'Hollowed out': White House releases findings of critical supply chain reviews

The Biden administration released the findings of its 100-day review of critical supply chains — detailing vulnerabilities and making a series of recommendations to strengthen U.S. supply chains and boost American manufacturing.

"For too many years we've let our production capacity for critical goods migrate overseas, rather than making investments to support U.S. manufacturing and U.S. workers," said a senior administration official.

President Biden signed an executive order in February, ordering a 100-day review of the nation's supply chains for semiconductors, advanced batteries, pharmaceuticals and critical minerals.

"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," says a White House fact sheet. "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."

The factsheet adds the U.S. is "well-positioned" to strengthen innovative leadership and rebuild productive capacity.

Semiconductors

The Biden administration has argued weaknesses in the U.S. supply chain present potential national security and economic risks. The ongoing chip shortage, for example, has plagued a variety of industries — hitting automakers and consumer electronics companies especially hard.

The review of the semiconductor supply chain found that the U.S. "has outsourced and off-shored too much semiconductor manufacturing in recent decades" and "lacks production capability at the most advanced technology levels."

This week the Senate could take up a bill designed to help the U.S. compete with China, which includes more than $50 billion to bolster the U.S. semiconductor industry. The bipartisan bill, championed by Majority Leader Chuck Schumer (D., N.Y.), is facing some pushback from Republicans who argue the legislation is not ready.

The review report released on Tuesday recommends an investment of at least $50 billion in domestic manufacturing and research & development.

Pharmaceuticals

The report found the U.S. is "critically dependent on imports" for key pharmaceutical products and the primary ingredients of generic drugs.

The Department of Health and Human Services, under the Defense Production Act, will establish a public-private consortium for advanced manufacturing and on-shoring of domestic essential medicines production. It will begin by working to onshore 50-100 critical drugs.

The White House said HHS will use the DPA to invest $60 million from the American Rescue Plan in advanced pharmaceutical research & development.

Critical minerals and materials

"China accounts for an outsized share of the world’s refining capacity, meaning that even if the United States were to diversify our sources of critical minerals or increase domestic extraction, we would still be reliant on China for processing before use in end-product manufacturing," the White House factsheet states.

The Department of Interior will work with the EPA and Agriculture Department to identify sites where critical minerals could be produced and processed in a sustainable way.

The Department of Commerce will also initiate a Section 232 investigation of neodymium magnets — a particular type of magnet used in motors and other industrial applications. A senior administration official said the U.S. now largely depends on imports from China.

"We're not looking to wage trade wars with our allies and partners," said the official. "We're looking at very targeted products where we think there are effective tools we can deploy to strengthen our own supply chains and reduce vulnerabilities."

Large capacity batteries

The report found the United States relies heavily on importing inputs for fabricated advanced battery packs.

"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 that supports good-paying, quality jobs with a free and fair choice to join a union and bargain collectively," reads the fact sheet.

The Department of Energy will take steps to advance and support battery research, manufacturing, and processing.

The White House announced it is establishing a task force to respond to short-term supply chain disruptions in homebuilding and construction, semiconductors, transportation, and agriculture and food. The task force will be led by the Secretaries of Commerce, Transportation and Agriculture. The White House said the task force will bring together industry stakeholders to identify problems and develop solutions.

A senior administration official said while the White House expects current bottlenecks — which are leading to higher prices and slower delivery times — to be transitory, the administration is using "all the tools at its disposal to minimize the impacts on workers, consumers, families and businesses."

The administration will also create a trade strike force to "propose unilateral and multilateral enforcement actions against unfair foreign trade practices that have eroded critical supply chains."

The White House argues the findings illustrate the need for the "transformative investments" proposed in the American Jobs Plan.

The report makes several sets of additional recommendations to Biden:

• Rebuild America’s production and innovation capabilities

• Support the development of markets that invest in workers, value sustainability, and drive quality

• Leverage the government’s role as a purchaser and investor in critical goods

• Strengthen international trade rules, including trade enforcement mechanisms

• Work with allies and partners to decrease vulnerabilities in the global supply chains

A senior administration official said while the United States won't be able to produce everything domestically, the goal is to boost American manufacturing and establish more diverse suppliers.

"We don't want to be dependent on just one or two suppliers — and in particularly want to make sure we are more reliant on like-minded allies and partners or supplies and comparatively less on geopolitical competitors," said the official.

In February, the president also ordered year-long reviews of six sectors: defense, public health, information technology, transportation, energy and food production. Those reports are due next February.

Jessica Smith is chief political correspondent for Yahoo Finance, based in Washington, D.C. Follow her on Twitter at @JessicaASmith8.

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