Finding the Weak Links – President Biden Executive Order Demands Review of Critical U.S. Supply Chains

Sheppard Mullin Richter & Hampton LLP

On February 24, 2021, President Biden signed Executive Order 14017, “Executive Order on America’s Supply Chains,” requiring a review of global supply chains that support key U.S. industries in an attempt to improve supply chain security for the U.S. government and U.S. companies. The new Executive Order appears to be an initial step focused on information gathering. Comprehensive reforms and supply chain strategies are likely to follow once the White House has collected key information.

The Order outlines two types of assessments by government agencies: (1) an initial 100-Day Supply Chain Review focusing on key supply chain risks relating to semiconductors, batteries, strategic minerals, and pharmaceuticals; and (2) Sectoral Supply Chain Assessments in certain critical business sectors (e.g., national defense, public health, information and communication technology, energy, transportation, and agriculture), which will determine the extent to which these critical sectors are reliant on products from so-called “competitor nations.” Both categories of assessments require coordination among various executive agency heads, the Assistant to the President for National Security Affairs (“APNSA”), and the Assistant to the President for Economic Policy (“APEP”).

The initial “100-Day Supply Chain Review” requires, over the next 100-days, various agencies to assess vulnerabilities and consider potential improvements in four areas:

Supply Chain Area Responsible Agency
Semiconductor manufacturing Department of Commerce
High-capacity batteries (including those for electric vehicles) Department of Energy
Rare earth elements Department of Defense
Pharmaceuticals Department of Health and Human Services

The broader “Sectoral Supply Chain Assessments” must be completed within the next year. For these assessments, the Order requires similar reports, but covering a broader range of supply chains, not focused as much on specific products or technologies:

Supply Chain Area Responsible Agency
Defense Department of Defense
Public health and biological preparedness Department of Health and Human Services
Information and communications technology Department of Commerce / Department of Homeland Security
Energy Department of Energy
Transportation Department of Transportation
Agriculture and food production Department of Agriculture

The review called for in the Executive Order was prompted, at least in part, by a global shortage of semiconductors (a key component in card and electronic devices), which began shortly after the Coronavirus pandemic began in 2020. The shortage highlighted the need for the U.S. to refocus on its supply chain security for critical items by reducing its dependency on foreign countries. But, as noted in the Order, the government is looking at other issues more broadly beyond semiconductors, attempting to ensure that the U.S. (and other friendly nations) continue to have access to cutting-edge technologies while reducing reliance on supply chains that are vulnerable to disruptions and to interference by foreign powers.

The Administration has noted this Order is intended to be a successor to the “Ensuring the Future is Made in All of America by All of America’s Workers” Order that President Biden signed on January 25, 2021. (You can read our previous blog about that Order here). This Order, along with the 2021 National Defense Authorization Act, Pub. L. No. 116-283 (you can read about the key provisions, including those on supply chain security, here), continue to indicate supply chain security likely will be a primary focus for the Biden Administration.

Industry partners may find themselves asked by agencies for input on these reports. To ensure that the government has the latest information, especially regarding supply chain risks, companies may find it useful to cooperate with these reviews. Where the end-result will inevitably be tightened restrictions requiring more U.S.-sourced products (including, potentially, products sourced from U.S. allies), and where the heightened restrictions will almost invariably mean higher costs, industry should be prepared to help government agencies conduct a proper cost-benefit analysis when making supply chain recommendations to the White House.

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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