The world financial crisis that erupted in 2008 demonstrated that the forces of globalization have affected two major parts of the world economy: the international financial system and the global production system. These financial and real (goods-and-services producing) sectors are closely interconnected and synergistically intertwined. The financial crisis demonstrated that the combination of globalization, new technology, new financial instruments, and unrecognized risks, can cause major upheavals in markets that can spread from firm to firm and then from country to country. In this globalized world, production is becoming more fragmented into discrete activities and can be spread geographically within and across national borders while remaining integrated organizationally within a multinational company or network of companies. This report begins with an overview of global supply chains, why they have developed, and how the variables in the chain (including government policy) relate to each other. It then examines the types of policies that affect different parts of the global supply network and concludes with a discussion of policy review mechanisms. In any global supply structure, there are trade-offs between border transaction costs (including tariffs), factor costs (including labor and capital), logistical costs (including shipping), costs of quality control, external business costs (ease of doing business, regulations, etc. ), and various risks (including financial and political risk). Government economic policy often affects each of these tradeoffs in different ways. Globalized manufacturing chains relate directly to the two essential national interests of the United States, security and economic well-being, and relate indirectly to the third—the projection of American values. On the security side, the constant flow of imports streaming into U.S. ports and through border crossings raises the potential for illicit or dangerous cargo, including possible terrorist devices, to enter the United States. On the economic well-being side, the globalized supply chains represent changes in crucial segments of the U.S. economy that ultimately affect the well being of Americans. They bring into play fundamental economic issues such as jobs, wage levels, income distribution, entrepreneurship, and the profitability of businesses. At a more basic level, U.S. manufacturers and providers of services form the foundation of the economy and generate the resources available to support the well-being of Americans, governmental activities, and the ability of the nation to pursue its security and other national interests. As for the projection of American values, globalization and the economic opportunities it generates can raise standards of living in countries, such as China or Vietnam, and thereby can potentially create alternative centers of power and channels of communication that may challenge repressive governments or help in resolving problems with democracy, the rule of law, and human rights. However, globalized supply chains also may provide resources for certain repressive governments or, in the case of China, help in providing a rationale for the ruling party to continue its dominance. The presence of U.S. or other international corporations in countries may provide a mechanism for U.S. business and labor practices, as well as language, culture, and values to be spread to parts of the local populations. Foreign investors, however, may be attracted to authoritarian governments because they tend to create stability even though that stability may be at the sacrifice of certain freedoms or human rights. The globalization of manufacturing also is creating dependency and interaction among trading partners, such as China and Japan or China and Taiwan. These seem to be ameliorating historical friction points and promoting stability in regions. For China, the nation's increased economic influence, generated partly from its crucial role in global supply chains, has provided Beijing with greater voice in international fora and arguably some leverage in negotiations with the United States. The globalization of production networks and supply chains also has raised policy issues and has called into question certain long-held perceptions about the efficacy and effects of policy initiatives. For example, a large proportion of international trade is conducted within production networks and chains that cross international borders. How does this affect traditional trade and investment policy that is based on national governments, national economies, and country-to-country relations? How have global supply chains affected American jobs? How does the United States ensure the security and integrity of products assembled offshore from components that are procured from a variety of markets around the world? Other policy issues include how to target fiscal policy to generate the largest possible beneficial effects, the degree to which the government should act to retain industries and related job opportunities in the United States, the extent to which American jobs are being "outsourced" overseas, the role of U.S. policy in promoting overseas investment, competition by governments (including state governments) to attract foreign investment, and the arguably declining manufacturing base in the United States. Congressional interest in this issue stems from the aforementioned national interests as well as its constitutional mandate to regulate commerce with foreign nations. Congress also deals with the variety of policies that arise with respect to international trade, import competition, investments and capital flows, market access, currency misalignment, intellectual property rights, product safety, shipping security, labor, and the environment. In a broader sweep, the globalization of business strikes directly at issues related to maintaining the U.S. industrial base, the education and training of the American labor force, health care, and the myriad other factors that determine the level of competitiveness of U.S.-based business in international commerce. U.S. public policies combine with business costs and other factors to affect the shape, geographical location, and operation of supply chains. Conversely, the existence of supply chains may affect U.S. policymaking. Trade policy aimed at curbing imports from China, for example, would likely affect Chinese exporters and ancillary sectors, but it also may hit subsidiaries of U.S. companies and manufacturers whose supply chains stretch there. It is not surprising, therefore, that some of the strongest voices both for and against trade protectionism come from American-based manufacturers and service providers. A crucial issue for U.S. policymakers is how to create conditions that make the U.S. economy more attractive as a location for both U.S. parented supply chains and for segments of supply chains of foreign companies. This directly affects job creation for Americans. A possible test for policy is to ask if the predominant effect is trade diversion or trade creation. Does the policy divert production from the U.S. economy to a foreign location, draw production toward a U.S.-based location, or shift production between two foreign locations? Does the proposed policy create more production? Does it induce foreign businesses to locate segments of their supply chains here? Does it create jobs in the United States or merely shift them from one foreign country to another? What effect does the policy have on supply chain operations, efficiency, profitability and the distribution of benefits between labor and management? As the 111 th Congress and the Obama Administration consider changes to economic policy, the basic issues raised by global supply chains may come into play, particularly considerations of the incidence of policies. For example, is the goal of a policy to support business to promote the overall efficiency and profitability of U.S. parented supply chains even if significant segments of those chains are located abroad, or is the goal to induce companies to move production or other business activity to the United States even if such action reduces supply chain efficiency and the ability of the U.S.-parented supply chain to compete in the global marketplace? In international trade and investment policies, does the incidence of the policy fall on overseas segments of American parented supply chains? If the policy is to reduce imports into the United States, what effect will that have on global supply chain operations? Is there a balance between trade policies designed to increase U.S. exports (e.g., by reducing tariffs abroad) and those that may induce U.S. companies to move production overseas (e.g., easing foreign country limits on direct investments)? As global supply chains attempt to maximize their efficiency and profitability, they face trade-offs between border transaction costs (including tariffs), factor costs (including labor and capital), logistical costs (including shipping), external business costs (ease of doing business, regulations, etc. ), and various risks (including security, financial, and political risk). How does government economic policy influence these factors and trade-offs in ways that are in accord with, rather than counter to U.S. national goals? What about the perception that U.S. businesses are sending jobs overseas? One approach that addressed this issue in part is to focus on manufacturing. In September 2009, the White House named Ron Bloom to be the Administration's Senior Counselor for Manufacturing Policy to coordinate policy with the Departments of Commerce, Treasury, Energy, and Labor. In December 2009, the Executive Office of the President released a report entitled "A Framework for Revitalizing American Manufacturing." This report examined the manufacturing process, the supply chain, and laid out a simplified model of the manufacturing process, identified each cost driver in this process, and attempted to determine the influence of government on each cost. The relevant costs identified were labor, technology and business practices, equipment, location, transportation, regulation, and taxation. Some of the legislation related to global supply chains in the 111 th Congress include a bill condemning the People's Republic of China for its socially unacceptable business practices, including the manufacturing and exportation of unsafe products, casual disregard for the environment, and exploitative employment practices ( H.Res. 44 [Poe]); Retooling America's Workers for a Green Economy Act ( S. 269 [Murray]); Achievement Through Technology and Innovation Act of 2009 ( H.R. 558 [Roybal-Allard]); Trade Enforcement Act of 2009 ( H.R. 496 [Rangel]); 10,000 Trained by 2010 Act ( H.R. 461 [Wu]); Food Safety Enhancement Act of 2009 ( H.R.