedicated to advancing practical ideas to
    address the world's challenges. Our mission is to define the
    future of national security.
        The Program on Renewing American Innovation attaches the
    idea of innovation to national security, with the goal of
    revitalizing our Nation's innovation system to enhance our
    Nation's economic competitiveness and strengthen our security
    in the new world order.
        CSIS itself does not take any policy positions. So the
    views represented here are my own.
        So let me, again, start by thanking the committee for
    holding this important hearing. In my remarks, I just want to
    emphasize why centering manufacturing is really important for
    our Nation's ecosystem.
        Our Nation's innovation system for the past seven, eight
    decades has been focused on an R&D strategy. I have been
    arguing that we need to move manufacturing and the
    infrastructure that supports manufacturing back into the center
    of our strategy.
        So let me just highlight three main points in my quick
    remarks to you today. First, rebuilding U.S. capacity to
    innovate and manufacture advanced technology is critical for
    our economic competitiveness and our national security.
        Again, for decades, our economic orthodoxy prioritized
    short-term benefits of offshoring manufacturing, but now we
    find that this strategy has hollowed out our manufacturing
    sector, not only devastating many of our communities but also
    weakening the link between research and production.
        So this broken transmission means that U.S. firms are
    increasingly unable to convert new ideas into competitive
    products or rapidly scale up and develop weapons and other
    efforts to enhance our national security advantage.
        Our urgent task then is to build up and scale up the
    manufacturing infrastructure within our ecosystem.
        Recent Federal legislation have begun to actually address
    this challenge. As you know, the bipartisan CHIPS Act was
    spurred by a pandemic-era realization that our semiconductor
    manufacturing had become alarmingly concentrated in Asia, which
    posed major risks to our Nation's security and economic well-
    being.
        Roughly 95 percent of the CHIPS Act's incentives supports
    semiconductor fabrication. And, in turn, the construction of
    semiconductor fabs, now under way, has exposed the fact that we
    need to regain our footing in manufacturing.
        We also need to rapidly and urgently upgrade our workforce,
    our infrastructure, and our regulatory framework.
        My second point is that Federal, State, and local
    governments must partner to develop the ecosystem where
    innovation and manufacturing can actually reinforce each other
    and thrive.
        We need to support, as my colleague mentioned, high skill
    and technical skill--a high-skilled technical workforce. We are
    now digging out from decades of underinvestment and neglect in
    our vocational education programs and apprenticeship systems.
        For example, the lack of alignment between firm needs,
    community colleges, and State governments, for example, has
    created a fragmentation between industry needs and the
    available talent in our population.
        We also need to urgently upgrade our infrastructure.
    Advanced manufacturing, including semiconductors, relies on
    highly--on reliable, high-capacity power, water, and
    transportation infrastructure.
        The United States needs to make infrastructure investments
    into utilities and supply chains, and the Inflation Reduction
    Act and the Bipartisan Infrastructure Law are proactive
    instruments to support innovation and manufacturing in this
    regard.
        We also need to modernize our regulations, a point already
    touched in this panel. As you already heard, permitting delays
    can stretch for years. We heard that NEPA can add 4 to 5 years
    additional time for the build-out of the fabs that are now
    going under way in various parts of our country.
        So streamlining regulatory frameworks to ensure clarity,
    speed, and predictability while still safeguarding
    environmental and community protections are really essential
    for building and manufacturing at scale and speed.
        My final point is that a tariff-only strategy that does not
    address the workforce development and infrastructure build-out
    regulatory relief--and regulatory relief for renewing U.S.
    manufacturing will not be effective.
        I understand that the threat of high tariffs is now being
    used as a negotiating tool in trade talks, and in making the
    case for tariffs, the administration has argued that higher
    import costs will stimulate domestic production.
        While there is unquestionably a need to address unfair
    trade practices and nonmarket behavior by other countries,
    relying on tariffs alone in today's era of globalized
    innovation and manufacturing is not sufficient to convince
    firms to rebuild industrial capacity in the United States.
        In fact, higher volatile tariffs can introduce uncertainty
    that discourages private investment and may even risk the
    development of alternate supply chains that basically bypass
    the United States.
        So, in summary, we face a national security imperative to
    place manufacturing back in the center of our Nation's
    innovation strategy, and that strategy must rest on a solid
    ground, supported by skilled workers, reliable infrastructure,
    and modern regulatory systems.
        So let me pause here and look forward to your questions.
    Thank you very much.
        [The statement of Dr. Shivakumar appears in the submissions
    for the Record.]
        Ranking Member Hassan. Thank you.
        Chairman Schweikert. I appreciate that. As is an
    idiosyncrasy, I am going to--I should go last because I like to
    sort of wrap up everything and figure out what everyone said.
        I am going to have, Ms. Spartz, why don't you go first, and
    then--or do you want to do your opening statement now?
        Ranking Member Hassan. Why don't I----
        Chairman Schweikert. Okay, let's do that, because you may
    have to abandon us.
        Ranking Member Hassan. I will try not to, and I thank the
    committee for their patience as we are juggling a number of
    hearings this morning on the other side of campus.
        I want to begin by thanking Chairman Schweikert for calling
    today's hearing on such an important topic and by thanking your
    staff as well for the work we have done together on this
    hearing.
        And, for our four witnesses, thank you so much for giving
    us your time this morning and sharing your expertise. It is
    greatly appreciated.
        I join Chairman Schweikert in recognizing how important it
    is that we modernize our supply chains and strengthen
    manufacturing here in the United States, especially as we work
    to out-compete China.
        As is often the case, the chairman and I are in full
    agreement on the problem and probably agree on about 80 percent
    of the solution, and I think that is a pretty good start, you
    know.
        And, to Dr. Sheffi's comments, this is group decisionmaking
    in a democracy, but when we can find out that we really agree
    on a lot, we can make some progress.
        In the last several years, we have seen increased
    investment in critical technology manufacturing across the
    country, including new funding for projects in my home State of
    New Hampshire.
        These new investments have been spurred in part by
    legislation like the bipartisan CHIPS and Science Act, which is
    helping us to strengthen our supply chains and out-compete
    countries like China by investing in American research and
    manufacturing.
        In addition, energy tax cuts in the Inflation Reduction Act
    and funding in the Bipartisan Infrastructure Law are driving
    investment in the energy production and infrastructure that
    will support modern supply chains.
        To capitalize on these investments, deliver for the
    American people, and support private sector growth, we also
    need to streamline regulations. Doing so is essential to
    advancing American innovation and manufacturing.
        Lastly, I just want to raise my concerns that a couple of
    our witnesses have also raised, that President Trump's actions
    have threatened the progress that we have started to see in
    recent years.
        His erratic tariffs are slowing manufacturing investment,
    and his moves to slash funds for cutting-edge research will
    make it harder for the United States to develop and produce our
    own technology.
        If the United States gives up on scientific research, China
    will fill the gap.
        I hope that conversations like the one we are having this
    morning will help us move forward with bipartisan efforts to
    strengthen U.S. manufacturing, our supply chains, and advanced
    technologies so all of our people can thrive and so that we can
    continue to lead the world.
        Thank you, Mr. Chair.
        [The statement of Ranking Member Hassan appears in the
    Submission for the Record:]
        Chairman Schweikert. Thank you, Senator.
        Representative Spartz. Thank you, Mr. Chairman, and I
    appreciate for this hearing.
        Actually, Dr. Sheffi, I enjoyed your testimony. It was very
    common sense, not political, but really that is a conversation
    we need to have. I completely agree with you that we can--we
    talk about a lot of unrelevant things and not really dealing
    with issues that are relevant and try to find at least common
    ground.
        So what I wanted to just kind of have a discussion, you
    mentioned a few big issues that we need to deal with. We do
    need to have automation, and definitely we don't want
    government to spending money and investment--that is the worst
    entity to make decisions--but what do you believe, you know,
    the biggest barriers for businesses, or maybe some incentives
    that maybe we need to reshuffle, which I agree with you, which
    can make changes several times a year and sometimes
    retroactively--that is really bad for businesses--but, you
    know, what are the odd things with EPA or other regulations or
    some other things that you believe would be, you know,
    something that incentivize more automations or maybe barriers
    that we need to do?
        And I think the second thing you deal with really skills
    and shortages of proper skills? Because I agree with you; we
    don't want to have, you know, the logistics and putting
    together some of this phones which cost not that much, you
    know, here, which is not really stops our dependencies in
    China. We want to have advanced type of manufacturing done in
    the country. So, if you can elaborate a little bit more on
    that, I would appreciate that.
        Yes, Dr. Sheffi.
        Dr. Sheffi. Thank you very much for your questions. Let me
    change the whole U.S. policy. No. You know, you talk about
    something that I mentioned before, the uncertainty, the
    uncertainty is killing businesses. This cannot--look, I was in
    a big conference of supply chain--chief supply chain officers
    when President Trump announced the new tariff regimes.
        The response was--you would be surprised--was just another
    day at the office because, at that point, we thought, ``This is
    it; okay, we can do something. We can deal with anything.'' But
    what we cannot deal is the unknown, the question that is
    changing.
        My colleague here talked about regulation. He is an expert
    on this. Maybe he can add, you know, specific ideas, but, look,
    I visited ports in--that is to go on another point--I visited
    ports in, you know, Dubai, in Singapore, in Shanghai, in
    Rotterdam, and if you want to get depressed, do the same tour
    that I did and visit the Port of L.A., or any other port in the
    United States. You just get depressed.
        I teach in schools all over the world. MIT has good
    students, Stanford, good students. You know, elite universities
    have, by and large, good students, even though, let me be the
    first to say, the level of teaching is going down, because the
    students who are coming are not that well prepared, and for a
    whole lot of ideological reasons.
        So the administration--let me go a step back again, can't
    avoid politics--the administration, I understand why all the
    tariffs are happening. It is true that the imbalance with China
    is unsustainable, that China is eating our lunch, and not in a
    fair way.
        Representative Spartz. All right. But I just wanted to--you
    know, there is a lot of negotiation. A lot of things are going
    to happen, and everyone understand we need to have predictable
    framework, and we are working on that.
        But we are also--for businesses to be attracted, we have
    some weaknesses. You know, we have some weakness in education
    and skills preparedness, and those some things--or regulatory
    environment where really it is so much and so long to take it.
        Several companies going to look, we say, ``Yeah, we really
    want to bring jobs home, but the businesses, it is not cost-
    effective; it is time-consuming; and we don't have skilled
    labor.''
        What do you think we should prioritize maybe looking at
    some, as you said, maybe preparedness, more with technical
    skills. Maybe we should start doing more in K-12 and post-
    secondary education, and maybe we have too many perverse
    incentives to everyone going to college with worthless diploma
    that the people cannot get jobs.
        I mean, what are you thinking? You kind of point out--I
    taught a little bit of college myself, and I have seen the
    decline of kids in ability to learn. And, in this fast-paced
    environment, it is even more important because it is changing a
    lot.
        What do you think we should really start prioritizing, that
    we look at the relevant things that we can control?
        Dr. Sheffi. Very quickly, the things that control. A, I
    don't know if it is a Federal issue or State--allow parents to
    choose schools. This will increase significantly the use of
    Catholic school. I am Jew. I know so many of my Jewish friends
    send their kids to Catholic school just because they are
    better--I mean, it is nothing to do with religion--or to magnet
    schools and all of this.
        We have somehow to release the hold that the union has on
    schools. We have to--President Trump already started changing
    the university.
        Now, everything that he is doing has the right intention.
    Just the way it is being done is not ideal. We cannot lose
    Harvard. I am from MIT. And they--Harvard has some part, but
    each university is not a monolithic structure.
        There are pockets that are outstanding and help U.S.
    competitiveness and help--MIT, we do a lot of defense work.
    There are pockets that should be spun off. That is the best way
    that I can--so just understanding the structure of something
    that you are dealing with.
        Representative Spartz. Thank you. Thank you very much.
        Chairman Schweikert. Thank you, Doctor.
        Senator.
        Dr. Sheffi. But maybe you should move and sit here. You
    have all the answers.
        Ranking Member Hassan. Thank you very much. And my
    questions are mostly directed to Dr. Shivakumar, and I am
    greatly appreciative that you are here and that all the
    witnesses are here.
        Dr. Shivakumar, as you highlighted in your testimony, the
    bipartisan CHIPS and Science Act has started to drive
    significant private sector manufacturing investments in the
    United States.
        While this and other measures, like the Bipartisan
    Infrastructure Law and energy tax cuts in the Inflation
    Reduction Act, create new opportunities to invest in the U.S.,
    projects can be held up by overly complicated reviews or
    unnecessary requirements that can slow down construction and
    raise costs.
        Doctor, could you discuss ways to eliminate barriers so
    that we can get things done faster?
        Dr. Shivakumar. Thank you for the opportunity. You know,
    there are three things that we have basically underinvested in,
    in this country for the past three decades or more.
        When we started offshoring to China, we got the China price
    at least for a time being, but we also got off the hook in
    terms of modernizing and investing in our infrastructure.
        We also got off the hook in terms of educating and training
    our skilled technical workforce, getting our vocational schools
    aligned with the needs of industry.
        We also started--we haven't also kept our regulatory
    environment in, you know, in fighting form.
        Yes, there is a need for regulation for standards to make
    sure that our environment is protected, but there are ways of
    doing that, that sustain our environment and make regulation
    speedy and efficient.
        I think we heard about the, you know, 4- to 5-year delay in
    getting some of these fabs up and built in Arizona and Texas,
    other States around the country.
        You know, every year that you delay--you create a delay, it
    is another billion dollars for the semiconductor companies.
        So, if the CHIPS Act provides, you know, incentives to
    companies off that amount basically to build the fab, basically
    one hand gives; the other hand takes away, just because of the
    formalities of having to comply with these environmental
    regulations.
        There are already a number of State and local regulations
    that the semiconductor companies have already factored into
    their plans. Because, you know, CHIPS is a Federal program,
    suddenly these 1970s-era--and EPA, NEPA came into play, and
    this is something that, suddenly, you know, this is a 1970s-era
    law. We are now how many decades----
        Ranking Member Hassan. Yeah.
        Dr. Shivakumar [continuing]. Beyond that. It is clearly
    not, you know, structured to deal with today's world and
    today's needs and the need and the competitive cadence in which
    our economy competes against other powers in the world.
        So this is a very urgent issue that we need to solve this.
    Thank you.
        Ranking Member Hassan. Well, thank you.
        Doctor, as you have recognized, Federal funding for science
    and research plays a key role in driving innovation and
    ensuring that we can out-compete countries like China.
        Instead of supporting American innovation, the current
    administration is attacking universities, slashing research
    funding, and blocking some of the most talented students from
    around the world from coming to America to learn.
        Short-sighted attacks on innovation will destroy part of
    what makes America great and will crush innovation.
        Doctor, could you discuss how these actions undercut U.S.
    competitiveness, create additional barriers to future
    innovation, and block supply chain modernization?
        Dr. Shivakumar. Thank you, Senator. If I can just provide a
    little bit of context----
        Ranking Member Hassan. Yeah.
        Dr. Shivakumar [continuing]. And historical context. So,
    after the Second World War, our manufacturing base was intact.
    What we found--that we didn't have the research base. So what
    we wanted to do at that time was actually build out the
    research infrastructure.
        So, if you think about NSF, NIH--expanding NIH, the
    National Labs from DOD and DOE, our research--our universities'
    research infrastructure--all of these were implemented at that
    time.
        We were also very, if you think about the Manhattan Project
    or the subsequent, we were very proactive in bringing the best
    and the brightest around the world to our shores to make sure
    that our research engine, which was then still connected to our
    manufacturing engine, was in fit form.
        And so we have, over the past many years, have the world's
    leading research infrastructure in the United States. It is a
    huge advantage for us, both commercially as well as in terms of
    our national security.
        What we find today is that that gear in our innovation
    system is not well connected to the manufacturing gear in our
    innovation system.
        Other countries like China, Japan, Europe, put
    manufacturing at the center of their innovation system, but we
    need to preserve our advantage in research but connect it to
    the other aspects.
        Ranking Member Hassan. Right. And I think we are seeing
    some alignment in our community colleges and our high schools.
    We have to do more obviously. But, at the State level and the
    local level, we are seeing a lot of alignment there.
        I am out of time. I am going to just say that, if I were
    able to stay, I would also want to talk about the role that the
    CHIPS and Science Act is playing in places like New Hampshire,
    as we are putting together a biofabrication technical cluster
    that will make it possible, if you need a new kidney someday,
    Mr. Chair, to manufacture a new kidney out of human tissue and
    avoid a huge amount of healthcare costs and improve the quality
    of lives for millions of Americans.
        So I was going to ask a question about that. I will invite
    you to come to New Hampshire to see it.
        Chairman Schweikert. Senator, I will make you a deal. I
    have a fascination with synthetic biology and now the 3D-
    printing----
        Ranking Member Hassan. Yeah.
        Chairman Schweikert [continuing]. Of cells----
        Ranking Member Hassan. We are 3D-printing human organs,
    yeah.
        Chairman Schweikert. Yeah. Well, and synthetic DNA, I
    actually have one of my staff actually doing a research project
    on synthetic DNA. You just started another hearing idea.
        Ranking Member Hassan. Well, and just so people, what the
    CHIPS and Science Act did was allow us to connect businesses,
    universities, research, all together in one, at the site of the
    old textile mills in Manchester, New Hampshire.
        So, instead of creating 50 miles an hour of textiles, which
    we did in the late 19th century, we are now creating human
    organs in those same mills. So I look forward to that. Thank
    you for the indulgence.
        Chairman Schweikert. Thank you.
        Mr. Estes.
        Representative Estes. Well, thank you, Mr. Chairman, thank
    you for holding this hearing, and thank you for all of our
    witnesses for being here today.
        You talk about so much that is so important, whether it is
    talking about trade policy or regulations or how do we prepare
    for the future with investments and education, and it is so
    important as we look forward.
        You know, one of the things, I think, that came out of the
    election last year was, how do we focus on putting America
    first and focusing on our future, and what do we do moving
    forward?
        I think Americans are tired of seeing factories shut down
    and production move overseas and loss of jobs just because
    maybe production costs or production time is faster.
        And regulations, as has been mentioned, has been somewhat
    entrenched in some of our public policy that is kind of a part
    of the problem that is causing this and driving this.
        I think we all agree that, if we don't look at how do we
    continue to grow, make America first in terms of production and
    opportunities, we won't have an economy that will produce what
    we need, and we will be dependent upon foreign countries--in
    some cases, adversaries like China--to produce some of the
    goods we need.
        And we can't allow things like semiconductors to be an area
    where we are depending upon somebody else.
        So we need to make sure that we focus on good public policy
    to address some of these production issues, as well as
    technological developments in the future and make sure that we
    stay competitive.
        Supply chain modernization and factory productivity
    improvements are certainly important. In my home district, the
    Fourth District in Kansas, aerospace production is critical for
    our economy, and I have toured a lot of plants and
    manufacturing facilities and looking at, how do we develop and
    produce parts not just for today but for the future, and some
    of the major companies there--Spirit and Textron and Bombardier
    and so many others--are constantly looking to improve and
    produce aircraft that help power our Nation and help move us
    forward.
        Dr. McLaughlin, in your testimony, you touched on the
    importance of research and development for long-term economic
    growth, and providing immediate expensing for research and
    development costs has been one of the priorities in Congress
    and always had bipartisan support.
        In Kansas, R&D expensing helps make new jobs and helps grow
    the economy.
        Can you tell us a little bit more about burdensome
    regulation and how inadequate tax policies may affect decisions
    businesses make especially related to R&D expenditures?
        Dr. McLaughlin. Thank you for your question. So, in the
    study I referenced, right, looked at how regulation, the build-
    up of rules over time, directly affects business investments of
    various types, and tax policy is held constant there.
        So, while I appreciate the nuance of what you are asking,
    my study didn't directly examine the interaction between
    regulations and tax policy.
        That said, an obvious path forward for improving investment
    and research and development is to consider all ways in which
    regulation could interact with tax policy. I don't think I have
    empirical evidence on that right now, though.
        Representative Estes. Yeah. Well, you noted something
    pretty interesting in your comments around the roughly--your
    study showed 0.8 percent reduction in GDP just based on
    regulatory burden, and that has kind of played out with some of
    those studies that we have seen from our bipartisan Joint
    Committee on Taxation and Congressional Budget Office, that
    said, if we get a 0.8 percent increase in GDP growth, we would
    actually, over 10 years, collect $3 trillion more in tax
    revenue, which would help with our deficit.
        And I don't know if your study included anything talking
    about the deficit and how do we--the benefit that we get out of
    good regulatory policy to help with that.
        Dr. McLaughlin. I think that is a great point. The growth
    effect obviously will increase the tax base, and that should go
    into the budget conversation.
        And, obviously, the growth effect from this study is
    corroborated by other studies. I did a study of British
    Columbia as an example. They cut regulations by about 40
    percent between 2001 and 2004.
        As a result, GDP growth went up by 1.2 percent. Again, a
    larger tax base.
        Representative Estes. Yep. So, excellent, thank you.
        Dr. Sheffi, you talked about supply chains and the
    workforce and new technologies. I mean, how can we use new
    technologies in the United States, like AI, to help promote
    more domestic manufacturing?
        Dr. Sheffi. Well, first of all, using AI is a general term,
    but using----
        Voice. Hit your mic.
        Dr. Sheffi. I was trying to see if you can read lips. That
    is all.
        Representative Estes. Thank you.
        Dr. Sheffi. Obviously, you can't.
        So what we were talking about?
        Representative Estes. Talking about using technology to
    help make more--promote the best----
        Dr. Sheffi. Use AI technology.
        First of all, AI allow you to look at much more data, I
    mean, significantly more, and analyze more data, so you know
    more. Your decisions are based on fact, first of all.
        Second, most companies work in silos as a--you know, these
    days, you know, procurement, they hardly talk to each other in
    most companies. And it is not even Congress. It is just in
    companies.
        So the idea that information flows seamlessly across a
    company immediately make them more efficient because, again,
    they know more data.
        Then there is the ability--most decisions have to do with
    the future. You have to forecast, what is life going to be?
    With machine learning and generative AI, we can focus better.
        Now, when I say ``focus better,'' you have to realize, it
    is not, you know, a hundred percent better, but it is enough
    better to make a real difference, because then your decisions,
    your aiming like Gretzky said: ``You want to skate to where the
    puck is going to be.''
        So, here, you want to make decisions to what the world is
    going to look like in the future, in 3 years, in 5 years, in 10
    years. Using modern AI allow you to focus better, to take a
    lot--because the large dataset, you can take a lot more factors
    into account and focus better. So this is just the tip of the
    iceberg on this.
        Representative Estes. Great. Thank you very much. I am out
    of time.
        I yield back, Chairman.
        Chairman Schweikert. Mr. Beyer.
        Representative Beyer. Thank you, Chairman Schweikert, Vice
    Chairman Hassan, for doing this. Thank you all. I found all of
    your testimony was fascinating, and I greatly appreciate it.
        Because Dr. Sheffi and Dr. Shivakumar both mentioned
    tariffs, I serve on Ways and Means Committee, along with Mr.
    Schweikert and Mr. Estes, and I am consumed by concern over
    what the tariffs are doing to uncertainty in our economy.
        Just this morning, I learned that our imports fell $66
    billion in April, the largest drop in American history. I just
    discovered an hour ago that the retail hiring was the lowest in
    April it had been in 25 years and that our net average tariff
    rate today is the highest it has been since 1938.
        And, if the 50 percent steel tariffs go through, it is
    going to jump up to the highest since 1903, which is before all
    of us were born.
        Let me move quickly because, in different ways, you have
    all talked about regulation. Every Democrat I know is reading
    Derek Thompson and Ezra Klein's new book on ``Abundance.''
        So, Dr. Shivakumar, you specifically said that we need to
    modernize the regulatory framework. So Barack Obama appointed
    Dr. Cass Sunstein to go through all the regulations and
    eliminate ``X'' thousands of them.
        Every Governor I know always promises in his inauguration
    speech he is going to set aside somebody to review all these
    regulations, but we still get all this accumulation. So how do
    we modernize the regulatory framework in a systematic
    constructive way--other than DOGE?
        Dr. Shivakumar. Well, it will be--we have an expert on
    regulation so I will leave it to him to perhaps give you some
    more details, but we have, you know, basically regulation--a
    framework for regulation which is designed to keep our
    economy--which assumes that our economy is in a steady state.
        Today our economy is in a very dynamic environment, and,
    you know, we were just talking about the role of AI in our, you
    know, strategic future; how do we bring in AI? If we don't use
    artificial intelligence to basically leapfrog the Chinese in
    terms of our technological abilities, we need to be, you know--
    and we can do that.
        There are, you know, for example, we have what is called
    self-driving labs. These are robots that are connected with AI
    capabilities that do and speed up a lot of the lab research
    that goes on in pharmaceuticals and other areas.
        We need to--and, by the way, the U.S. invests one-tenth of
    what Canada invests in this technology. So this is another
    topic that we should perhaps get into.
        We need to be thinking more dynamically about how do we--
    rather than trying to create regulations that--around a static
    object; we need to be thinking dynamically, how do we then, you
    know, take the existing assets that we have, look at the world
    strategically--you know, where are the Chinese, where are we,
    what do we need to do to leapfrog them technologically--and
    make that bound?
        Representative Beyer. You set up my next question really
    nicely. I want to thank Dr. McLaughlin for the idea of using AI
    to look at all the regulations. Although, I am a huge AI fan,
    but I do worry about some aspects--like, I don't trust the
    citations, among other things.
        But, Dr. Shivakumar, one of the challenges I have with my
    Republican friends is most House Republicans did not vote for
    CHIPS and Science, which is really, we understand it was our
    first major commitment to industrial policy in America in the
    last 70 years.
        And yet China, which has now grown to be larger than we are
    and is beating us in so many different ways in terms of
    manufacturing, is based on industrial policy.
        How do you respond to my Republican friends' critique that
    governments shouldn't be picking winners when we clearly never
    had a semiconductor industry, et cetera?
        Dr. Shivakumar. So I appreciate the question. Well, we know
    we have--again, looking internationally and strategically
    though--we have the situation where U.S. firms are working on
    the basis of a market-based approach. You know, they create
    innovations. They sell them. We get some profits. Part of that
    is then plowed back into the innovation process, and that is
    how our system makes sure that it is at the lead.
        The Chinese don't have a market system. Their high-tech
    technology companies benefit from the deep pockets of the
    state. So they are able to innovate at a much higher rate, and
    they are able to then put those products into the market,
    cutting into the bottom line of U.S. firms, and then reducing
    their ability to use those profits then to continue to compete.
        So it is fine to talk about, you know, the market if China
    was also working on market principles, but we are now in a--
    again, in a strategic situation where a market-based economy is
    competing with a non-market-based economy, and where that non-
    market-based economy is using innovation and technology as a
    way to dominate, you know, technology, the world, you know,
    national security, markets around the world. So that is point
    one.
        Point two is that I think a lot of people, when they say
    ``innovation policy,'' they think of top-down [inaudible] of
    systems, when what we are actually recommending, you know, and
    talking about, in a sense, is a, you know, innovation policy
    which is looking at the various connections points between
    technology, the workforce, capital markets, and so all of these
    systems within our innovation systems each has to work well,
    and each has to coordinate well with the others.
        And so, when we talk about an innovation policy, we are
    talking a lot about, you know, American federalism in its
    truest form, which is both bottom-up as well as top-down.
        The Federal Government can provide scale. It can provide
    focus, but especially in issues like workforce development,
    this is very much a State and local issue. You know, can firms
    work with State governments to get the community colleges to
    address their workforce needs, for example?
        Representative Beyer. Thank you very much.
        Chairman Schweikert. Thank you.
        Senator Blackburn.
        Senator Blackburn. Thank you so much, Mr. Chairman.
        And thank you all for being with us today.
        The logistics issue and supply chain issue is something
    that, on the Senate side and at Senate Commerce Committee, we
    have paid a good bit of attention to because it is essential,
    if we have the goal, which we do, of repatriating and bringing
    back a lot of manufacturing in this Nation, a consistent and
    ready supply chain is going to be necessary.
        And one of the things in Tennessee that I represent is very
    important to us is logistics. It is an entire sector of our
    State's economy. And we look at Memphis as being the real
    anchor in this.
        Memphis, Tennessee, has all five Class I railroads. We have
    an enormous intermodal because we have the port on the
    Mississippi River, and we also have FedEx.
        In addition to this and because of this infrastructure that
    is there on the river and at the airport and in the rail yard,
    we have an enormous trucking industry that is thriving. So we
    do look at it as air and river and rails and roads and the
    importance of that for our supply chain.
        Dr. Sheffi, I do want to come to you on this, since part of
    your expertise is in logistics, and talk about the importance
    of establishing these intermodal hubs like we have done in
    Memphis.
        Dr. Sheffi. Thank you very much. Let me suggest a book
    written by a young good-looking professor called ``Logistics
    Clusters.'' I wrote it about 6, 7 years ago. You can find it on
    Amazon. Just saying.
        It is exactly this. It talks about--it also helps Ms.
    Hassan's idea of putting--because it is correct for almost any
    industry. When you put together--people think it is
    counterintuitive. Why would you put competing companies
    together next to each other?
        Well, look at the success of Silicon Valley. Look at the
    success of Hollywood. Look at the success of Wall Street. These
    are companies of the same ilk right next to each other because
    there is a flow of knowledge in coffee shop, in transmitting
    between people that elevates the entire cluster. The same
    thing.
        And I spent a lot of time in Memphis. Fred Smith is a
    personal friend. So Memphis is looming large in my book because
    it is a classic example of a very successful logistic cluster.
        And, as I said, it is all modes of transportation, but it
    is not only this. Because it has a good cluster, manufacturing
    has moved in. Because, if you want--today, if you want to fix
    your laptop, you can send it--you think it is Asus or Lenovo,
    you call them and you say, ``My laptop is not working.'' They
    say, ``Put it in a FedEx envelope, send it to us.''
        You are actually talking to another company; a third party
    that fixes the stuff. You send it Monday night, and Wednesday,
    at 10:30 in the morning, you get it fixed on your desk because
    the company moved in.
        Medtronics. Now, if you need spine surgery, you know, the
    doctor needs a few tools, but he doesn't know which ones until
    he opens you up. Not a good thought, but it is the truth. So
    they call Medtronics. Medtronics sends a kit up.
        Senator Blackburn. Well, let me jump in here.
        Dr. Sheffi. Anyway.
        Senator Blackburn. I love the fact that you are talking
    about our industries there.
        Dr. Rodrigue, I wanted to see if you had anything you
    wanted to add on the importance of these intermodal hubs as we
    look at expansion.
        And Senator Cantwell and I have legislation, the Promoting
    Resilient Supply Chains Act, over on the Senate side, which
    would try to foster some of this. So I would like to get you to
    weigh in on this.
        Dr. Rodrigue. Okay, perfect. Thank you. Indeed, to segue on
    I would say the authority on this issue, the concept of co-
    location and accessibility provided by transportation is a very
    important factor. It creates multiplying effects, and it
    creates, as we mentioned, these clusters. And, once these
    clusters are created, what we found out is they cannot be
    easily dismantled. It takes a lot of time.
        And that is a segue to what China has done. China has
    created a massive amount of manufacturing and logistic clusters
    in all segments of manufacturing----
        Senator Blackburn. My time has expired, but I appreciate
    that and note that we are doing that without a government
    overriding impact. We are doing it via the private sector
    without an industrial policy.
        Chairman Schweikert. Mr. Casten.
        Representative Casten. Thank you very much.
        It has been a fascinating hearing. I want to try to come in
    with as much humility as a Member of Congress is capable of
    mustering. I am getting flashbacks to my first boss when I got
    out of grad school, who came into my office one day and said,
    ``I need you to do some work to prove my preexisting
    theories.''
        And, with that in mind, I have a preexisting theory and,
    Dr. Shivakumar, let me share with you the theory and just see
    if you share it.
        I was 20 years in the energy industry before I came to
    Congress, both as a manufacturer and as a utility operator, did
    a lot of work with manufacturers. We were taking over their
    operations. And, over that 20 years, both for our company and
    for the companies we served, you had the globalization trends,
    the financialization of our economy trends, the, you know,
    everybody learning just-in-time manufacturing, the rise of
    shareholder capitalism.
        Everybody skinnied up their inventories because, you know,
    the financial markets were saying, ``You can't have that much
    working capital anymore.''
        And, on the manufacturing side, any CEO who wanted to keep
    their job had to look out and say, ``I got three factories
    running 70 percent capacity factor. Shut at least one of them
    down. Get everything up to 90 percent.'' And that created a ton
    of shareholder wealth but also essentially made the system more
    brittle.
        And I would like to ask unanimous consent to enter some
    data into the record from the St. Louis Fed on the inventory-
    to-sales ratio over the last 30 years. And it is down about 20
    percent over that period.
        And, when we have had volatile points in our economy, like
    the 2008 financial crisis, like the COVID crisis, you see this
    huge spike where 100 percent of U.S. economic activity is
    explained by inventory shifts, right?
        And so I guess my first question, Dr. Shivakumar, is, do
    you buy my theory? Have I got that basically right as far as
    like a sectoral trend and what has made our supply chains more
    brittle?
        Dr. Shivakumar. Yes, your narrative is accurate. I mean, we
    have been--you know, our strategy has been assuming that there
    will be basically a strategically calm, relatively calm world
    where we can outsource parts of our productive activities
    without harming our own domestic innovation system and our
    manufacturing system. That has not proved to be the case
    because of events that we see now.
        In the meantime, we have underinvested, as I mentioned,
    heavily in our workforce, our infrastructure. And so the
    reckoning is now here.
        Representative Casten. But I guess--and I am sorry to be
    quick, but I am just watching the clock--if we agree that those
    sort of broader trends have created a set of supply chains that
    is more exposed to exogenous volatility----
        Dr. Shivakumar. Correct.
        Representative Casten [continuing]. Then the followup
    question is, is there anything currently going on in private
    markets that is going to fix that, absent government
    intervention?
        Because, like, I have a hard time seeing banks all of a
    sudden saying, ``I am going to give you more generous working
    capital terms,'' or shareholders saying, ``Sit on a dividend
    for a while because I would like you to have some spare
    capacity.''
        Dr. Shivakumar. Well, there are some aspects of it that are
    clearly a collective aspect, and those should need to be
    addressed at the Federal level or the State level. There are
    also some of those activities that need to be--involve firms
    and the private sector as well.
        So, in terms of the public infrastructure, highways, ports
    and so forth, these are very large public resources, and these
    have traditionally been the purview of the Federal Government
    and so forth because--for the scale and the public goods that
    they provide.
        There are other issues regarding, for example, skilled
    worker training, where there has to be much more involvement on
    the part of the private sector.
        Representative Casten. Yeah, but I think that is the tail
    of the dog because, to some degree, like, if you are not
    building the factories, you don't need the workers, right?
        So I guess, with the time left, the question I have got is,
    if our economy is more exposed to that volatility, then either
    we are going to put that risk on consumers, you know, or we are
    going to have--you know, in the form of higher inflation, in
    the form of supply shocks, what have you, or government has to
    step in to play that role.
        And so what I am curious is, number one, these are global
    trends. Are there other countries that have managed that better
    that we could learn from?
        And then, number two, we spent a lot of time not just in
    the CHIPS Act but in the Inflation Reduction Act, in the IIJA,
    around thinking about--because, you know, building electric
    transmission is also an investment in supply chain robustness.
        Is there data to suggest that we did a good job of building
    those assets that the private sector was not going to get, or
    what could we have done better, and how do we think about
    making sure that--if the government has to play a role, how do
    we make sure that we are building the stuff that the private
    sector isn't going to do, given the dynamics right now? And
    what international--which of our peers are doing a good job of
    that?
        Dr. Shivakumar. Yeah, so the--you know, there is--let's
    just take, for example, the building of these FABs. When you
    are trying to build a FAB, suddenly these semiconductor
    companies realize that they need large quantities of extremely
    high-quality power. So where is that going to come from, for
    example?
        So we don't have the infrastructure in place now. It is a
    great opportunity to basically modernize our grid using new
    technologies, new resilience, new capacities.
        If we are trying to become leaders in new artificial
    intelligence technologies, we need the power to then house and
    create the warehouses of data, so to speak.
        So a lot of this--we have to play catchup in a lot of these
    technologies.
        Representative Casten. I am over time, but I will just
    close by noting that, as a guy who built about 80 power plants,
    we do a really bad job of building existing technologies. The
    problem isn't the lack of technology that will meet those
    needs. It is how do we go out and develop capacity.
        Thank you. I yield back.
        Chairman Schweikert. Senator Klobuchar.
        Senator Klobuchar. Thank you very much, Mr. Chair.
        And thank you for holding this hearing.
        I am somewhat obsessed with supply chains--yeah, there you
    go--and saw the breakdown during the pandemic. And I was
    actually thinking, my first thought was just--and I guess I
    will ask you this, Dr. Rodrigue: At that time, we had a huge
    problem with the ocean carriers that were basically charging
    huge amounts of money and refusing to take American exports
    overseas because they want to come back right away and get some
    other things, and it was a real problem.
        So Senator Thune and I and Congressmen Dusty Johnson and
    Garamendi joined together and did this bill, Ocean Shipping
    Reform Act of 2022 signed into law in February 2022, which I
    think helped because it put some more power on Maritime
    Commission to be able to put in some rules, and even before
    they did those rules, I think they realized that they had to
    behave.
        And I just wondered what is the role of intermodal
    transportation here in addition to all the bigger things we
    have been talking about.
        Dr. Rodrigue. Thank you. Yes, this event, you could call it
    the great entanglement. That is where everything got clogged at
    the same time.
        And, actually, what we found out afterwards, in hindsight,
    is the very high shipping rates were reflecting the lack of
    velocity. Things were not moving.
        And people could not find I would say slots in container
    ships at any price, because there was not--because things got
    blocked because of the surge in demand, which was an outcome I
    would say of providing liquidity into the system, a lot of
    inciting people to--and then creating a surge at the shipping
    line they don't anticipate because everybody was betting the
    other way, that things were going down, and then suddenly
    things caught up, and people got caught up by surprise.
        And it took a while for this--and that is why it became a
    public issue. Because it was entangled, we say, is there
    anything we can do? But, actually, there was not that much
    because it was actually a capacity problem.
        It essentially start up at the ports. The ports were not
    capable of handling containers because their yards were full.
    The chassis were not--no chassis were available and everything.
    That created a domino effect, and everything propagated, and
    then the rates went up.
        Senator Klobuchar. It was just such a disaster that we
    don't want to repeat again.
        Dr. Rodrigue. In my opinion, unlikely.
        Senator Klobuchar. Yeah. Okay. So, coming out of that, we
    now look at--so things got better on the shipping front, and
    things were going. And now we have these tariffs, which I am
    very opposed to. I don't mind targeted tariffs here and there.
    But I just was in Canada with the new Prime Minister, as we
    hope we can negotiate those tariffs with the administration.
    Senator Cramer and I and others were there. So it was a
    bipartisan trip.
        Dr. Shivakumar, could you just go over again just the risks
    that these higher input costs pose to business investment. That
    is what I am very worried about.
        I am worried about the immediate, small businesses are
    roadkill because they can't--they are unable to have any kind
    of reserves that help them if the prices go way up. But I am
    worried about the investment decisions that are going to hurt
    us going forward.
        Dr. Shivakumar. So small businesses are--especially small
    businesses thrive on a certain level of continuity in terms of
    the economy, as well as they are also very sensitive to prices.
    So the high tariffs affect prices of inputs, and volatility
    creates uncertainty, which, you know, increases business risk.
    And so, in that environment, it just makes it that much harder
    for our private sector to thrive.
        It also affects our high technology industry. If you look
    at the aluminum tariffs, which have recently moved from 25 to
    50 percent; they are very negatively impacting many of our
    semiconductor--the companies that make the tools that make the
    semiconductors. And so, you know, their costs are rising.
        In today's world, there are competing manufacturers of
    these tools, and so we need to be mindful of our high
    technology advantage as well vis-a-vis the impacts of volatile
    tariffs.
        Senator Klobuchar. Very good. And could you also comment--
    was it you that said we haven't kept our regulatory environment
    in fighting form? Was that you, or was it you? It was you,
    right, earlier in your testimony. I just thought that was a
    nice euphemism for the problem.
        Just what do you think would have the biggest impact in
    terms of doing something quicker, whether it is energy
    projects, whether it is housing projects, whether it is many
    things, to make our country more competitive?
        Dr. Shivakumar. So, again, you know, if you look at the
    FABs that they are now constructing, the regulations from NEPA
    and so forth are adding 4 to 5 years to the clearance process.
    And so, you know, within--if you think about Moore's Law, which
    is sort of, you know, clicking along every 2 years, 4 years,
    you are already two cycles past. And you are creating a FAB,
    you know, waiting for the regulatory, you know, pegs to fall
    into the circles, and you are already--you know, technology has
    basically bypassed you.
        And you are--you have to--regulation has to be at the speed
    of technology. And so that is really something that we need to
    be aware of. It is no longer a steady-state economy or an
    economy that is technologically moving at a very predictable
    rate.
        You know, if you think about, again, Moore's Law, the
    efficiencies that we gained, say, from the mid-1960s when we
    first invented, you know, practical semiconductors to today,
    that doubles in 2 years, and that doubles in 2 years.
        So, for a while, we were moving on, you know, this part of
    the curve. We have moved past the point of inflection, and we
    are now on the ashen----
        Senator Klobuchar. Uh-huh----
        Dr. Shivakumar. So, if we don't catch up, if we don't--if
    we don't innovate and manufacture and, you know, be productive
    in that context, other countries--and if you fall behind, it is
    very difficult to make up the distance. It is a train that has
    already accelerated, gone off the train station. We will not be
    able to catch up. We will certainly--then we will become a
    follower of technology, not a leader of technology. So getting
    our regulatory systems in fighting form for the new, you know,
    technology-based innovation competition that we have is
    absolutely imperative.
        Senator Klobuchar. Thank you very much.
        Chairman Schweikert. Thank you.
        Mr. Min.
        Representative Min. Thank you, Chair Schweikert.
        I really appreciate you convening today's hearing on this
    very important topic. And, obviously, as has been stated, the
    COVID-19 pandemic provided a clear wake-up call to us all on
    how reliant our Nation is on imported goods, particularly from
    China, and also how vulnerable our Nation's supply chain is to
    a sudden shock.
        So I have the privilege of representing the 47th
    Congressional District in California, home to cities like
    Irvine and Newport Beach, Huntington Beach, a vibrant economy,
    very dependent on a lot of trade but also just down the coast
    from the busiest port in America, the Port of Long Beach.
        And, during the COVID-19 pandemic, we saw a backlog of
    container ships, which, of course, impacted the ability of
    Americans to get vital goods quickly and affordably. And that
    is one I think of many instances that underscored the
    importance of this topic of why we in the Federal Government
    need to do more to shore up our supply chains and why we need
    to invest in our critical infrastructure.
        But I am a bit puzzled by the emphasis on the policies of
    Joe Biden and the complete absence of any inquiry or oversight
    into the current President, Donald J. Trump, because, when I
    talk to my constituents, talk to businesses large and small
    that I represent, I have to say none of them talk about the
    negative effects of Biden's policies on the supply chain. Quite
    a few of them, of course, are very concerned about the policies
    of Trump.
        Quite the contrary, in fact. I would say that many
    businesses have lauded policies from the Biden administration,
    the Inflation Reduction Act, the CHIPS Act, the Bipartisan
    Infrastructure Act, as important policies that are helping to
    bring back massive investments in important manufacturing
    segments to the United States, including, as has been
    mentioned, in semiconductors, clean energy, and energy
    infrastructure.
        Just as a few examples, the Port of Long Beach, just up the
    road from my district, joined the Alliance for Renewable Clean
    Hydrogen Energy Systems, a private-public partnership that will
    leverage IRA investments to create more than 220,000 good-
    paying jobs in southern California, almost $3 billion in
    economic investments.
        Kia, which has its U.S. headquarters in my district,
    Hyundai, which is based just down the road in Fountain Valley,
    have both significantly expanded their U.S. manufacturing of
    clean cars based on the clean energy tax rebates offered from
    the IRA. Hanwha Qcells, also based in my district, opened two
    new massive solar manufacturing plants in Georgia based
    entirely on those same tax credits. We are talking about
    thousands and thousands of good-paying jobs, billions of
    dollars in economic impact in critical economic areas.
        Of course, as has been discussed, the CHIPS Act has driven
    I think $280 billion in manufacturing commitments in key
    infrastructure, key critical economic area to the United
    States.
        And, at the same time, all of the complaints I have heard
    about weaknesses in our supply chain, concerns around our
    supply chain, have all come from the current policies,
    including the illegal impoundment of funds around IRA, other
    funds that businesses were relying on to make manufacturing
    investments in the United States penciled out, as well as, of
    course, the tariffs that my colleague in the Senate just
    pointed out, that have created real stresses on our supply
    chain, including a lot of the manufacturing that is based here
    in America.
        Just as one example, I have a small electronics
    manufacturing business that I talked with recently in my
    district. And they pointed out that a lot of their inputs, even
    the ones that they import from other places, they get improved
    upon in the United States. Then they may go across border again
    to Canada or Asia to get improved, come back to the United
    States.
        And levying a tariff each time these parts or inputs cross
    a border has made their business essentially nonviable. They
    are actually thinking about now moving their entire
    manufacturing offshore because that is actually cheaper than
    manufacturing in the United States, based on these tariffs.
        So I guess my--that is the macro point I want to make. I
    think we are focused on a lot of the past policies and not on
    the current policies, which I think it is clear are having a
    huge negative impact on the supply chain, the strength of our
    supply chain.
        But I guess my question--and I will ask it to you all--is,
    when we think about industries and inputs in the supply chain,
    are there ones that we should be emphasizing?
        Because I can't imagine that we want to bring everything
    back to the United States. There are certain types of minerals
    that are hard to produce here. There are certain things that we
    may not want to emphasize in our economic policy.
        But what are the three or four critical areas akin to
    semiconductors that we think we should be trying to bring into
    the United States for national security or other reasons? And I
    will start with you, Dr. Shivakumar.
        Dr. Shivakumar. I think the point that you made about, you
    know the impacts of high tariffs and the fact that the way in
    which manufacturing is structured in the world is through
    networks of activity.
        So very often there are subcomponents which are produced in
    country A and move to country B for further assembly, that then
    becomes a part of some other equipment, that then produces a
    chip in a third country, which then is packaged in a fourth
    country, which then gets into a product in the fifth country,
    and then finally perhaps makes its way back to the United
    States.
        When you create these tariffs--often, these products are
    moving in and out of the United States. Every time you are
    creating extra costs in the production process, what will
    ultimately happen is, if the tariffs are too high or too
    volatile, this network will start building itself around the
    United States.
        So what we are really concerned about is, you know, unless
    we have manufacturing front and center as our strategic
    objective----
        Representative Min. And I apologize. I am out of time. But
    are there----
        Dr. Shivakumar [continuing]. We are going to lose out.
        Representative Min [continuing]. A few areas that you would
    recommend that we consider in thinking about strategically what
    we want to bring back to the United States? Dr. McLaughlin.
        Dr. McLaughlin. Well, within my area, which is regulation,
    I will talk about that. I think we could target certain
    industries for streamlining of regulations first that are more
    vital to the supply chain. Transportation----
        Representative Min. And I am way over time, so Dr. Sheffi.
        Dr. Sheffi. Anything that has to do with high technology.
        Representative Min. Dr. Rodrigue.
        Dr. Rodrigue. We have to move away from a trade regime
    which is trade by convenience to a trade regime which is trade
    by necessity.
        Representative Min. Thank you. Food for thought.
        I yield back.
        Chairman Schweikert. I appreciate.
        And one of the joys of getting the chair is you get to put
    yourself at the end, and we have this term sort of I don't get
    the clock. So our next meeting is a couple hours. So let's have
    at it. Okay.
        Like a couple of you, you have spoken about--it is sort of
    amusing. Being someone from the desert, I have had a
    fascination with visiting ports. This time last year, I was in
    the Port of Singapore visiting some of the new construction,
    watching the automation. I have been to a number of them. I
    have also visited the Port of L.A. and Long Beach, and I saw
    the same thing.
        And so, look, the vision for this hearing was, what can we
    make the future look like? Politically, we always have the
    habit of we got to get in our shots at each other because that
    is what makes a good YouTube video for when we want to put up
    our 20 seconds, so let me do my 20 seconds.
        But we actually have occasions like this where in the
    Inflation Reduction Act, we have language functionally making
    automation illegal. Well, it turns out my own President
    actually put out a statement that he wasn't thrilled with the
    idea of automation of ports. I border on being a techno
    utopian.
        So let's actually play a game here. You are all freaky
    smart. If I came to you today and said, whether it be from a
    regulation, from a technology, from even domestic repatriation
    of certain activities to incentive models that you have written
    about, if we could start from--and except this is not real but
    starting from a clean slate, how efficient could I make our
    supply chain infrastructure? You know, so we will deal with the
    products and the desire and style and those things.
        But, Dr. McLaughlin, you already know my fascination with
    the automated skids for rail. They are electric. They are
    environmentally safer. Like in the Port of Long Beach, you
    immediately put it on the skid, and it goes to the warehouse it
    is supposed to go, the distribution center, to the things I
    have seen of, you know, the laser-measured automated lifts at
    the ports to the ability, some of the technology where the
    container ship is able to moor within minutes compared to
    hours.
        Dr. McLaughlin, if I came to you right now and said, ``You
    get to be a techno utopian and design a new port, that
    everything from the rail to the rules to the regs to the
    automation,'' give me your vision.
        Dr. McLaughlin. I would try to remove myself as much as
    possible from picking the pass and let people innovate in ways
    that are maximally profitable to them.
        Chairman Schweikert. What are you----
        Dr. McLaughlin. This is a punt, but I mean the point from
    my perspective is to set up the infrastructure, if you will.
    And, by that, I mean the regulatory infrastructure, the legal
    infrastructure that permits innovation.
        And so, by that, we need things that are streamlined. We
    need things that are flexible, things that accommodate new
    technologies when they do come about, because we can't predict
    all the ones that would come about.
        Chairman Schweikert. Doctor.
        Dr. Sheffi. There are some examples. If you want to go and
    look at Dubai that started basically from nothing and became a
    leading logistics hub of--you know, they have one of the best
    airlines. They have one of the best ports. They have lots of
    infrastructure that started from nothing.
        Now, the truth is that autocracy, benevolent autocracy is
    the best form of government. They don't stay benevolent for
    long; that is the problem. So you have, you know, Dubai with
    money and total control. Yeah, they do good things, like China.
    President Trump was there singing their praises on building
    everything.
        But, if we look at--there are examples of--if we look at
    the Dutch port of road--Chinese highways, I mean, they are
    amazing, actually. I go through China quite a bit. European
    trains.
        You know what kills me, when I go to Spain. I can deal with
    German high-speed train, with French high-speed train, but you
    go to Spain, and they have high-speed train? That is
    ridiculous. And we still don't have it. To build a train from,
    what is it, in California, The New York Times reported that it
    takes nine times per mile the cost of building in----
        Chairman Schweikert. It may be even worse than that if you
    actually----
        Dr. Sheffi. As compared to France. Not as compared--as
    compared to France. So talk about regulations. But it is not
    only regulation. It is corruption, to be fair. There are a lot
    of things that are into it that we must clean out in order to
    get the European-level port, European-level trains, Chinese-
    level highways, Dutch-level ports, all of these things to be
    clean.
        Dr. Rodrigue. Okay, thank you. Most of the container
    terminals in the world are operated, somewhat controlled by
    terminal operators. They are very large conglomerates. The HPH,
    Port of Singapore Authority. And they know their business. They
    know how to make things very, very efficient.
        And the problem is, like anybody else, they don't like
    uncertainty. And right now we are in a phase of readjustment of
    the trade regime, which creates uncertainty. We are in a
    disruption phase of the resilience curve you could say, and it
    is going to reach an equilibrium.
        But my point is there are already corporations, which many
    of them are branches of shipping lines, that are experts at
    making supply chain efficient. But, when their strategy or
    their investment hit the road and they encounter the regulatory
    system, the delay in investment, I saw quite a few port
    projects in America being canceled because of regulation. And I
    say, ``Here goes 1 million TEU; here goes 2 million TEU,''
    because we cannot build infrastructure. It is not we don't have
    the capability to operate it, but we don't have the capability
    to create an investment framework which is stable enough for
    that capital, which is already there, that expertise, that
    technology which is already there.
        There are companies, they are now having drone-making
    companies that are part of a port terminal operator. They are
    implementing these--they all have these strategies. But it is
    very difficult to implement in the United States, as you
    mentioned before, because automation has become illegal in some
    ways. We are becoming the Luddites of this world. It is an
    overstatement, of course, but there is a little bit of truth.
        Chairman Schweikert. You may have just won an award. I
    think you are the first one this year in the Congressional
    Record to say ``Luddite.''
        Doctor.
        Dr. Shivakumar. Thank you. Since my colleagues have been
    talking about physical supply chain infrastructure, let me talk
    maybe just also a little bit about the workforce supply
    infrastructure.
        So this has traditionally been a local and State
    responsibility, but we have basically broken things between
    students and workers and their ability to find the jobs that
    firms and industries are supplying.
        But there is a--and firms, similarly, are having difficulty
    finding the characteristics and the talents and the skills that
    they need for their operations. But we have the technology
    available to actually circle this square.
        So we have, for example, we all use Google Maps or Waze to
    find our way to a destination that we don't know. It tells you
    to turn right, avoid a traffic jam here, you know, turn left
    here, take that bridge and so forth, turn-by-turn directions.
        There is similarly a possibility to do software to tell
    workers to, you know, take this course in the community
    college, top it up with this credential, take this university
    credit, and work your way to what the industry is asking for.
    That is something that is missing, and that is--actually, the
    technology to do that is off the shelf.
        On the other side, industry is looking for workers with
    specific types of skills. So let me give you a quick anecdote.
    There was this lady who was working at a Dunkin' Donuts shop.
    She had the skills to manage her shop, manage the inventory,
    which is perishable, manage customers, you know, manage the
    payroll.
        Those skills were what the semiconductor company that was
    setting up a FAB was looking for. And, by looking at it, say,
    from a perspective of a dating app, which we are all familiar
    with, perhaps, to some degree or the other, they were able to
    look at the characteristics.
        And then they found this lady, and they were able to train
    her, you know, the final stretch. And she is now working in a
    semiconductor fabrication plant. So----
        Chairman Schweikert. Doctor, in some ways, you are making
    the argument for time for a revolution in accreditation.
        Dr. Shivakumar. That is also part of that, yeah.
        Chairman Schweikert. And the barriers that----
        Dr. Shivakumar. There are existing solutions. There is a
    nonprofit called NIICA, which actually has the software to do
    this. And it is just a matter of, you know--and they are
    looking at--this kind of combines like, you know, turn-by-turn
    aggregate data, user data, to put these--you know, to help
    solve the workforce problem and to get that workforce fixed. So
    that is----
        Chairman Schweikert. So you have human input. You have
    regulation. You have technology adoption. You have, you know,
    what is world trade.
        So, if I came to you--let's first do a reference. And it
    is, probably 3 years ago, in one of my binders I actually have
    a--it is actually someone's doctoral thesis, but the premise in
    there is, what would happen tomorrow if you threw a switch and
    every vehicle on American highways was automated? You know, so
    Waymo of the truck, Waymo this. And they were trying to
    calculate its additive effect to GDP. And it was remarkable,
    the value of time, the value of the fact I can sit in the back
    seat and do my work. I can do this.
        And, for the last couple years, I have been thinking over
    and over and over, one of the things that rarely comes up when
    we talk about labor force is the fact that the number of 18-
    year-olds that will turn 18 this year as a percentage of the
    population I think is the smallest in U.S. history. Yet our
    number of those 65 and up in the last 20 years has doubled. We
    have a demographic issue, and it is all over the industrialized
    world. We have a shortage of young people.
        And, if we want to deal with the reality of, how do you
    have productivity? How do you move goods and services in a way
    where you could have that productivity so we can maintain
    societal growth, lifestyle, those things in functionally a
    flatter, shrinking population with those ratios upside-down? We
    are going to need a revolution in what is regulation.
        And, look, 7 years ago, I did a silly little YouTube video.
    I actually had an artist draw a cartoon. And it was the concept
    of crowdsourcing air quality, you know. You would attach a $99
    thing to this, put a couple thousand in your community. And you
    need someone to get an air quality permit to do the motorcycle
    paint shop, because we all know putting paperwork in file
    cabinets makes the air quality cleaner. It is documentation for
    the next lawsuit.
        But the fact of the matter is, if I had crowdsource, the
    moment that person's filters aren't working in the paint booth,
    you catch him immediately. And you also catch the clowns that
    are painting cars in their backyard that were never going to be
    part of the air quality regulatory regime.
        Crowdsource the environmental data. Well, it turns out you
    can do that in water, in markets, in all sorts of things. And,
    in this brilliant place, I proposed that bill now what, 7-plus
    years.
        And it will never get a hearing because it turns out the
    current regulatory regime actually has the incumbency effect.
    The folks that make their money off of being the one that shows
    up to be your engineer who signs off on your filters to the
    bureaucracy that sticks the paper in the file cabinet.
        And that was one of the reasons for doing this hearing is
    there is a way to do, from the port automation to my
    fascination with the automated skids to data that you and I--
    and methods we actually don't know to actually having an
    education system that values your skill sets and your talents,
    not where you fit into a regulatory education regime, which all
    these are--we just, by those last couple sentences, just
    enraged all our constituencies because those barriers to entry,
    those regulations, those business models are how they make a
    living.
        And so what I am begging from all of you is, give us an
    idea. Okay. So regulation is a huge barrier. Is there a way
    where my vision of using AI, using crowdsourcing revolutionizes
    it? The value of push, push, push, push, adopt the next
    generation of technology, you know, those of us that have a
    fascination in generative AI, but I don't know what it is
    actually going to do. I am not as bright as I think I am. I
    couldn't get into your university, but they sent a lovely
    rejection letter.
        So, I mean, am I just rambling? Because I have had stunning
    amounts of coffee already. I mean, is there a vision here we
    can sell? Let's go to Dr. McLaughlin.
        Dr. McLaughlin. One of the problems you touched on is the
    existing regulatory system and how slow it can be. I am sure
    that many regulators inside the EPA, for example, would love to
    crowdsource some monitoring of air quality, but the path going
    from here to there where regulation allows that is too fraught
    with obstacles and takes too long.
        So your vision of using, say, AI and crowdsourcing, those
    would be tremendous upgrades to accommodate new technology.
    Right now, what we have to do to accommodate new technology is
    often use soft law, have agencies issue guidance on how
    regulations might look if you were to invent an autonomous car,
    for example.
        But, if, instead, we are able to update regulations more
    quickly using AI, for example, or crowdsourcing, we wouldn't
    run into this problem nearly as often, ``this problem'' being
    called the pacing problem. Technology outpaces regulations.
        So I think we can upgrade the pace, but it does require
    Congress to do this. The procedure is defined by Congress, the
    Administrative Procedure Act.
        Chairman Schweikert. And, Doctor, remember our word of the
    day is ``Luddite.''
        Dr. Sheffi. Okay, great one. So first of all----
        Chairman Schweikert. Is your mic on?
        Dr. Sheffi. I am on? Okay. Sorry.
        We have to find a way to overcome the short-term resistance
    in order to get long-term benefits. You mentioned autonomous
    vehicles. I deal with autonomous trucks. Amazing productivity.
    But the top job in 23 States in the United States is truck
    driver. So there will be people sitting on both sides who will
    fight tooth and nails against it.
        Chairman Schweikert. But yet you and I see the demographics
    of----
        Dr. Sheffi. I couldn't agree more.
        Chairman Schweikert [continuing]. The age of my average
    truck driver.
        Dr. Sheffi. I live in a university.
        Chairman Schweikert. In a decade, we have massive
    shortages.
        Dr. Sheffi. Well, it is not quite that simple because it is
    tied to an immigration policy.
        Chairman Schweikert. Yes.
        Dr. Sheffi. So it is--you know, Angela Merkel didn't allow
    a million Syrians to come in because of her good heart. She
    allowed them because Germany were losing workers in factories,
    so--and she understood it early. So we need--I mentioned before
    we need to create some kind of point system like advanced
    state.
        Chairman Schweikert. Take a look at my talent-based
    immigration bill I introduced a couple weeks ago. And I thought
    I would get my head kicked in. Shockingly, I had both folks on
    the left and the right go, ``Yeah, makes sense.''
        Dr. Sheffi. Okay. One last point. You mentioned the
    stickiness of regulation. I actually wrote a few papers on the
    stickiness of tariffs. If the tariffs are going to stay, they
    will be constituents developed to keep them forever, because
    there are companies and people that benefit from these, not
    only the people who will manage this but companies who can
    raise their price because the competitor now has high prices.
    So----
        Chairman Schweikert. Your colleague to your left actually
    mentioned rent seeking in that environment.
        Dr. Sheffi. Absolutely. And let it not be said that I
    belong to left or right. I am just trying to stay----
        Chairman Schweikert. But that is the nature--remember, and
    you and I have had this conversation dozens of times.
    Washington, D.C., is mostly about one thing: money, whether it
    be barriers to entry, whether it be direct subsidies, whether
    it be--and it breaks my heart because, you know, bleeding
    markets actually are innovation, and in many ways, we have
    abandoned that concept.
        So, tell me, is my utopian vision of--okay, we have a
    demographic issue that is going to continue to grow. It hits us
    very hard shockingly soon. Is it, okay, open up the border? Is
    it the adoption of technology? If I am going to maintain
    productivity and, therefore, GDP, therefore, you know,
    lifestyle, you know, innovation growth and how American people
    live?
        Dr. Rodrigue. That is quite----
        Chairman Schweikert. It is a universal theory.
        Dr. Rodrigue. It is quite a tall order. In some ways, all
    roads lead to automation down the road. The problem will be or
    the issue will be how this is going to be deployed, and is it
    going to be a synchronous deployment, or is it going to be an
    asynchronous deployment?
        If it is synchronous, you can manage things. But, if it is
    by industrial sector, it is going to create disruptions and
    lack of synchronization between things.
        So that is a very, very difficult question to answer. But,
    on the other hand, I have looked at international trade for
    quite a long time, and it is imbalanced. In my opinion, it is
    unsustainable. It has created I would say commercial
    structures, which, from a distance and transportation space
    perspective, do not make sense that much.
        They exist because the transportation cost is very low,
    very cheap, and it has created these global supply chains, many
    of which should be more regional focused. And I suspect
    automation is going to incite us to look at regionalization of
    things, the regionalization of our manufacturing, the
    regionalization----
        Chairman Schweikert. With respect to sort of the hub,
    specialty hub concepts.
        Dr. Rodrigue. Of course, we are going to still trade long
    distance. There is going to be a lot of it. But it will make a
    bit more sense, because I don't think it makes sense to make a
    toy at the other side of the world to move it here. We do that
    because it is convenient, because there is a cost structure
    behind it.
        But, on the long term, I am skeptical, I would say,
    although I am a very big proponent of free trade and things
    like that. But it went in very strange ways over the last 30 or
    40 years. We have seen supply chains have been created that are
    bizarre. But, when you look at them, they make sense from a
    low-cost perspective.
        Chairman Schweikert. Doctor, can you give me a vision that
    is not as--let's say you and I actually synchronize on labor
    inputs. What is acceptable in automation and the use of 3D, the
    printing, all the other types of technology? Does that
    stabilize wage, help us produce wage growth and other things?
        If I am trying to deal with a supply chain that is very
    fragile--we have already seen certain inputs, and I get a
    cascade effect. What would you do technologywise?
        Dr. Shivakumar. Well, just to put this in a little
    perspective, the strategic environment in which we operate in
    the world is radically different.
        And I think, in many ways, the election of President Trump,
    the electorate sent a message that, you know, the way in which
    we do things has been disrupted. And I think that is an
    important message that all of you in Congress also are very
    attuned to.
        We need to be thinking in terms of, how do we leapfrog
    China in technologies because that is the only way we are going
    to be a leader? But, you know, in terms of whether it is
    workforce or whether it is, you know, by modernizing our supply
    chains, these are investments that have to be rethought, given
    the fact that we have new technologies. Artificial
    intelligence, robotics, you know, all of this has--the existing
    models, as you say, have been gamed and to the point that they
    are immobile almost.
        We cannot compete globally with the existing structures
    that we have, whether it is physical infrastructure or the
    regulatory infrastructure. So it is just--it is--this is
    actually something that is across the board. It is not one
    party or individual who is----
        Chairman Schweikert. And maybe that is my vanity of trying
    to believe, could we ever sell the concept of a much more
    unified theory?
        And, look, I just need to throw this out because it is one
    of those I need: I am constantly worried about parts of the
    CHIPS Act. Love the investment in research and development, but
    there are a couple great academic papers that now you see
    actually doing a much broader error correction on a quantum
    chip. But, as soon as that error correction, even if I have to
    slow it down to, you know, a series of a server farm that takes
    care of my errors on a quantum, I have hundreds of billions of
    dollars in FABs that almost become stranded assets the next
    day.
        And there is sometimes the arrogance of what we do in
    Congress saying, ``We are going to invest in an industry we
    like,'' instead of allowing the technology and the disruption
    to drive it.
        You know, for the young people in here, you have no idea
    what I am about to say, but there used to be this thing called
    Blockbuster Video. And, if they had hired enough lobbyists, we
    would have slowed down the internet for them.
        So, you know, and I would like to give you an example.
    Maybe as much as 2 years ago, we did a hearing here, and one of
    the discussions was pharmaceutical manufacturing.
        And I think we may have done it in the Ways and Means
    Committee. And we had one witness sort of make a point saying,
    okay, United States, why do we import so many of these generic
    drugs?
        And it turns out he had a couple charts that showed some of
    the precursors that go into like this generic small molecule
    drug, or create--for every pound I got of the precursor that
    goes into the pharmaceutical, it created hundreds of pounds of
    really nasty, fairly highly toxic byproducts.
        And his point was, ``Tell me how I get that permitted to
    make that input in the United States. Do you have high-
    temperature incineration?'' And there was a reason it was being
    made in India and China, those inputs.
        So we will have brain trusts, you know, these types, these
    electives will say, ``We want to repatriate pharmaceutical
    manufacturing.'' Okay. But the regulatory and also
    infrastructure of, ``Okay, what is my mitigation of toxic waste
    products and those sorts of things?''
        And everyone wanted to talk about the repatriation of
    pharmaceuticals, but no one wanted to have the conversation of
    the infrastructure of, how do you actually deal with these
    inputs and their sometimes nasty byproducts? And that is
    actually part of my fixation of we talk supply chain and how we
    modernize it.
        And, yes, okay, fascination with port infrastructure,
    electric skids and, you know, the next generation of AI
    training and those things and automation that you and I may
    have no idea. What does the future world trade regime look
    like?
        USMCA, did we actually truly build a North American supply
    chain that actually is much more efficient? And our barriers
    are we have--the Joint Economic staff was kind enough to
    provide me sheet after sheet of regulatory barriers.
        So we do Inflation Reduction Act, and then we add dozens of
    rules that make it so, okay, we have businesses willing to take
    the checks, but the innovation we just crush by our own reg
    sets.
        Please help us. Help us come up with ideas where our
    arrogance of thinking we can design what the future economy
    looks like. I worry that the populism needs planned economy,
    industrial policy. And, over and over, we can show you what we
    move resources to, within a decade, it is a stranded
    investment.
        Help us plan for the future and the reality of what our
    demographics are. And it is a very different vision, but I see
    supply chain making it much less fragile, much more robust, and
    much more innovative is an absolute necessity if we are going
    to actually start to maintain any type of reasonable type of
    GDP growth.
        Any last comments as before I throw the gavel and go heat
    up my coffee?
        Thank you. This was one of the most interesting and
    actually learned panels I have ever had in my time on the Joint
    Economic Committee. I appreciate all of you. Thank you all.
        With that, we are done.
        [Whereupon, at 11:52 a.m., the committee was adjourned.]
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