Biden Administration Announces Steps to Strengthen Critical Supply Chains

On June 8, the Biden Administration released reports on the supply chain reviews directed under Executive Order (E.O.) 14017, “America’s Supply Chains,” detailing key findings and next steps to strengthen the resilience of U.S. supply chains and promote U.S. manufacturing capabilities. The reports, like E.O. 14017, are framed in general terms but plainly focus on addressing the United States’ dependence for critical products and materials on foreign economic competitors, and China in particular. Companies in any industry with strategic significance—including semiconductors, artificial intelligence, 5G, autonomous vehicles, healthcare, pharmaceuticals, defense, renewable energies, mining, transportation and industrial food production—should stay abreast of developments in this area and ensure that their equities are taken into account as the policymaking develops.

President Biden signed E.O. 14017 on February 24, 2021, launching a 100-day interagency review to identify risks in the supply chains for four products deemed critical to U.S. national and economic security: semiconductor manufacturing and packaging, high-capacity batteries, including for electronic vehicles (EVs); critical and strategic minerals, including rare earth elements; and pharmaceuticals and active pharmaceutical ingredients (APIs). These reviews – which were spearheaded by the Department of Commerce (DOC), the Department of Energy (DOE), the Department of Defense (DOD) and the Department of Health and Human Services (HHS), respectively – examined a wide range of supply chain risks and identified five main sources of vulnerabilities:

  1. Insufficient U.S. manufacturing capacity, as the United States lost more than one-third of manufacturing jobs between 2000 and 2010 to competition from low-wage nations and stagnant productivity, particularly with respect to small and medium enterprises (SMEs).
  2. Misaligned incentives and short-termism in private markets, as U.S. companies are increasingly focused on maximizing short-term capital returns while neglecting investments that would improve quality, sustainability, or long-term productivity.
  3. Industrial policies of allied, partner and competitor nations, which have adopted strategic programs to advance their own economic competitiveness, such as the EU’s $3.5 billion R&D fund to increase the competitiveness of its advanced battery industry.
  4. Geographic concentration in global sourcing, as U.S. companies’ search for low-cost production and competitor nations’ industrial policies have led to supply chain concentration in a few key countries, such as China, India and Taiwan.
  5. Limited international coordination, as the U.S. government has under-invested in international diplomatic efforts to develop collective approaches to supply chain security with partners and allies.

The four supply chain review reports make a number of recommendations to strengthen U.S. supply chains for advanced batteries, critical minerals, pharmaceuticals and semiconductors, including through the use of federal procurements and federally-funded grants, cooperative agreements and R&D contracts. In light of these recommendations, the Administration is taking the following immediate actions to address critical U.S. supply chain vulnerabilities:

  • The Administration is forming a Supply Chain Disruptions Task Force to address near-term supply chain discontinuities. The Task Force will be led by the Secretaries of Commerce, Transportation and Agriculture and will focus on convening stakeholders to address supply/demand mismatches in homebuilding and construction, semiconductors, transportation, and agriculture and food.
  • DOC will continue its strategic engagement with the U.S. semiconductor industry to facilitate information flow between suppliers, semiconductor producers and end-users, including bringing stakeholders together through advisory committees to improve transparency and data sharing. The Administration will also engage with allies and partners to promote fair semiconductor chip allocations, promote investment and increase production of semiconductors.
  • DOE will leverage $17 billion in loan authority under the Advanced Technology Vehicles Manufacturing Loan Program to re-equip, expand, or establish advanced vehicle battery manufacturing facilities. DOE will also release a National Blueprint for Lithium Batteries for urgently developing a lithium battery supply chain to combat climate change and create clean energy jobs. DOE’s Federal Energy Management Program (FEMP) will also launch a government-wide review and call for energy storage projects by federal agencies, using $13 million in FEMP’s Assisting Federal Facilities with Energy Conservation Technologies grants.
  • DOD will deploy DPA Title III incentives – including grants, loans, loan guarantees and off-take agreements – to promote sustainably-produced critical minerals. DOE will make $3 billion in loan guarantees available through its Title 17 Renewable Energy and Efficiency Energy Projects solicitation to support critical material projects that satisfy Title 17 requirements. The U.S. Development Finance Corporation will work to expand international investments in production of critical minerals that meet environmental and social performance standards. An interagency working group led by the Department of the Interior will also work to identify domestic sites for production and processing of critical minerals.
  • HHS will establish a public-private consortium under the legal authority of the Defense Production Act (DPA) to on-shore production of essential medicines. The group is tasked with identifying 50-100 critical drugs from the Food and Drug Administration’s essential medicines list to be the focus of this enhanced onshoring effort. HHS will also commit $60 million in DPA funding from the American Rescue Plan to promote domestic manufacturing capacity for APIs.

In addition to these efforts, the Administration is also forming a “trade strike force” led by the Office of the United States Trade Representative to identify unfair foreign trade practices that have eroded U.S. critical supply chains and recommend trade actions to address such practices, particularly with respect to China. DOC will evaluate whether to initiate an investigation under Section 232 of the Trade Expansion Act of 1962 – the provision of law that the Trump Administration used to impose tariffs on imports of steel and aluminum – to evaluate whether imports of neodymium magnets (used in motors) pose a threat to national security.

As the second phase of supply chain initiatives directed under E.O. 14017, the Biden Administration is launching a series of one-year reviews of the following six critical industrial base sectors: the defense industrial base; the public health and biological preparedness industrial base; the information and communications technology industrial base; the energy sector industrial base; the transportation industrial base; and supply chains for production of agricultural commodities and food products. Interagency working groups are to issue their reports on these sectors by February 24, 2022.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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