While the iconic Grinch, with his green fur, slender figure, and sly expression, may not be ruining Christmas day for millions of people this year, there is another entity that just might swipe your gifts: the supply chain crisis. Over the past year, the pandemic has shown its true effect on the economy. As New York Times journalist Lazaro Gamio puts it, “The highly intricate and interconnected global supply chain is in upheaval, with little end in sight”. And while the supply chain crisis has led to the occasional delayed package for most Americans, this issue is likely to affect a majority of families as the holiday season rolls by. But this supply chain crisis is not a domestic issue, and its effects can be felt in the international trading scene, with the need to ship surgical masks to West Africa from China having a massive effect on Ford’s ability to put back-up cameras on its cars at factories in Ohio and and the delay in the arrival of Amazon Prime orders in Florida in time for the holidays.
In March 2020, COVID-19 hit the United States in full swing, causing businesses to restrict activity and sending the global economy into a detrimental downward spiral. Factories in Asia, Europe, and North America slowed the pace of production and companies laid off workers in droves. This economic crisis took spending power, an important contributor to overall economic growth, out of the people’s hands. Since people had less money to buy items and factories were producing fewer goods, manufacturers assumed that demand for products in general would decrease. However, during the early phase of the pandemic, the sudden need for masks, gowns, and gloves drove the demand for PPE up. China, a country which produced half of all protective masks manufactured in 2019, held the comparative advantage in producing PPE. Therefore, as Chinese factories began increasing output to meet the sharp increase in demand, cargo vessels began delivering PPE to regions that previously had only tenuous trade relations with China, like West Africa. Since these regions had nothing to trade back to China (from a goods perspective), empty shipping containers began piling up outside of China, which led to a shortage of shipping containers in the country with the highest demand for them, China.
By this point, it was clear that the initial prediction of destroyed spending in countries was false. Instead of spending money at events and restaurants, Americans shifted their spending to quarantine-appropriate things, like office furniture, electronics, and kitchen appliances. Along with this shift in demand, the medium of purchases also changed. The pandemic caused a sharp increase in the use of online shopping. During the first wave of the coronavirus, Amazon sold 57% more items than it had the previous year.
This spending was further exacerbated by the government stimulus programs that were part of the effort to revive the economy. This increased spending led to overwhelmed U.S. ports, with boats having to wait in 100-vessel lines off the ports of Los Angeles and Long Beach. Due to the shipping container issue discussed earlier, the cost of a shipping container from China to the United States increased tenfold. Even after shipping containers were unloaded, they stayed on the docks due to the shortage of truck drivers, who were necessary to bring the goods to warehouses. Due to decreasing wages, increasingly difficult work conditions, and the pandemic, truck drivers were more scarce than ever. Similarly, businesses began to struggle to find workers in warehouses, retailers, construction companies, and other skilled occupations. As these shortages couple with one another, an increasingly concerning problem is manifesting within global trade. For example, the computer chip shortage has decreased the production of cars and delayed the manufacturing of medical devices.
Forward thinking businesses ordered larger quantities of goods earlier to make up for the backlog due to the holidays. However, this action ended up placing more strain on the global economy. This large supply chain crisis can be blamed on one widely accepted model of production, known as “just in time” manufacturing, where companies buy as few parts as possible, buying more as they need it. The pandemic exposed the many flaws of this system, like the fact that it only works in a perfect world, where parts are available upon demand. Due to the current holiday shopping season, the Biden administration has been forcing large ports to expand. This regulation has turned the supply chain crisis into an important political issue, especially since it has also resulted in rising inflation, which is increasing concerns regarding an economic bounceback and recovery from the pandemic.