China is facing disruptions in its supply chain due to new lockdowns from its Zero-Covid policy. The woes could worsen as U.S. lawmakers introduce a bipartisan bill to hold American businesses accountable for having slave labor in supply chains.
Slave-Free Business Certification Act
U.S. Senators Josh Hawley and Kirsten Gillibrand, on Feb. 8, introduced legislation that would target forced labor in global supply chains and hold multinational corporations accountable.
The “Slave-Free Business Certification Act” legislation establishes new corporate supply chain disclosure requirements, mandates regular audits, puts CEOs on the hook for their company’s use of forced labor, and creates stiff penalties for firms that fail to uphold minimum standards for human rights.
The bill was introduced as China faced increased scrutiny over allegations of forced labor and concentration camps in its Xinjiang region.
The two lawmakers claimed that forced labor has persisted in the shadows, tainting both global supply chains and goods imported into the United States.
Not only is the continued existence of forced labor a moral atrocity, but such practices deeply harm American workers and domestic producers by forcing them to compete on an uneven playing field against cheap, imported goods produced with exploitation.
In his statement, Republican Senator Hawley said:
“The scourge of global slave labor must end and multinational corporations complicit in this moral atrocity must be held accountable. The bipartisan Slave-Free Business Certification Act takes important steps to make American supply chains slave-free, protect American workers, and end labor exploitation across the globe.”
In a report, NBC News also quoted Democratic Senator Gillibrand saying, “This bill is an important step towards ending the use of forced labor by holding businesses accountable for the workers used throughout their supply chains.”
Under the Slave-Free Business Certification Act, it would:
- Compel large corporations to disclose the steps they are taking to eradicate forced labor from their manufacturing supply chains.
- Direct these companies to undergo rigorous independent audits on an annual basis to ensure they are not complicit in slave labor and labor trafficking, including through their suppliers.
- Require these companies to submit the results of the audits to the Department of Labor and also make these disclosures publicly available. The Department will report to Congress those companies found to be complicit in forced labor.
- Obligate CEOs to certify that their supply chains are free from slave labor or that they have reported all instances of forced labor in their company’s supply chain.
- Assess financial penalties on those companies that evade the audit requirements, retaliate against workers, or fail to certify that their supply chain is slave-free.
According to NBC News, the new measure would apply to U.S. companies, which have annual revenue of at least $500 million and deal in mining, manufacturing, and producing goods like clothes and cellphones.
The bill does not explicitly refer to China, but the senators cited the U.S. Department of Labor data to stress that nearly 25 million people were trapped in forced labor.
In fact, China has been detected using its extensive network of detention centers as forced labor camps to tap labor forces from prisoners of conscience, including the religious minorities of Falun Gong and Uighurs.
In 2021, President Joe Biden signed the “Uyghur Forced Labor Prevention Act” to ensure that U.S. companies are not funding forced labor in the Xinjiang region, where the Uyghur minority population is centered.
China: Epicenter of supply chain crisis
China has emerged as an epicenter of the global supply chain crisis, resulting from the COVID-19 pandemic that began in the Wuhan city of Hubei province, China, which happens to be a major manufacturing center and export.
The Chinese regime, led by a dictatorship communist party, chose not to fool around when the outbreak began. On Jan. 23, 2020, when there were still few cases in the U.S., China shut down Wuhan, including all transport in or out, and some 11 million people in and around the city were under forced quarantine.
The global supply chain crisis reportedly started with an abrupt scarcity of basic medical supplies, particularly personal protective equipment (or PPE), such as surgical gloves, masks, face shields, gowns, and hand sanitizer. But it was not because of increased global demand, it is due to disruptions in production and logistics.
The American Prospect magazine, published in February 2022, pointed out in its analysis that just west of Wuhan is Xiantao, the site of China’s largest manufacturer of non-woven fabrics used in the production of PPE. A large percentage of PPE was made in China, though the nominal vendor 3M was a U.S.—based multinational company.
With Wuhan’s quarantine, Chinese leaders also blocked exports originating from 12 other cities that had to pass through Wuhan to get to the ports.
China then broadened its emergency measures, leading the supply chain disruptions to spread to the larger economy. Among them were travel restrictions which prevented workers who had gone home for the Lunar New Year from returning to work. China’s rural migrant workers are estimated at 288 million, or about one-third of its labor force. As a result, its ports were suddenly short of workers, causing exports to pile up on docks.
Adding to the global crisis, the Chinese Communist Party’s United Front Work Department asked its people living in other countries to buy all available PPE and send them back to China. By mid-February, while other countries were just beginning to appreciate the impact of COVID-19 pandemic, overseas Chinese had bought and sent home some 2.5 billion PPE items, including two billion masks.
China has extended its extreme quarantine measures into the Omicron variant era, implementing a strict Zero-COVID policy.
In a vital manufacturing center south of Shanghai, the COVID-19 outbreaks led to government restrictions on movement in Hangzhou, Shaoxing, and Ningbo until March 2022, causing factories to cut production. Ningbo port, the third-busiest globally, shut down for two weeks last summer because one worker got infected.
With the nationwide COVID-19 lockdown during the pandemic, factories in China—the world leader in manufacturing—saw their activity decline throughout 2021, which directly affected the global supply chain.
United States’ massive supply chain disruptions
China-routed supply chain problems have hurt U.S. manufacturers and, as a result, stalled the U.S. economic recovery, as pointed out by U.S. media.
ABC News reported in October 2021 that the supply-chain bottlenecks in China and other countries had caused record shortages of many products that American consumers are used to having readily available, from household goods to electronics to automobiles.
The COVID-19 pandemic forced many warehouse workers and truck drivers to quit their jobs, which is another factor contributing to the supply-chain shortages in the U.S.. Data from the Department of Labor showed that a record 4.3 million Americans quit their jobs in August 2021, the most since at least 2000.
In addition to a shortage of U.S. truck drivers causing a choke point, CNN reported in early October 2021 that there were backlogs at ports, like at Los Angeles Port and Long Beach Port, where ships were waiting off the coast to dock.
The shortages of shop workers and truck drivers and capacity limits on cargo meant supermarket shelves across the United States were bare, while many grocery stores were operating with less than half their regular workforce, as SkyNews reported in January 2022.
During the recent Christmas, items such as decorations, toys and games, artificial trees, and electronics were in short supply due to the bottlenecks. In addition, staples such as toilet paper and bottled water were also out of stock in a number of places.
“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” Moody’s Analytics wrote in a report.
With zero-Covid policy, China worsens global supply chain woes
As a large producer and a big consumer as well, China has played a bottleneck role unique in the world from the very beginning of the COVID-19 outbreak.
China may know that any small disruption in this country will lead to “ripple effects” worldwide. Still, it seems to ignore the global supply chain recovery, which had just begun after COVID-19 vaccines became available. In addition, Beijing created new worries by re-imposing a so-called Zero-Covid policy to combat the Omicron strain of the coronavirus after it recorded the first case in January 2022.
As reported by New York Times, with the Zero-Covid strategy, China has locked down tens of millions of people in several cities. This measure also contributed to a suspension of connecting flights through Hong Kong from much of the world. At least 20 million people are in lockdown, mainly in Xi’an and in Henan province.
The zero-tolerance policy has manufacturers—already spending the past two years dealing with crippling supply chain woes—worried about another round of shutdowns at Chinese factories and ports.
Additional disruptions to the global supply chain would push up prices for raw materials and shipping along with extended delivery times and worker shortages.
So far, four of China’s largest port cities—Shanghai, Dalian, Tianjin, and Shenzhen—have imposed narrowly targeted lockdowns to control Omicron outbreaks.
If lockdowns become more widespread, their effects on supply chains could be felt across the United States.
What China has done is in contrast to the growing number of countries that have shifted to living with the virus and lifting restrictions. Many of those countries use proven vaccines and have already experienced waves of infection—two significant ways that populations establish antibodies to the virus.
Since the COVID-19 pandemic began in early 2020, China has maintained a zero-tolerance Covid policy, sometimes shutting down entire factories or ports as a result of a single case. It has also entailed strict quarantines and travel restrictions to control outbreaks, which have impacted manufacturing and shipping operations globally, exacerbating the supply chain crisis.
Supply chain leaders consider moving business out of China
A poll from research company Gartner revealed in June 2020 that 33% of the global supply chain leaders moved sourcing and manufacturing activities out of China or planned to do so by 2023, with the COVID-19 pandemic cited as a reason.
Another survey in October 2020 by UBS Investment Bank found that 71% of the manufacturing exporters plan to move or continue to move some production out of mainland China, with 45% of respondents saying COVID-19 increased their desire for supply chain shifts.
China for decades has been a destination for low-cost manufacturing, and established itself as a critical source of supply for almost all major industries, including retail and pharmaceutical. But according to Gartner, increasing costs have been driving supply chain leaders to seek alternative locations such as India, Vietnam, and Mexico.
In 2021, India became a beneficiary of the supply chain shift as the country scooped up more stakes at China’s expense.
However, China is unlikely to lose its role as a manufacturing powerhouse as it is equipped with a lot of technologies stolen from the United States and a rich source of cheap labor costs fostered by prisoners of conscience.
During a speech at the Munich Security Conference on Jan. 21, 2022, U.S. House Speaker Nancy Pelosi expressed her hard stance against China. She said:
“I’ve been tracking China for 30 years on trade, intellectual property and the rest of it, and I tell you unequivocally, without any hesitation: Be very careful … unless you want to end up with a society like China or an economy like China, which is not in the free enterprise mode.”
Ms. Pelosi gave the warning after U.S. Justice Department brought new charges against Huawei, accusing the Chinese tech giant of racketeering and plotting to steal trade secrets from U.S. businesses.
During President Donald Trump’s era, the U.S. government imposed tariffs worth hundreds of billion dollars on Chinese goods—charging that China had used abusive tactics, including forcing foreign companies to hand over trade secrets and outright cyber-theft, in its effort to surpass American technological dominance. The Biden administration has not lifted those tariffs until now.
To combat China’s competitiveness, the U.S. Senate in June 2021 passed a bipartisan bill, the “U.S. Innovation, and Competition Act.” The Act seeks to invest hundreds of billions of dollars in American technology, science, and research to spur U.S. technology innovation and reduce the reliance on made-in-China products.
Despite the innovation measures, it would remain challenging for the U.S. companies to directly challenge China’s taking advantage of its superiority in the manufacturing sector with unnatural cheap labor costs.
China has a system of labor camps that the country has built to exploit cheap labor from prisoners, including prisoners of conscience. The most population of conscience prisoners are reportedly Falun Dafa practitioners, a faith group who follow a spiritual practice based on the moral principles of Truthfulness, Compassion, and Tolerance. Since former Chinese Communist Party Secretary-General Jiang Zemin, a Marxist atheist, launched a campaign to repress the practitioners in July 1999, millions of them have been detained and forced to work in detention facilities and labor camps, where they have been getting no pay or meager wages.
Economically, labor is one of the significant components of the total cost of a product. But, unfortunately, many state-owned manufacturing companies in China have tapped this source of low-cost labor from the Falun Dafa detainees to make their fortunes by competing unfairly with other countries.
That is why the United States and even those countries with cheap labor costs, such as India or Vietnam, have no way to compete against the Chinese Communist Party-backed companies if the human rights issues in China cannot be handled.
And the measure introduced by Senators Josh Hawley and Kirsten Gillibrand may help shed some light on China’s forced labor issues in its supply chain system.