On 24 February 2021, U.S. President Joe Biden signed an executive order to review the global supply chains used by four key industries in an effort to avoid shortages in medical equipment, semiconductors and other critical goods. The order will institute 100-day reviews of global manufacturing and advanced packaging for semiconductors, large-capacity batteries for electric vehicles, pharmaceuticals and critical rare-earth minerals used in electronics. The order also institutes one-year reviews in other sectors, including critical sectors of the information and communications technology (ICT) industrial base.
Targeting Reliance on Foreign Suppliers
A main goal of the new review requirements is to identify whether U.S. firms are relying too much on foreign suppliers. While the order does not mention China, specific emphasis is expected to be placed on Chinese suppliers. With the directive, Biden’s administration is clearly examining the risks of the U.S.’s increasing dependence on competitor nations. Events such as recent shortages in battery supply chains for electric vehicles from Korean markets and the global shortage of semiconductors have driven this new initiative. However, the review will also consider other factors such as climate and environmental risks as well as international disasters and emergencies.
How Will the U.S. Government Proceed?
In the short term, it is unclear how the Biden Administration will act after the 100-day reviews are complete. Strategies to fix supply chains will depend on the weak spots which are identified. Soft actions could include new training programs or an incentive system to encourage suppliers to relocate to the U.S.. In a not-so-friendly scenario, the Administration could use the Defense Production Act to force companies to produce specific goods domestically. Meanwhile, Biden met yesterday with a group of bipartisan legislators and Senate Majority Leader Sen to discuss the issue. Chuck Schumer has indicated that he plans to move emergency legislation this spring to increase the U.S.’s competitiveness with China.
Implications for Companies
The executive order will ultimately have a significant impact on the supply chains of so-called critical sector companies. If any risks are identified during the review, the Administration will aim to push affected companies to move their suppliers out of the countries in which they are currently operating. Pressure to relocate to the U.S. mainland or other “allied or partner nations” could increase.
Uncertain Reception
Depending on the approach that Biden eventually takes regarding the relocation of supply chains, there is a high risk of conflict with key allies of the U.S., such as Canada or the European Union. While the inception of the Biden Administration has been seen by such countries as an opportunity to rebuild bridges, Biden has already stirred the waters by making it more difficult for foreign companies to supply the U.S. government since his first day in office.
How Could Tech Companies React?
First, companies should assess the extent to which they are covered by the executive order, including whether they are involved in production or supply of critical or other essential goods or materials as these terms are defined in the order or by relevant statutes. The order may ultimately have enormous consequences for current business models depending on the specific concerns and next steps identified by the Administration.
Second, the order calls for agency heads to engage with industry stakeholders, and companies should engage with Administration officials and congressional representatives by raising concerns and suggestions. For example, companies should emphasise the costs that drastic measures on relocation will entail their implications for businesses.
Finally, companies should monitor the reactions of key global players.
- The Chinese government and Chinese industry are (unofficially) a main target of the executive order and will be the main actors affected by any potential relocation of the supply chain. Furthermore, a large share of U.S. industry currently relies on Chinese suppliers.
- Canada and the European Union may respond to protectionist measures by reviewing, strengthening and conditioning future trade agreements.
