[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
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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
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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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