On February 24, 2022, the Biden Administration announced the release of six executive-branch reports and a White House “capstone” report pursuant to Executive Order (EO) 14017 on America’s Supply Chains (February 24, 2021), which established a policy of pursuing more resilient, diverse, and secure American supply chains. These reports culminated year-long sectoral assessments of the supply chains underlying the U.S. industrial base from seven cabinet-level agencies – the Departments of Commerce, Defense, Energy, Homeland Security, Transportation, Health and Human Services, and Agriculture, following an initial phase of reviews issued in June 2021. The sectoral assessments reflect a stock-taking of vulnerabilities, an envisioning of fundamental developments necessary for supply chain security, and short- and long-term proposals that rely heavily on industry participation.
Phase One: 100-Day Supply Chain Reviews
In the first initial work phase established by EO 14017, the Departments of Commerce, Energy, Defense, and Health and Human Services were instructed to assess supply chain vulnerabilities across four key products: semiconductors, large-capacity batteries, critical minerals and materials, and pharmaceutical and active pharmaceutical ingredients. These assessments culminated in a report of “100-Day Reviews” published by the White House in June 2021. The report containing reviews from all four agencies identified insufficient U.S. manufacturing capacity, misaligned markets, foreign nations’ industrial polices, geographic (global) concentration of key supply chains, and limited international coordination as drivers of the challenges faced in those four sectors.
The 100-day report also provided recommendations ranging from investing or promoting investment in manufacturing and R&D, to deploying procurement, technical assistance, grants, and financing to support supplier diversification, to using market tools to support sustainability and workforce standards, to expanding multilateral engagement with global allies and strengthening international trade rules. For additional information and analysis on the Executive order and the administration’s 100-day report, please visit our blog here and here.
Phase Two: One-Year Sectoral Assessments
The reports issued last month represent the second phase of work under EO 14017, instructing the agencies to provide specific policy recommendations and proposals for strengthening and ensuring resilient supply chains. Links to the full reports with areas of focus for each are highlighted below.
- Department of Defense: Securing Defense-Critical Supply Chains focuses on the following five areas: (1) Kinetic capabilities; (2) Energy Storage and Batteries; (3) Castings and Forgings (“C&F”); (4) Microelectronics; and (5) an update of the 100-day critical minerals and materials report.
- Department of Energy: America’s Strategy to Secure the Supply Chain for a Robust Clean Energy Transition focuses on the following technologies: (1) carbon capture materials; (2) electric grid; (3) energy storage; (4) fuel cells and electrolyzes; (5) hydropower including pumped storage hydropower; (6) neodymium magnets; (7) nuclear energy; (8) platinum group metals and other catalysts; (9) semiconductors; (10) solar photovoltaics; and (10) wind.
- Department of Commerce / Department of Homeland Security: Assessment of the Critical Supply Chains Supporting the U.S. Information and Communications Technology Industry focuses on (1) software, including risks associated with open-source; as well as manufacture of (2) printed circuit boards; (3) fiber optic cable; (4) printed circuit board assemblies and subassemblies; (5) routers, switches, and servers; and (6) LCDs/Displays.
- Health and Human Services: Public Health Supply Chain and Industrial Base focuses on (1) personal protective equipment; (2) durable medical equipment; (3) testing and diagnostics; and (4) pharmaceuticals.
- Department of Transportation: Transportation Industrial Base Freight and Logistics focuses on (1) physical infrastructure (including needed developments); (2) congestion and bottlenecks; (3) data availability and research gaps; (4) supply chain security; (5) freight and warehousing; and (6) rules and regulation.
- Department of Agriculture: Program and Policy Options for Strengthening Resilience focuses (1) consolidation within the industry; (2) labor; (3) ecological and climate risks; (4) transportation bottlenecks; and (5) international trade.
- Like the 100-day reports, the one-year and capstone reports acknowledge the need to work with “allies and partners” in securing supply chains, in particular where domestic sources may not exist. The elevation of “near-shoring” or “ally-shoring” as reasonable alternatives to on-shoring or building up domestic production capacity is an acknowledgment by the Administration that not every link in every supply chain can be reasonably located in the United States. But the identification of global trusted partners as opposed to adversarial or unaligned nations is a critical element of the Administration’s approach to supply chain security.
The events of recent weeks place this policy objective into extreme focus. Russia’s invasion of Ukraine (and its loose alliance with China) could invoke a reckoning for some countries that have been deeply entrenched in certain supply chains, but that are unlikely to be viewed as trusted partners going forward. Industry should be prepared for longer-term business impacts.
- Supply-chain policy is here to stay and U.S. industry has a critical role in the development and implementation of that policy. These sectoral assessments are the result of what the report’s describe as a “whole-of-government” effort that is supported, in turn, by U.S. industry. In addition to the headlined agencies, many other agencies and sub-agencies have been gathering data from industry over the past year. By participating in these supply chain analyses, industry has shaped these initial outcomes.
But the work outlined in EO 14017 has only begun and the next stages offer both opportunities and risks for industry. “As soon as practicable,” the Assistants to the President for National Security Affairs and Economic Policy must make specific recommendations to the President regarding the sectoral assessments, focusing on making supply chains and the domestic industrial base more resilient and effective through reforms to domestic and international trade rules and agreements; education and workforce reforms; policies that promote small business; and procurement and incentive programs that attract and retain investment in critical goods.
The EO also requires quadrennial reviews involving ongoing data gathering and supply chain monitoring, with the next set of reports to be released in 2025. In addition, many of the sectoral reports note the creation of new interdisciplinary task forces that will continue to grapple with supply chain policy issues. As a result, industry members should continue to remain engaged and look for opportunities to collaborate with the government.
- A critical pathway toward more resilient supply chains is through promotion of targeted investment and market development, both domestically and abroad. The reports collectively identify several recent investments the government has undertaken to support increased domestic production. For example, the Department of Energy will invest $7 billion from Bipartisan Infrastructure Bill in large-capacity battery supply chain, including material refining and production, battery cell and pack manufacturing, and recycling. Additionally, the Department of Defense has invested to re-shore production of rare earth metals. Investments in U.S. production of semiconductors by leading foreign corporations in allied nations are also touted.
Equally important to the U.S. government’s directing federal dollars to developing markets and capacity in support of critical supply chains is the need to partner with and/or promote industry and foreign allies in strengthening industrial bases through private, public-private, or cross-government collaborative mechanisms. At the same time, the reports collectively acknowledge the need to mitigate risk of “adversarial” foreign ownership, control, or influence (FOCI) in supply chains. Thematically, these dual goals – fostering market and capacity growth while seeking to avoid harmful foreign influence in supply chains – depend heavily on identifying and developing a trusted global supply chain network.
A Larger Framework to Promote Domestic Manufacturing
EO 14017 is just one piece of a larger policy framework through which the Administration seeks to promote the American economy and domestic manufacturing.
For example, in June 2021, the Administration launched a rapid-response, interagency Supply Chain Disruptions Task Force (SCDTF) to address the immediate supply chain challenges arising from the COVID-19 pandemic in the areas of transportation logistics and labor shortages, semiconductor availability, food, and agriculture.
In July 2021, President Biden issued EO 14036 on Promoting Competition in the American Economy. The EO recognized the importance of robust and diverse agriculture, information technology, telecommunications, and healthcare sectors to the long-term resilience of competition, supply chains, U.S. workers, and consumers. Through EO 14036, President Biden pledged a whole-of-government approach to defending against “the monopolization of the American economy.”
President Biden has advocated for comprehensive competitiveness legislation, including the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act (which passed in the House of Representatives) and the United States Innovation and Competition Act (USICA) (which passed in the Senate). These legislative vehicles include numerous, wide-ranging provisions aimed at promoting investment in the domestic industrial base and domestic manufacturing (including to expand supply of semiconductors through the Creating Helpful Incentives for Production of Semiconductors (CHIPS) for America Act), shoring up supply chains, and combatting unfair trade practices.
And most recently, consistent with the policy of leveraging the government’s purchasing power to strengthen the resilience of supply chains, the Federal Acquisition Regulatory (FAR) Council published a final rule amending the Federal Acquisition Regulation (FAR) to strengthen Buy American Act (BAA) requirements in accordance with President Biden’s January 25, 2021 Executive Order (E.O.) 14005, Ensuring the Future is Made in All of America by All of America’s Workers. This new rule increases the BAA’s domestic content threshold for certain end products and construction materials.
As the Administration works toward institutionalizing domestic competitiveness and supply chain resilience, policy recommendations will translate into programs, guidance, and directives. This may create opportunities or areas of risk for U.S. companies, particularly domestic manufacturers, as the key agencies navigate the complexities of implementing proposals and distributing funds. We are available to help you understand and evaluate how your company’s business strategy and planning may interact with these broad-reaching, cross-government policies.