President Biden Orders 100-Day Review of America’s Supply Chains for Semiconductors, Batteries, Critical Minerals and APIs
“As this pandemic has made clear, we can never again be in a position where we have to rely on a foreign country that doesn’t share our interest in order to protect our people during a national emergency.”
– President Biden
On February 24, 2021, President Biden signed the long-awaited Executive Order on America’s Supply Chains (EO), which initiates a 100-day process of reviewing and assessing the strengths and weaknesses of supply chains across four key industries, including targeting specific products, and separate one-year reviews of certain other sectors.
The Administration’s goal is to reduce the reliance on foreign-made inputs needed by critical US industries and determine whether any changes to US legislation, regulation, or policy are needed to reverse shortages of crucial supplies. According to one key White House official, the Biden Administration is “going to get out of the business of reacting to supply chain crises as they arise and get into the business of preventing future supply chain problems.”
What is clear is that President Biden’s Supply Chain EO will not replace President Trump’s Executive Order (E.O.) 13873, “Securing the Information and Communications Technology and Services (ICTS) Supply Chain” which authorizes the Commerce Department to review and prohibit certain business transactions that it determines pose a national security threat. Recent news reports indicate that the Biden Administration intends to let the ICTS review process go into effect on March 22, 2021, alongside the new Biden Supply Chain EO review. Which all means a lot more supply chain reviews to come!
In part spurred by the limited amount of personal protective equipment (PPE) available at the onset of the COVID-19 pandemic as well as recent manufacturing and trade concerns related to China, the US Government, starting with the Trump Administration, has identified a need for more resilient and secure supply chains for US companies in order to prevent shortages and reliance on countries that are “unfriendly or unstable.” While the EO does not mention any one country by name, China is the obvious driver of concern behind this expansive effort. And China is not exactly embracing the new EO, with the Chinese Foreign Ministry arguing the day after the EO’s release that “artificial efforts to shift these chains and to decouple is [sic] not realistic.”
In His Own Words
Per the EO, the intended benefits of securing the supply chain are to encourage economic growth in the United States, and
- Facilitate “greater domestic production, a range of supply, built-in redundancies, adequate stockpiles, safe and secure digital networks, and a world-class American manufacturing base and workforce.”
- With broad goals, President Biden also seeks to “facilitate needed investments to maintain America’s competitive edge, and strengthen US national security,” while also encouraging "well-paid jobs for communities across our country, including in communities of color,” taking steps “to ensure that the benefits of this workflow to all Americans.”
President Biden assigned perhaps the highest priority to the semiconductor problem, announcing an intention to seek major federal spending to address it: “We need to make sure these supply chains are secure and reliable. I’m directing senior officials in my administration to work with industrial leaders to identify solutions to this semiconductor shortfall and work very hard with the House and Senate. They’ve authorized the bill, but they need (inaudible) $37 billion, short-term, to make sure we have this capacity. We’ll push for that as well.”
Industries and Products Impacted
The EO targets supply chains in the following sectors:
- The defense industrial base
- Public health and biological preparedness industrial base
- Information and communications technology (“ICT”) industrial base
- Energy sector base
- Transportation industrial base
- Agricultural commodities and food production
Specifically highlighted and prioritized are the following key product sectors:
- Semiconductors and Advanced Packaging
- Large Capacity Batteries
- Critical Minerals
- APIs (Active Pharmaceutical Ingredients)/Pharmaceuticals
The Details: What Does the Executive Order Actually Do?
As part of the Biden Administration’s “Build Back Better” strategy, and in response to worldwide shortages and export restrictions of PPE highlighted by the COVID-19 pandemic and recent shortages of semiconductors, the EO promises a “whole of government” (read: interagency and, potentially, Congressional involvement) approach to achieve resilient supply chains and a robust US manufacturing base. The EO includes the goal of supporting jobs in the manufacturing sector and those directly and tangentially related to the manufacturing sector (think: everything from factory jobs to the marketing team advertising a finished electric car).
100-day Reviews for Semis, Batteries, Critical Minerals and APIs: Each of the initial four key product sectors – semiconductors, large capacity batteries, critical minerals, and APIs – will undergo 100-day reviews to assess vulnerabilities, strengths, and improvement areas.
1-Year Reviews for Energy, Transportation, Agriculture: The six industrial sectors listed above – the defense industrial base, public health and biological preparedness base, ICT industrial base (currently under review by the Department of Commerce), energy sector base, transportation industrial base, and agricultural commodities and food production base – will undergo a separate year-long review.
What Reviews Will Report On: Each report will likely have public and confidential aspects, and will contain a review of:
- The statutorily-defined “critical goods and materials,” which specifically sweeps in the terms “critical technologies” and “critical infrastructure,” presumably including the extensive lists provided in the governing statute of the Committee on Foreign Investment in the United States (CFIUS) (50 U.S.C. § 4565) and the related regulations; other “essential” goods and materials, including digital products;
- the necessary manufacturing (or other) capabilities to produce the materials;
- defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human rights, forced labor, or other risks that may disrupt or constrain the supply chain;
- the resilience of the supply chain;
- actions of partner countries;
- primary causes of risk;
- whether critical goods can be prioritized;
- specific policy recommendations; and
- any other executive or legislative recommendations; and proposals to improve this Government-wide effort to strengthen supply chains.
The EO lists ten different considerations agency heads must consider when determining whether a supply chain is “resilient.” Once drafted, a task force enabled by the EO will coordinate with the appropriate agency heads to provide the President with recommendations.
The Product Highlights:
The EO requires immediate analysis of the following product sectors, each of which will result in a report to the President at the end of the 100-day review:
This EO is another layer in the recent “whole of government” approach aimed at ensuring there is sufficient domestic production of semiconductors to protect US economic and national security. As demand for consumer electronics skyrocketed due to the COVID-19 pandemic forcing much of the world online, global computer chip and semiconductor manufacturers—already hampered by former President Trump’s aggressive regulatory moves against Huawei and other major Chinese entities and difficulties imposed by the pandemic—struggled to keep up. The global shortage in computer chips has affected a wide range of industries, with numerous automotive companies suspending production and OEMs announcing pauses in manufacturing. Indeed, the Semiconductor Industry Association has issued a statement emphasizing that Congress “now must appropriate funding for these provisions to reinforce American leadership in semiconductors, strengthen the US economy and job creation, and make semiconductor supply chains more resilient to future crises.”
While unlikely to make a significant impact on the immediate chip shortage, the EO intends to help the federal government create a longer-term plan to protect US industry and economy from future semiconductor supply chain interruptions. Specifically, the EO complements the Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS for America Act), a piece of bipartisan legislation that Congress enacted this past January as part of the FY21 National Defense Authorization Act to invest tens of billions of dollars in semiconductor manufacturing through various incentives and research initiatives.
The release of a report pursuant to this order “identifying risks in the semiconductor manufacturing and advanced packaging supply chains and policy recommendations to address these risks” will likely act as a signal for what the Executive Branch intends to target in the US government’s initiative to domesticate to some extent the semiconductor supply chain. With China continuing to increase investment in its own domestic semiconductor industry and much of the world still largely operating online due to the continuing risks posed by the novel coronavirus pandemic, our team will monitor additional developments in the semiconductor supply chain closely.
Large Capacity Batteries
Tying in closely with the Biden Administration’s focus on combating the climate crisis, here the Administration moves to better leverage American lithium reserves to boost it’s the country’s position in the global supply chain as a leader in electric battery production. As we have previously highlighted, demand for batteries used for electric cars already surpasses the supply, which has created a “global race.” The risks to the battery supply chain became readily apparent when the International Trade Commission recommended blocking the entry of certain lithium ion batteries, battery cells, battery modules, battery packs, and components thereof, after finding that Korean battery supplier, SK Innovation, committed intellectual property theft. The impact left US automakers searching for new suppliers. Pursuant to the EO, we can expect a public report (likely with a classified annex held back for internal US Government consumption) from the Secretary of Energy with policy options on the supply chain for high-capacity batteries.
The EO mandates close evaluation of critical minerals supply chains and reinvigorates efforts to respond to vulnerabilities in current global supply chains, initially highlighted by the Trump administration. It instructs the Department of Defense (DoD) to continue the work detailed in Executive Order 13953 (“Addressing the Threat to the Domestic Supply Chain From Reliance on Critical Minerals From Foreign Adversaries and Supporting the Domestic Mining and Processing Industries”), which relates to the US’s dependence on foreign-supplied critical minerals and declared a national emergency to deal with the threat.
In addition, within one year DoD must submit a report based on a comprehensive assessment of supply chains for the defense industrial base that updates the report provided pursuant to Executive Order 13806 (“Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States”). Substantively, this report likely will build on the Annual Industrial Capabilities Report, which has identified deferred action plans and in terms of joint research and development with allies as well as reduced meetings and reports under Executive Order 13817 (“A Federal Strategy To Ensure Secure and Reliable Supplies of Critical Minerals”).The report likely will identify critical goods and materials underlying the critical minerals supply chains, vulnerabilities the supply chain faces, and US capacity to support national and economic security and respond to emergencies. It further will provide policy recommendations for ensuring a resilient supply chain for critical minerals that are overwhelmingly sourced from “competitor nations.”
Problems with the critical mineral supply chain took on even more urgency this month when the Chinese government reportedly undertook a review of its rare-earths policy, with an eye towards pressuring US defense contractors that rely on Chinese rare-earths supply chains but simultaneously sell military equipment to the island-nation of Taiwan, which China considers to be a renegade province.
The beginning of the pandemic saw widespread shortages of masks, gloves, and other critical PPE as hospitals and healthcare providers across the globe sought these items to protect doctors, nurses, and other healthcare workers. In response, a number of foreign governments imposed export controls on a variety of PPE, and the US government launched its own regulatory regime aimed at securing a domestic supply of PPE and other medical devices.
The EO continues the US Government’s focus on securing domestic sources of materials that are critical to US health care needs by mandating the Secretary of Health and Human Services submit a report “identifying risks in the supply chain for pharmaceuticals and active pharmaceutical ingredients” that includes “policy recommendations to address these risks.” The President’s actions in this Executive Order likely illustrate the Biden Administration’s intention to treat pandemics and biological threats as serious risks to US national security and, with COVID-19 likely to continue impacting the US healthcare system in one way or another for the foreseeable future, industry should continue to expect developments in this space.
Risks in Supply Chains
As noted above, during the review process US Government agencies will consider climate implications; the geopolitical impacts; whether there are enough US workers, US factories, US equipment to produce and provide for the key product sectors. The EO indicates that non-government stakeholders will have the opportunity to recommend action, running the gamut from whether the government is publishing the right data to whether additional tools to improve levels of production or the ability to stockpile are necessary.
As this review process continues, attention to the fundamentals of complex US international trade rules is now more important than ever. As a result of the industry-based, year-long review, for example, the White House expects to consider “how to reform domestic and international trade rules and agreements that constrain supply chain resilience,” and ways to prevent monopolization and ensure geographic disbursement, among a number of other goals.
What Is Ahead?
The EO leaves open a number of possibilities and consequences for manufacturers, consumers, importers and exporters. Although stakeholders within each industry will have the opportunity to provide comments and input, the form of this input and any associated timelines have not yet been released. Further, if the final reports identify increased risks, particularly for US firms with foreign production, US firms importing from foreign producers, and for those US companies exporting their goods, it is unclear what remedies may be implemented. We do not expect that any “remedy” will require US companies to stop producing overseas as this action could run afoul to recent conversations with the European Union and Canada. The White House has not offered additional insight into whether new incentives to produce in the United States will be provided.
One thing is clear: The Administration is attempting to balance global cooperation with protecting US interests. This concept is not new, but reflects a shift from recent years and presents often-competing objectives. Still, with an unspoken concern about China, where the vast majority of computer chips, high-capacity batteries, pharmaceuticals, and critical minerals are produced or processed, the EO aims to determine whether the United States is relying too heavily on foreign suppliers and, if so, what to do about it. We will continue to monitor the Administration’s actions related to securing a more multilateral approach and boosting US manufacturing.