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Home / Blogs / Breaking down the White House supply chain report

Home / Breaking down the White House supply chain report

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Breaking down the White House supply chain report

Jun 22, 2021

Resilinc Editorial Team

Geopolitical, Reshoring, Supply Chain Resilience

In its new report on supply chain resiliency, the Biden Administration declares the vulnerability of supply chains to be a threat to national security. Four industries in particular were called out: semiconductors; high-capacity batteries; critical minerals and materials; and pharmaceuticals/APIs.

Co-authored by the departments of commerce, energy, defense and health and human services, the report concludes that the United States lacks the “ecosystem of innovation, skills, and production facilities” that is essential to military preparedness.

Dependence on foreign medical supplies “impairs our ability to counter threats ranging from pandemics to bio-terrorism.” And China’s dominance of critical minerals and materials such as lithium, cobalt and tantalum could put at risk the country’s core “economic security.”

In its 249 pages, the report recommends a 180-degree pivot away from what has been the dominant driver in supply chain design—“efficiency and low costs”—to a new paradigm that emphasizes “security, sustainability and resilience.”

The report authors advocate rebuilding “our small and medium-sized business manufacturing base.” And to staff this rebuilt American manufacturing sector, they advocate reversing what they call “decades of focusing on labor as a cost to be controlled [rather than] an asset to be invested in.”

And if those goals weren’t ambitious enough, the heads of the four influential agencies advocate a fundamental change in corporate strategies. U.S. corporations, they argue, should put less emphasis on boosting “quarterly earnings” by keeping wages and other costs down and shift to “high-road” strategies that include raising wages, investing more in R&D, and paying out less on dividends and stock buybacks.

The report also advocates reshoring of production to the United States as part of a wider strategy. “While expanded domestic production of critical goods must be part of the solution to America’s supply chain vulnerabilities, the United States cannot manufacture all needed products at home,” it states. Resilient supply chains must still be “globalized” but with greater geographic diversification and an emphasis on trading and cooperating “with nations who share our values [of] human dignity, worker rights, environmental protection, and democracy.”

The authors recommend that the U.S. emulate other countries—especially European countries—that have “successfully invested in policies that distributed the gains from globalization more broadly, including to workers and small businesses.”

Also worthy of imitation are the industrial policies of countries like Taiwan, South Korea, and Singapore where national governments have subsidized semiconductor R&D and manufacturing. Even China is given respect in this regard. While many of its “aggressive measures … are well outside globally accepted fair trading practices,” the world’s most populous nation has increased the “resilience and competitiveness of key economic sectors” through funding R&D, incentivizing domestic demand and creating “strategic international partnerships.”

The report goes into extraordinary detail describing the global structures and interdependencies of the four industries examined. And at points, its lengthy series of prescriptions seem more like wish lists from idealistic graduate students or liberal think tank staffers rather than a sober analysis of what’s politically and economically feasible.

For example, the section on high-capacity batteries recommends sharply increasing U.S. capacity to mine and refine lithium, but it pays little attention to the environmental challenges that would entail. In a critical analysis of the report by Eleanor Wragg of Global Trade Review, an IHS Markit analyst questioned whether U.S. communities will be willing to “incur the environmental cost” of refining lithium.

Wragg also questions the administration’s grasp of how much will be required in subsidies and incentives to bring advanced manufacturing back to the United States. “The type of manufacturing facilities being targeted as part of the administration’s policy represent an enormous amount of capital investment, and moving production from one country to another is not a decision corporates take lightly,” she writes.

Still, Wragg and her expert sources give the administration credit for making “a bold statement about the direction of travel for U.S. supply chains and manufacturing.”

“This is a long-term investment process,” Tom Runiewicz, associate director, world industry service at IHS Markit, told Wragg. “It’s going to take a number of years, but this document is looking far ahead and saying, this is where we are going to be heading and it’s going to take a while, but everybody should be aware that the United States is in a diversification process.”

 

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