WASHINGTON – The United States will work with the Quadrilateral Security Dialogue countries and the Group of Seven to address supply chain vulnerabilities for semiconductors and other strategic materials, according to a report released Tuesday.
US dependence on China for chips and other critical products has raised concerns, especially as countries compete globally. President Joe Biden aims to strengthen domestic supply chains in cooperation with partners such as Quad members, Japan, Australia and India, although it is not clear whether Washington can secure enough funding for its ambitious plans.
“It is important to rebuild domestic manufacturing capacity for key products,” a senior administration official told reporters on Monday ahead of the report’s release. “We want to see a more diverse set of suppliers.”
The report was released in response to an executive order from Biden in February to examine supply chains spanning semiconductors, electric vehicle batteries, pharmaceuticals, and rare earth minerals.
“We need to rebuild our small and medium-sized manufacturing base, which has borne the brunt of the exhaustion of American manufacturing,” the report said, citing a lack of investment in critical areas, political failures, an approach short term in the private sector and other factors.
“The United States cannot address vulnerabilities in its supply chain on its own,” the report warned. Washington should expand “multilateral diplomatic engagement on supply chain vulnerabilities, in particular through like-minded groupings of allies such as the Quad and the G-7,” and organize a global forum on supply chain resilience with government and private sector stakeholders of U.S. allies.
On semiconductors, which have become a major economic security issue around the world, the report encourages the United States to continue its trade diplomacy with countries like Japan and South Korea.
Biden and Japanese Prime Minister Yoshihide Suga agreed on greater cooperation in chip supply chains at their April summit. South Korea, at Biden’s May meeting with President Moon Jae-in, said Samsung Electronics would invest $ 17 billion to build a new plant in the United States.
American semiconductor companies have long outsourced their production to Asian suppliers. The United States accounted for 12% of global chip production in 2020, according to the Semiconductor Industry Association, ranking below Taiwan’s 22%, South Korea’s 21%, and Japan’s 15%. China, which also produced 15%, is heavily subsidizing domestic chipmakers to expand its global presence.
Taiwanese companies produce 92% of advanced chips. To reduce the United States’ reliance on overseas sourcing, the report urged Congress to provide at least $ 50 billion to support semiconductor development and production.
Taiwan Semiconductor Manufacturing Co. is building new US plant, and Biden wants to offer grants to encourage more chipmakers to locate in the US
The report also calls for strengthening the electric vehicle battery industry by tapping into the Department of Energy’s $ 17 billion advanced-technology vehicle manufacturing loan program. Ford Motor last month announced a joint plant with South Korean SK Innovation, and the US is looking to help US and South Korean players catch up with China’s Contemporary Amperex Technology Ltd., which dominates the industry with a share about 25%.
China is also a leader in rare earth metals, supplying around 60% of global production. The report urged the US International Development Finance Corp. to increase investments in projects aimed at increasing the production of these elements, with a view to greater cooperation with Australia. The administration will also explore potential sites for home production and processing facilities and examine the possibility of relaxing regulations on the ground.
In the pharmaceutical sector, the White House will launch a public-private organization to support American production. It will identify 50 to 100 products and seek to establish new supply chains that are not dependent on China. The report identified India as a key producer of pharmaceuticals, suggesting potential partnerships with the country.
Biden will also target dumping and other unfair trade practices as the administration creates a “trade strike force.” It will also consider whether to initiate an investigation into neodymium magnets under Section 232 of the Trade Expansion Act of 1962, which allows the United States to restrict imports that threaten national security. Magnets are a key part of motors and other devices.
The United States is increasingly concerned about its reliance on overseas supply chains, especially as a global chip shortage is hitting automakers and various other companies. The report recommends that the government monitor supply and demand and “improve information sharing between federal agencies and the private sector” to identify short-term risks.
But there is little the government can do in the short term, and long-term changes require legislative support. The Senate deliberates on funding to strengthen the semiconductor industry. The report urged Congress to approve $ 15 billion for the national electric vehicle charging infrastructure and pass legislation to establish a Commerce Department body to oversee supply chains.
The report also called for congressional action to enact the US Jobs Plan – a $ 2 trillion proposal from the Biden administration to rebuild US infrastructure and industry. But the Republican Party has opposed increasing corporate taxes to fund the initiative, and future efforts to strengthen U.S. supply chains depend on negotiations between the Democratic and Republican parties.