Faced with computer chip shortages and other supply chain issues, on 24 February, President Biden signed E.O. 14017, directing a whole-of-government review to assess vulnerabilities in, and strengthening the resilience of, critical supply chains. The review focused on four specific supply chain areas: “semiconductor manufacturing and advanced packaging; large capacity batteries, like those for electric vehicles; critical minerals and materials; and pharmaceuticals and active pharmaceutical ingredients (APIs).”[1] A consolidated report of departmental reviews (aka the 100-Day Report) was published on 8 June. The report provides the foundation for six industrial base strategies “that underpin America’s economic and national security.” Those strategies — for defense; public health; information and communication technology; energy; transportation; and agriculture and food production — are scheduled to be released on 24 February 2022. In its summary of the 100-Day Report’s findings, the White House staff noted:
“These efforts are critical because, as the COVID-19 pandemic and resulting economic crisis have shown, structural weaknesses in both domestic and international supply chains threaten America’s economic and national security. While amplified by the public health and economic crisis, decades of underinvestment and public policy choices led to fragile supply chains across a range of sectors and products. Unfair trade practices by competitor nations and private sector and public policy prioritization of low-cost labor, just-in-time production, consolidation, and private sector focus on short-term returns over long-term investment have hollowed out the U.S. industrial base, siphoned innovation from the United States, and stifled wage and productivity growth. At the same time, the reviews find that the United States is well-positioned to maintain and strengthen our innovative leadership and rebuild our productive capacity in key sectors and value-chains. Our unparalleled university and research systems, skilled and diverse workforce, ecosystem of entrepreneurs and small businesses, and position as a global leader with strong relationships with allies and partners are the building blocks to revitalizing domestic competitiveness and strengthening supply chains. Working together, industry, labor, the government, and other stakeholders can chart a new path forward that emphasizes resilience and security, as well as broad-based growth and tackling the climate crisis.”
Journalist Alex Leary (@learyreports) observes, “The review calls for a number of actions that represent a more active government role in supply chain issues and domestic manufacturing and much of it is geared toward competing with China.”[2] Below are some of the major findings from departmental reviews. For more detailed summaries of the findings, click on the links provided for the cited articles.
100-Day Report Findings
Semiconductors
The semiconductor shortage appeared to be the catalyst for the President’s executive order. Mona G. Mohib, Ryan M. Bernstein and Clayton Cox, consultants with McGuireWoods Consulting LLC, explain, “Semiconductors are used in virtually every technology product, and the United States’ semiconductor manufacturing capacity has fallen 25 percent in the past 20 years. In the past two decades, the United States has outsourced much of its semiconductor production, and as a result, the United States is heavily dependent upon countries such as Taiwan, South Korea, Japan, and China for importing semiconductors.”[3] The White House summary noted, “Our strategy must include taking defensive actions to protect our technological advantages. But we must also proactively invest in domestic production and R&D. We must develop an ecosystem that includes growing our innovative small, medium, and disadvantaged businesses, along with building a pipeline of skilled workers who can benefit from well-paying semiconductor jobs. Finally, we must engage our partners and allies to promote global resilience.” Leary reports, “The Biden administration has done outreach to foreign suppliers and has worked to improve transparency in the supply chain, but short-term solutions are elusive. The broader goal is to grow domestic chip production.”
Large Capacity Batteries
Hannah Coulter, Eric Crusius, Andrew McAllister, Taite McDonald, and Kevin Turner, attorneys from Holland & Knight LLP, write, “The report affirms that high-capacity batteries — used in electric vehicles (EVs), for stationary storage and for many defense applications — offer an important and growing market that can support the creation of American jobs, help meet national security needs and bring ambitious climate targets within reach. Simultaneously, the report outlines the factors necessitating government policies to incentivize every stage of the U.S. battery supply chain: demand for EVs and energy storage is increasing, investors are increasing investment in the clean economy and the pandemic has underscored the fragility of some U.S. supply chains. China and the European Union (EU) — in contrast to the U.S. approach — have developed and deployed ambitious government-led industrial policies that are supporting their success across the battery supply chain.”[4] The McGuireWoods consultants add, “There are five main steps in the high-capacity battery supply chain including: raw material production, material refinement and processing, battery material manufacturing and cell fabrication, battery pack and end use product manufacturing and battery end-of-life recycling. Currently, the United States has limited raw material production capacity and virtually no processing capacity. Therefore, the U.S. currently exports raw materials to foreign markets and then imports back the manufactured cells.” The White House summary concluded, “With the global lithium battery market expected to grow by a factor of five to ten by 2030, it is imperative that the United States invest immediately in scaling up a secure, diversified supply chain for high-capacity batteries here at home.” Leary notes the Report recommends, “Tapping the Energy Department’s loan authority to invest in production of advanced vehicle battery cells and to establish new manufacturing plants.”
Critical Minerals and Materials
For over a decade, I have written about concerns over China’s near-monopoly in the rare earths sector. The McGuireWoods consultants note, “Critical materials and minerals are foundational to everyday products, and as clean energy becomes a greater priority, the demand for these products will only increase. The U.S. and China are currently the world’s largest consumers of these minerals and materials. The U.S. is heavily reliant on countries such as China, Canada, and Japan for its critical mineral and material needs, as U.S. production has decreased and net import reliance has grown.” The Holland & Knight attorneys add, “The report affirms that strategic and critical materials are bedrock of value-added manufacturing and the development, production, delivery and sustainment of essential services. The report warns that the global supply chains are at risk of disruption and rife with political intervention and distortionary trade practices.” The White House summary concludes, “To secure a reliable, sustainable supply of critical minerals and materials, the United States must work with allies and partners to diversify supply chains away from adversarial nations and sources with unacceptable environmental and labor standards. U.S. investments abroad must incentivize environmentally and socially responsible production. The United States must also invest in sustainable production, refining, and recycling capacity domestically, while ensuring strong environmental, environmental justice, and labor standards and meaningful community consultation, including with Tribal Nations through government-to-government collaboration.”
Pharmaceuticals and Active Pharmaceutical Ingredients
The McGuireWoods consultants write, “The integrity of the U.S.’ drug supply chain is critical to maintain, as many Americans’ lives are dependent upon them. Currently, the Health and Human Services’ (HHS) comprehensive Supply Chain Risk Management Program seeks to prevent disruptions in the pharmaceutical infrastructure by identifying risks associated with dependence on critical supply chain elements controlled within foreign countries. However, it is extremely difficult to get an accurate picture of the strength of the drug supply chain due to the complexity of manufacturing and the limitations of the Food and Drug Administration (FDA). The three pillars of a secure and robust drug supply chain are quality, diversification, and redundancy.” The Holland & Knight attorneys add, “To prevent shortages of key medicines, HHS will establish a public-private consortium for advanced manufacturing and onshoring of domestic essential medicines production that will be tasked with identifying essential medicines to focus an enhanced onshoring effort. HHS will also make an initial commitment of $60 million from the Defense Protection Act (DPA) appropriation in the American Rescue Plan Act (ARPA) to develop technologies to increase domestic production of active ingredients in key pharmaceuticals in order to reduce reliance on global supply chains for medications that are in shortage, especially during times of increased public health need.”
Concluding Thoughts
The McGuireWoods consultants conclude, “Across all four sectors, the general theme remains the same: the United States is currently heavily dependent upon foreign imports, which exposes the country to vulnerabilities and potential supply chain disruptions. The recommendations in this report seek to strengthen the United States’ domestic capacity to manufacture across these sectors to decrease net dependence upon foreign adversaries and countries. The administration seeks to employ the private and public sectors as well as agencies such as the DOD, DOS, DOE, DOI, and HHS to increase transparency and invest in sustainable improvements across these four key supply chains.” Leary reports that President Biden is “establishing a ‘trade strike force’ that will propose enforcement actions against what the administration says are unfair foreign-trade practices, such as government subsidies, that have eroded critical supply chains and shore up cooperation with allies.” This is necessary because, as the White House summary concludes, “China and India are estimated to control substantial parts of the supply chain where there have been issues with shortages due to a range of disruptions that have impacted supply as well as quality and safety. The drive toward lower costs as well as unfair trade practices have led to a hollowing out of domestic production. A new approach is needed to ensure more resilient supply chains that includes improving transparency, building emergency capacity, and investing in domestic production.”
The spotlight the Biden administration is focusing on supply chain operations is welcome. For years, Lora Cecere (@lcecere), founder of Supply Chain Insights, has insisted, “The supply chain IS Business, not a department within a business.”[5] Supply chain professionals have always believed supply chain operations lie at the heart of a business; now others are starting to see the light. Shannon K. O’Neil (@shannonkoneil), a Senior Fellow for Latin America at the Council on Foreign Relations, has noted, “Commerce has fundamentally changed over the past thirty years. Intermediate goods — or parts of products traded through global supply chains — now account for 70 percent of all trade. … In just a single generation, supply chains have grown to dominate global trade, as products are increasingly made across countries rather than within them.”[6] The Biden administration believes it’s time for an adjustment.
Footnotes
[1] Staff, “FACT SHEET: Biden-Harris Administration Announces Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities,” White House, 8 June 2021.
[2] Alex Leary, “Biden Administration Outlines Measures to Address Supply-Chain Issues,” The Wall Street Journal, 8 June 2021.
[3] Mona G. Mohib, Ryan M. Bernstein and Clayton Cox, “Summary of White House supply chain review,” Lexology, 14 June 2021.
[4] Hannah Coulter, Eric Crusius, Andrew McAllister, Taite McDonald, and Kevin Turner, “Biden Administration Report Outlines Strategy to Invigorate Domestic Supply Chains,” JD Supra, 14 June 2021.
[5] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[6] Shannon K. O’Neil, “The Future of Global Supply Chains: Workshop Report,” Council on Foreign Relations, 21 July 2016.
