[co-author: Jennifer Matthes]
On June 8, 2021, the White House released the findings of a 100-day assessment of critical supply chains, undertaken pursuant to President Biden’s February 2021 executive order addressing supply chain vulnerabilities. The 100-day assessment report identifies actions needed in both the immediate and long term to bolster domestic manufacturing of critical goods, reduce dependence on China and other foreign nations for supply chain needs, create jobs and address unfair trade practices.
As noted in a March 1, 2021, McGuireWoods alert, President Biden issued Executive Order (EO) 14017, “America’s Supply Chains,” on Feb. 24, 2021, directing federal agencies to assess vulnerabilities in critical supply chains, and provide recommendations on strengthening supply-chain processes and infrastructure throughout the United States. EO 14017 required a 100-day assessment focused on supply chains in four key industries: semiconductor manufacturing, critical minerals, active pharmaceutical ingredients and large-capacity batteries. The 100-day assessment report details structural weaknesses in the supply chains of each of the four industries under review, attributable to a combination of factors related to offshore production and manufacturing.
The 100-day assessment determines that domestic semiconductor manufacturing has fallen from 37 percent of global semiconductor production to 12 percent over the past 20 years. The United States now produces only 6-9 percent of the more mature logic chips, an advanced semiconductor technology. This low percentage “threatens all segments of the semiconductor supply chain as well as our long-term economic competitiveness.” The report concludes that resilient and competitive semiconductor supply chains are needed for America’s long-term success and suggests defensive actions to protect current technological advantages.
The report describes the importance of strategic and critical minerals for a number of goods, including consumer electronics, renewable energy technologies, manufacturing and telecommunications. Critical minerals are essential to national defense, and they support high-wage employment in key industry sectors including automotive and aerospace. China has captured much of the global market for strategic and critical minerals production, refining and processing, through state-led non-market interventions.
Based upon these findings, the 100-day assessment concludes that the United States must work with allies and partners to diversify supply chains, with a goal of decreasing reliance on adversarial nations and sources with unacceptable environmental and labor standards. To that end, the report acknowledges that many current supply chains of critical minerals rely upon environmentally unsustainable methods and unfair labor practices. The report concludes that in developing secure supply chains, the United States must address these issues.
Pharmaceuticals and API
The 100-day assessment reviews the nation’s drug supply chain, noting its importance to economic prosperity as well as national security. A stable drug supply chain depends on access to active pharmaceutical ingredients (APIs) as well as API starting materials (KSMs). Disruption of the supply chain may trigger problems such as drug shortages, threats to drug quality, and similar adverse consequences. In the event of an acute drug shortage, a mechanism is needed to ensure appropriate allocation. Problems confronted during the COVID-19 pandemic are cited as examples of the risks associated with shortages or disruptions in critical pharmaceutical supply chains.
The report finds that China and India control substantial parts of the API supply chain. These supply chains have been subject to periodic but significant disruptions, resulting in critical shortages at inopportune times. The report indicated that “[a]bout 87 percent of API facilities for generic drugs are located overseas[,] which has left U.S. supply chains of essential medicines vulnerable.” To that end, the 100-day assessment concludes that a new approach is needed to ensure that Americans have continued access to high-quality and safe pharmaceuticals. Recommendations for improvement include greater transparency, increased production capacity of key drugs by the U.S. and its allies, and creation of a virtual strategic national stockpile for API and key drugs.
High-capacity batteries are important to the U.S. economy because they are essential to maintaining a strong national defense, creating high-paying jobs and meeting climate-related environmental goals. The 100-day assessment finds that China, using state-led, non-market interventions, has captured large portions of the supply chains for critical minerals, leaving the United States dependent on China for processing the minerals before their use in end-product manufacturing.
The 100-day assessment finds that large-capacity batteries play a major role in the success of clean energy policies. The global lithium battery market is expected to grow by a factor of five to 10 by 2030, according to the assumptions reflected in the 100-day assessment report. Based upon this projected growth, the 100-day assessment concludes that the United States needs to increase domestic battery manufacturing capabilities, while investing to scale up the full lithium battery supply chain, prior to a dramatic increase in the demand curve. Proposed areas for action include responsible sourcing of raw materials used in battery production, investment in battery and electric vehicle industry workers, and funding for research and development.
Biden Administrative Strategy
In response to the findings of the 100-day assessment, the Biden administration announced several multi-agency initiatives designed to address supply-chain vulnerabilities within the covered industries. The measures aim to increase domestic manufacturing of key products and strengthen relationships with international allies that provide critical products and materials.
The Biden administration announced the establishment of a “public-private consortium” through the Department of Health and Human Services for advanced manufacturing and on-shoring of domestic essential medicines production. The Department of Energy will release a national blueprint for achieving an end-to-end domestic supply chain for lithium batteries, which will “combat the climate crisis by creating good-paying clean energy jobs across America.” The Department of the Interior will establish a working group of several agencies to identify sites where critical minerals could be produced and processed in the United States. The Department of Commerce will strengthen its engagement with international allies and partners to promote fair semiconductor chip allocations, increase semiconductor production and promote investment within the sector. The report also called on Congress to provide $50 billion in funding for domestic semiconductor research and development.
The Biden administration also announced a trade “strike force,” headed by U.S. Trade Representative Katherine Tai, that will “propose unilateral and multilateral enforcement actions against unfair trade practices that have eroded critical supply chains.”
These sweeping measures continue the Biden administration’s commitment to reduce the country’s dependency on foreign suppliers. The White House also emphasized in its press release for the 100-day assessment that the administration would focus on diversifying supply chains “away from adversarial nations and sources with unacceptable environmental and labor standards,” noting that “U.S. investments abroad must incentivize environmentally and socially responsible production.”
Still to come, as required by EO 14017, is the one-year review of the domestic supply chains of six additional industrial bases: defense, public health and biological preparedness, information and communications technology, energy, transportation, and agriculture and food production. Suppliers and contractors involved in these industries can expect to see measures in the future designed to strengthen domestic supply chains. Government contractors should continue closely monitoring future developments and the Biden administration’s supply-chain policies for new regulations related to federal government contracting requirements.