The Morning Dispatch: Of Southwest and Supply Chains

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Quick Hits: Today’s Top Stories

• American drugmaker Merck asked the Food and Drug Administration on Monday to approve its antiviral pill, molnupiravir, to treat COVID-19. If the FDA signs off, it would be the first pill approved to treat the virus, which could significantly lessen the strain on hospitals in the event of future COVID spikes.

• Southwest Airlines’ logistical issues continued into the week, as the airline canceled at least 360 flights and delayed more than 1,000 on Monday. The airline and its union denied allegations that the disruptions were due to staff shortages related to the company’s COVID-19 vaccine mandate for employees.

• Republican Texas Gov. Greg Abbott issued an executive order on Monday that bans any entity from compelling consumers or employees to get a COVID-19 vaccine if someone objects for “any reason of personal conscience.” The move sets up a clash with the federal government, which has a forthcoming rule mandating that large businesses require employees to get the vaccine.

• Alexei Navalny, the Russian opposition leader who was poisoned by Kremlin operatives before being jailed on political charges earlier this year, said Monday that a Russian prison commission has declared him an “extremist” and a “terrorist.” The charge comes a month after Navalny, who was originally sentenced to less than three years in prison, was additionally charged by Russian authorities with setting up an “extremist group.”

• Chinese President Xi Jinping has directed the Chinese Communist Party’s Central Commission for Discipline Inspection to investigate whether Chinese state-owned banks and state financial regulators are becoming too close with private financial institutions, part of Xi’s broader effort to crack down on private Chinese businesses, the Wall Street Journal reported on Monday.

U.S. Industry Continues to Creak

If you a) pay much attention to online punditry or b) regularly line up for flights in groups A, B or C, you’ve probably heard a lot about Southwest Airlines over the last few days. The airline is in the midst of a remarkable logistical meltdown, canceling nearly 2,000 flights across the country over the weekend and hundreds more Monday. The airline blamed the logjam on weather and shortages of air traffic controllers, while the FAA countered that Southwest simply hadn’t deployed its own planes correctly. Many politicians and pundits ignored all that to finger another culprit: a supposed mass pilot walk-out over Southwest’s new employee vaccine mandate, which went into effect last week.

Unpacking what’s actually going on here is more complicated. Both Southwest and its union pushed back hard on the narrative of a vaccine-induced worker shortage: “The weekend challenges were not a result of employee demonstrations,” Southwest spokeswoman Brandy King said. Union leadership took a similar line in a statement on their website: “I can say with certainty that there are no work slowdowns or sickouts either related to the recent mandatory vaccine mandate or otherwise.” 

The basic problem, according to the airline and its pilots union, wasn’t that workers weren’t showing up to work over the weekend, but just that they weren’t in the right places—a domino effect caused by cancelations in a few key places the evening before. 

“On Friday evening, the airline ended the day with numerous cancellations, primarily caused by weather and other external constraints, which left aircraft and Crews out of pre-planned positions to operate our schedule on Saturday,” Southwest said in a Monday statement. “Unfortunately, the out-of-place aircraft and continued strain on our Crew resources created additional cancelations across our point-to-point network that cascaded throughout the weekend and into Monday.”

“As we have seen at several airlines this year on different occasions, U.S. airlines are working at maximum efficiency levels,” Joe Leader, CEO of the Airline Passenger Experience Association, told The Dispatch Monday. “One major issue can snowball into future flights’ plans using the same aircraft and crews. Normally, a cascading crew and aircraft failure requires a reset of added pain before recovery. An unexpected issue on Friday could lead to bad issues on Saturday, cascading issues on Sunday, and recovery on Monday. It is an operational game of having available aircraft and FAA-required rested crews at the right place and time.”

That isn’t to say that the vaccine-mandate narrative is wholly without merit; if there are pilots and crew choosing to spend out accumulated sick leave in anticipation of being fired, that obviously wouldn’t have helped the problem. (In most industries, mandates have yet to translate into anything resembling a labor shortage, but it’s worth keeping in mind that airlines are staring down the barrel of a pilot shortage as it is.)

Whatever the source of Southwest’s recent failures, they highlight a grim truth about the current state of the economy: pandemic disruptions in the flow of goods and services that many hoped were behind us have been growing again in recent weeks.

Up and down the east and west coasts, cargo ships stacked high with shipping containers have bottlenecked at U.S. ports as dock workers, truckers, and warehouses struggle to keep up with an influx of supply. The import of manufactured goods from Asia, and particularly China, has been particularly affected. 

Meanwhile, consumers pay the price of the backlogs, contending with the dual constraints of expensive goods and looming inflation. And stunted growth due to unpredictable markets hinders the country’s economic recovery. 

According to Cato Institute Senior Fellow and Capitolism author Scott Lincicome, the simplest explanation for the breakdown is, predictably, the pandemic. “All over the world, you have economies starting and stopping, companies opening and closing,” he said. “That creates all sorts of mismatches in terms of supply and demand.”

For example, the ships queuing offshore not only clog ports, but also take up shipping containers needed to transport goods. Even if the containers manage to make it to port, shortages in trucks and trains prevent imports from reaching warehouses, which are also suffering from limited capacities amid an influx of goods to distributors. 

Poor planning by distributors and supply chain managers—often driven by a reactionary desire to hoard goods following shortages early in the pandemic—has further exacerbated supply chain gaps. As was the case when Americans stocked up on toilet paper back in the spring of 2020, selling out grocery stores, supply is struggling to keep up as demand from distributors strains manufacturers and warehouses. 

Compounding those disparities are pandemic-generated labor shortages. Between those who have died, retired, chosen a new field or simply decided that racking up government benefits outweighs the prospects of returning to their jobs, the workforce has experienced major upheaval as global demand begins to return.

“This is a hugely debated thing among economists right now,” Lincicome said, “but it strikes me as obviously correct that when you pay people thousands and thousands of dollars—not just in unemployment, but also in stimulus checks, child tax credits, and state benefits—there are going to be some workers who take advantage of that.” Add to that the drastic reduction in legal immigration due to COVID, and it’s no wonder labor markets are stretched thin. 

But many of the problems in the U.S.’s global trade pre-date the pandemic. Bad systemic policies—largely driven by union influence on the West coast—limit the expansion, flexibility, and efficiency of ports. “The unions have used their leverage over the years, with federal and state backing, to extract some pretty ridiculous contract provisions,” Lincicome said. “That includes not only really high pay, but really significant inflexibility in the contracts.” 

And vigorous opposition by unions to automation—processes fully embraced in many European and Asian countries—has severely curtailed the ability of American ports to operate the 24 hours, 7 days a week necessary to keep up with imports. In a World Bank/IHS Market study from last year, Los Angeles and Long Beach ranked 328 and 333 respectively out of about 360 locales worldwide in terms of their ability to get ships in and out of ports. 

On top of that, the 1920 Merchant Marine Act—which requires that companies use U.S.-made, U.S.-owned, and U.S.-manned ships to move cargo between two U.S. ports—has inflated the price of coastal shipping and put further stress on inland freight as the country faces trucking shortages. And the law also applies to dredging, discouraging ports from expanding to allow for larger and more ships. 

Will Congress Step Up U.S. Support for Taiwan?

As China has grown more aggressive in its military actions and rhetoric about its goal of “unification,” members of Congress are considering how best to support Taiwan. 

After Chinese forces made unprecedented incursions near Taiwan’s airspace early this month, American lawmakers stepped up calls for the U.S. government to make a clearer commitment to defend the island of nearly 24 million people—but the debate is weighty, and some experts warn adopting a more defined posture could heighten tensions.

Rep. Ami Bera, a California Democrat who chairs the House Foreign Affairs subcommittee dealing with Asia, the Pacific, and Central Asia, said during a forum hosted by Politico last week that he supports a “move away from strategic ambiguity.”

Deterrence would be more effective, he said,  if American policymakers detailed in advance the consequences of a Chinese military invasion of Taiwan.

“Often, we just talk about the military and deterrence,” Bera said. “There’s economic as well. What kind of multilateral sanctions would be placed on China should they invade Taiwan? What else would happen in the region?”

Republican Sen. Thom Tillis said he believes “removing the ambiguity would be good.” Tillis is a member of the Senate Armed Services Committee. 

“It would probably have a calming effect on China’s aspirations,” the North Carolina Republican argued. 

Tillis added: “I do believe that we need to make it clear to China that there’s a consequence.”

The Chinese government has long held that Taiwan is part of China. The American government, meanwhile, officially views Taiwan’s status as undetermined. The United States maintains economic ties with the island, conducts arms sales, and provides military training for Taiwanese forces. 

For decades, America has had a policy of strategic ambiguity regarding whether it would come to Taiwan’s defense in the event of an attack by China. The Taiwan Relations Act, which set policies in 1979 for how the United States interacts with Taiwan, mandates that the United States “make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.”

The law does not require American military involvement if Taiwan is attacked, however. It’s not clear how President Biden would respond to a Chinese invasion of Taiwan, although he wrote an op-ed in 2001 noting that the United States is not obligated to defend the island.

“As a matter of diplomacy, there is a huge difference between reserving the right to use force and obligating ourselves, a priori, to come to the defense of Taiwan,” Biden wrote at the time. “The president should not cede to Taiwan, much less to China, the ability automatically to draw us into a war across the Taiwan Strait.”

But as China has become more assertive in recent years, national security experts have debated the merits of ending strategic ambiguity. Richard Haass, president of the Council on Foreign Relations, argued last year that the stance is no longer enough to deter China.

Others warn a shift could escalate the conflict.

Director of National Intelligence Avril Haines told senators in April that a definitive American commitment to defend Taiwan in the event of a Chinese invasion “would solidify Chinese perceptions that the U.S. is bent on constraining China’s rise, including through military force, and would probably cause Beijing to aggressively undermine U.S. interests worldwide.”

She said a departure from strategic ambiguity would be “deeply destabilizing” to the Chinese government.

Mike Mazarr, a senior political scientist at the RAND Corporation and an expert in defense policy, responded to Tillis’s and Bera’s comments last week by urging caution. He wrote that “a formal US decision to defend Taiwan would arguably be the single most profound and consequential foreign policy choice the country has ever made.”

Most members of Congress avoid outlining in much detail what they think an American response should look like in the event of an invasion. Still, they emphasize a need to boost support for Taiwan.

“It’s important for us to recognize that China is acting very differently today than ever before, and for us to find new ways to support the defense of the island,” Sen. Chris Murphy, a Democratic member of the Foreign Relations Committee, said in a brief interview with The Dispatch last week.

“This is a moment where we have to beef up our support and integration with the Taiwanese,” Murphy added.

The Biden administration authorized a $750 million arms sale for Taiwan in August, the first of Biden’s presidency. And the Wall Street Journal reported last week that about two dozen American soldiers have been secretly training Taiwanese forces for more than a year.

Taiwan’s military has had a difficult time staying stocked up on weapons and vehicles, as well as recruiting enough soldiers since phasing out a policy of mandatory conscription several years ago. At the same time, the Chinese government has gone all-in on a military modernization project that has placed it closer to being able to carry out an invasion of Taiwan than at any other point in its history.

“This really is the grimmest time I’ve seen in my more than 40 years working in the military,” Taiwan’s defense minister, Chiu Kuo-cheng, said last week.

Worth Your Time

• If today’s supply-chain TMD wasn’t nerdy enough for you, check out this piece from  the Washington Post’s David Lynch  to learn more about the crisis facing America’s cargo-carrying planes, trains, and automobiles. “The commercial pipeline that each year brings $1 trillion worth of toys, clothing, electronics and furniture from Asia to the United States is clogged and no one knows how to unclog it,” Lynch writes. “As Americans fume, supply headaches that were viewed as temporary when the coronavirus pandemic began now are expected to last through 2022.” 

• Jan Ransom, Jonah E. Bromwich, and Rebecca Davis published a gripping story in the New York Times on Monday about the decades of dysfunction and mismanagement that have unfolded on Rikers Island, New York’s largest jail complex. “Detainees in some buildings have seized near total control over entire units, deciding who can enter and leave them, records and interviews show,” they write. “Several [detainees] have stolen keys and used them to free others in custody, who went on to commit slashings and other acts of violence.” Read their piece to learn more about how the “widespread absenteeism by jail staff” has contributed to the island’s culture of violence in recent weeks.

Presented Without Comment

Also Presented Without Comment

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Toeing the Company Line

• Monday was executive privilege day on Advisory Opinions. After a brief update on the Texas abortion litigation, David and Sarah chatted about the January 6 commission subpoenas and the power of Donald Trump to use executive privilege to block testimony. Our hosts also talked about how “parents and pals” help debunk a Brett Kavanaugh conspiracy theory, and why a crazy clemency case is likely to leave a man in prison because a Donald Trump sentence was just too ambiguous.

Let Us Know

As supply-chain issues stack up around the country, have you found yourself changing your behavior at all in response? Started Christmas shopping early?

Reporting by Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Haley Byrd Wilt (@byrdinator), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).