During the G7 summit, held in Cornwall on June 11-13, US President Joe Biden pledged to restore his country’s historical commitment to multilateralism. However, a newly released document laying out the US’ approach to tackling supply chain disruptions indicates that, far from embracing free trade, the American trade policy won’t be shaking off former President Donald Trump’s protectionist stance any time soon.

The Biden administration’s 100-day review of supply chain vulnerabilities, published last week, covers four critical products: semiconductor manufacturing and advanced packaging; large capacity batteries, such as those for electric vehicles; critical minerals and materials; and pharmaceuticals and active pharmaceutical ingredients.

“The 100-day reports make clear: more secure and resilient supply chains are essential to our national security, our economic security, and our technological leadership. The work of strengthening America’s critical supply chains will require sustained focus and investment,” the White House says in a statement.

The report comes following a series of disruptions to US supply chains: those caused by localised shutdowns around the world due to Covid, as well as those caused by supply and demand mismatches as economies reopen – notably the current semiconductor shortage that has hit automakers and tech firms alike.

Among findings, the review points to structural weaknesses in both domestic and international supply chains, unfair trade practices by competitor nations, “siphoned innovation”, and alleges that the US industrial base has been “hollowed out” by the private sector’s focus on short-term returns over long-term investment.

Much of the language used throughout the report is highly reminiscent of that of the previous administration. From references to China and India as “controlling substantial parts of the supply chain where there have been issues”, to allegations of “unfair trade practices” – long a US bugbear under Trump, the document includes several recommendations that appear to be somewhat at odds with the concepts of free trade and globalisation, from a high degree of government involvement in domestic manufacturing to large subsidies to private companies in order to bring production back to the US.

“The Biden administration is committed to multilateralism, but you are not going to see ‘America First’ go away completely. The US stance within the multilateral paradigm is going to be different than it was in the past,” says Ted Murphy, partner at Sidley Austin.

However, industry onlookers point out that, while some of the language may be similar to that of his predecessor, the reasoning behind Biden’s new supply chain strategy is quite different.

“The focus is not so much on making sure that US businesses are protected. The issue is making sure that the US has a supply chain that doesn’t have bottlenecks and has minimum risks,” says Tom Runiewicz, associate director, world industry service at IHS Markit. “It’s more of a security interest. How do we diversify so we are not so reliant on supplies from Asia or from Europe or from one particular source? The way to do that is to bring some of the business back into the United States or back into North America.”

“The whole idea of tariffs and protectionism came out of a defensive position that we shouldn’t rely on other countries, but tariffs don’t necessarily work – and they have been abused in the past,” he tells GTR. “Diversification is the key and once again, part of that diversification means reshoring.”

A cross-government approach

To encourage this diversification, the Biden administration has announced a series of actions, which involve multiple government departments.

First, the US Export-Import Bank (US Exim) will be pressed into service to support the reshoring of US manufacturing. The report proposes that the export credit agency develop a domestic financing programme to fund US manufacturing facilities and infrastructure projects.

The administration also says it will establish a trade strike force led by the US Trade Representative to propose unilateral and multilateral enforcement actions against “unfair foreign trade practices that have eroded critical supply chains”.

On the pharmaceuticals front, the Department of Health and Human Services, using the Defence Production Act, will establish a public-private consortium for advanced manufacturing and the onshoring of domestic essential medicines production. The consortium’s first task will be to select 50-100 critical drugs, drawn from the Food and Drug Administration’s essential medicines list, to be the focus of what the administration calls “an enhanced onshoring effort”.

On batteries, the Department of Energy will pour its US$17bn in loan authority into the Advanced Technology Vehicles Manufacturing Loan Program (ATVM) to support the domestic battery supply chain. This will include the ATVM programme making loans to manufacturers of advanced technology vehicle battery cells and packs for re-equipping, expanding or establishing such manufacturing facilities in the US.

On semiconductors, the administration has recommended that Congress support at least US$50bn in investments to advance domestic manufacturing of critical semiconductors and promote semiconductor R&D.

“Once a global leader in semiconductor production with robust public support, the United States has outsourced and offshored too much semiconductor manufacturing in recent decades. The United States has fallen from 37% of global semiconductor production to just 12% over the last 20 years,” the White House says.

In agriculture, the Department of Agriculture (USDA) will commit more than US$4bn to a new suite of “Build Back Better” initiatives focused on rebuilding the US food system and strengthening and diversifying supply chains for food production, food processing, food distribution and aggregation.

For critical minerals, the Department of Interior (DOI), with the support of the White House Office of Science and Technology Policy, will establish a working group composed of agencies such as the USDA and the Environmental Protection Agency (EPA) to identify sites where these resources could be produced and processed in the United States.

Meanwhile, the Department of Energy will assign more than US$3bn in loan guarantees to support efficient end-use energy technologies, such as mining, extraction, processing, recovery, or recycling technologies, of critical materials projects.

“China accounts for an outsized share of the world’s refining capacity, meaning that even if the US 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 report says. “To secure a reliable, sustainable supply of critical minerals and materials, the US must work with allies and partners to diversify supply chains away from adversarial nations.”

At cross purposes

However, putting this last action into practice may be challenging, explains John Mothersole, director of research, pricing and purchasing at IHS Markit. “The United States currently has one facility that mines rare earths, but it doesn’t process those concentrates. They are shipped to China for processing. And that is a huge red flag in terms of the Biden administration’s initiative, but now you have to make hard choices,” he tells GTR. “It’s certainly reasonable, if this is a concern, to relocate that production, but the stumbling block is that refining these metals is a relatively dirty process. Are you going to be willing to incur the environmental cost?”

In April this year, President Biden announced a new target for the US to achieve a 50-52% reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030, alongside other actions to tackle the climate crisis.

“Here is just one example of the diametrically opposed positions that the administration holds,” adds Mothersole. “They clearly want to move down this path of this transition to a low carbon or no carbon energy future. Meanwhile, the US’ physical resource endowments also offer the potential for a more resilient supply chain in these various areas. It becomes about resolving what could be thorny political questions.”

Questions also abound over the extent to which the numerous subsidies and incentives will actually be enough to move the needle. 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.

“This is the frequency that the government is trying to dial into. Investment incentives may help jumpstart these things, but what else is needed in order to make this industry competitive? If it is a state-of-the-art facility, then maybe the investment alone is enough, because now they have got cheaper production costs than older facilities located elsewhere in the world, but if it is not, there will be another piece needed to make that investment worthwhile,” says Sidley Austin’s Murphy.

Nonetheless, in this policy document, the Biden administration has made a bold statement about the direction of travel for US supply chains and manufacturing, and other countries should take note, says Runiewicz.

“This reshoring process is not going to happen this year or next. This is a long-term investment process,” he says. “The Biden administration is pointing the economy and businesses and letting other countries know that this is a process, and we are going to migrate. 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.”