Takeaways from President Biden’s Supply Chain Plan for 2022

Exactly one year after President Biden signed Executive Order 14017 on America's Supply Chains, the White House unveiled its Plan to Revitalize American Manufacturing and Secure Critical Supply Chains in 2022 and released six additional supply chain reports in the following areas:

  1. The Department of Energy’s (DOE) report on the energy industrial base
  2. The Department of Transportation’s (DOT) report on the transportation industrial base
  3. The U.S. Department of Agriculture’s (USDA) report on the agricultural commodities and food products ecosystem
  4. The Department of Health and Human Services’ (HHS) report on the public health and biological preparedness industrial base
  5. The Department of Commerce (DOC) and Department of Homeland Security’s (DHS) report on the information and communications technology (ICT) industrial base
  6. The Department of Defense’s (DOD) report on the defense industrial base

Building off of four 100-day supply chain reviews of the semiconductor, battery, critical materials, and pharmaceutical supply chains released in June 2021, the February 2022 capstone report provides an overview of “a year of action and promise” on supply chain vulnerabilities. It serves as a progress report by the Biden administration on institutionalizing long-term supply chain resilience and provides comprehensive recommendations for bolstering domestic production and improving supply chain resilience.

Q1: What are the key takeaways from the plan and agency reports?

A1: The plan highlights federal accomplishments over the past year to fortify U.S. supply chains as coordinated by the interagency Supply Chain Disruptions Task Force (SCDTF)—improving port throughput, sustaining retail inventory before the holiday shopping season, and boosting manufacturing job growth and GDP growth.

However, the plan recognizes that enduring supply chain economic and national security risks remain. To address long-term supply chain resilience concerns in the broader economy, the Biden administration announced new supply chain policies focused on rebuilding domestic production and innovation, supporting workers, leveraging federal spending, strengthening trade rules and enforcement, and collaborating with allies and partners. Important new initiatives include:

Export-Import Bank (EXIM) Domestic Manufacturing Initiative: At its spring board meeting, EXIM is slated to approve a new initiative to prioritize financing for critical export items where the United States wants to capture the market abroad. These new measures will support U.S. small and medium-sized enterprises (SMEs) in producing those goods, in part by providing export credits to U.S. firms selling goods abroad. Sectors covered include semiconductors, biotech and biomedical products, renewable energy, and energy storage. Existing and new programs within the Treasury Department and Small Business Administration (SBA) will also mobilize the State Small Business Credit Initiative (SSBCI) to deploy funds and enhance lending for small manufacturers.

New Buy American Provisions: The Office of Management and Budget (OMB) will soon release an updated list of goods that qualify for Buy American preferencing, which permits the U.S. government to acquire domestically produced goods at higher prices than equivalent foreign produced goods as a mechanism for incentivizing domestic production. This new rule builds on a prior executive order that streamlined Buy American procurement by increasing the price differential to allow the federal government to acquire critical goods at an even higher price (the current price differential is 25 percent).

Critical Minerals and Clean Energy: The Biden administration has also announced plans to enhance domestic processing capacity of rare earth minerals, such as copper, nickel, lithium, and cobalt, and to update mining regulations to facilitate more mining that also considers sustainable and responsible practices. Part of the critical minerals and clean energy strategy includes additional DOE funding for commercial-ready technologies that facilitate a decarbonized future. In support of climate goals, the DOE also made recommendations to support the domestic solar and transformer industries.

Other: The plan will leverage $1 billion in funding from the American Rescue Plan to reduce concentration and increase competition within the agricultural sector by enhancing processing capacity. The USDA will also partner with the Department of Labor to support workers in the food processing sector. In addition to agriculture, the reviews also covered public health and biological preparedness. While HHS established a Defense Production Act (DPA) office during the pandemic, the agency will now leverage its DPA Title III program authority to grant loans and provide financing to alleviate U.S. dependency on foreign medical supplies and active pharmaceutical ingredients (APIs).

Q2: What is the promise of the Biden administration’s approach?

A2: Recent supply chain issues have demonstrated the pressing need for the private and public sectors alike to take steps to build more resilient and sustainable supply chains. The Biden administration’s approach to reviewing these economic sectors underscores its prioritization of rethinking supply chains; encouraging domestic production of critical items, such as minerals and semiconductors; and helping raise standards for American workers, which broadly supports President Biden’s commitment to forging “a foreign policy for the middle class.”

In addition to attempting to revitalize U.S. domestic production, the review includes robust language supporting allies, particularly the European Union. Overall, the policy initiatives will likely escape significant controversy because they focus on incentives rather than regulations.

Q3: What are the perils of the Biden administration’s approach?

A3: While the plan bundles detailed reviews and recommendations, the degree of policy change this package will create remains to be seen. Many of the plan’s key elements require legislation. For example, at the domestic level, a sweeping effort to reshore semiconductor production will depend on whether the House and Senate can reconcile differences between the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act and the United States Innovation and Competition Act (USICA), which contain the CHIPS Act. At the international level, the White House is counting on tangible outcomes from initiatives such as the Trade and Technology Council (TTC) and the Indo-Pacific Economic Framework (IPEF). The TTC will convene for a second time in May 2022, but progress there has been slow, and details of the administration’s IPEF strategy remain sparse.

Another concern is that the administration’s focus on reshoring critical supply chains and preferencing U.S. manufacturing may suggest to partners and allies a drift toward protectionism that could complicate trade cooperation or even violate World Trade Organization (WTO) rules. The plan at times also oversimplifies the complexity of global value chains, whether in rare earth minerals, semiconductor products, or APIs. For example, the effects of expanding access to capital for small manufacturers are likely to be restrained if it is not coupled with other trade measures, such as liberalizing tariffs on input goods. Reducing or removing tariffs on products such as foreign steel, which is used in domestically manufactured transformers, would make U.S. manufactured products more competitive. Furthermore, it does not always make sense for the United States to accelerate production of goods like APIs, if there is adequate foreign availability of the product. Nevertheless, the plan explicitly acknowledges that “the United States cannot make, mine, or manufacture everything ourselves. We must cooperate with our allies and partners to foster and promote collective supply chain resilience.”

Overall, some will regard the Biden administration’s supply chain and manufacturing plan as on the right path rhetorically. However, these residual uncertainties may complicate international relationships and the U.S. position as a leader of the global rules-based trading system. Further close cooperation with allies and partners is crucial to ensure that critical goods are produced in a way that avoids duplicate efforts and enhances resiliency.

Q4: What happens next?

A4: In terms of tangible next steps in the coming months, the Departments of Commerce and Labor, together with other federal agencies, will convene regional stakeholder summits to better align regional economic development strategies with this national supply chain plan. The Biden administration also announced it will host a ministerial-level “Summit on Global Supply Chain Resilience” to build on its last summit on the margins of the G20 in Rome in October 2021.

The Biden administration’s supply chains capstone report indicates a shift in government thinking from supply chains being “considered the domain of the private sector” to being a space where “it is now clear that the U.S. government must work to address [issues].” It also reflects changes in the private sector from “just in time” supply chain management to “just in case” policies. This comprehensive review also signals a longer-term shift in government thinking that recalibrates economic policy toward economic competitors, namely China. To compete with China more effectively, the U.S. government is betting on this comprehensive renewal of supply chains and investment to spur domestic growth and innovation to ensure that the United States can compete in foreign markets in the longer term.

A comprehensive collection of tasks completed, recommendations (both released and forthcoming), and a host of policy prescriptions that require funding from Congress will not necessarily result in a systemic overhaul of the U.S. economy in critical and broad base sectors. The administration has assembled helpful information about where key vulnerabilities lie. But realizing sweeping change will require input from local, state, and tribal governments as well as the federal government to ensure follow-through on pending action items, whether that is enhanced domestic semiconductor production or the support of small U.S. exporters. Furthermore, it is not a given that follow-through on several of these recommendations would make the United States more competitive in the long run. Certain policy changes, such as enhancing Buy American price differentials, risk inflating prices and reducing the competitiveness of U.S. exports abroad, thereby restraining the overall competitiveness of the U.S. economy.

Conclusion

For this domestic economic recharge plan to succeed, the Biden administration should couple ongoing domestic efforts with similarly detailed foreign policy plans, which it should build out in concert with close allies. For example, it is not efficient for the United States and the European Union to invest in the same types of new technologies or to duplicate efforts to spur production of certain medical supplies. To avoid an outcome where allied governments are pouring financing into fixing the same problems at the peril of ignoring others, the administration should continue to work closely with foreign allies, including by identifying and maintaining early warning systems for supply chain disruptions and maintaining current data on strategic stockpiles of critical goods.

Aidan Arasasingham is a program coordinator and research assistant with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Emily Benson is an associate fellow with the Scholl Chair in International Business at CSIS. William A. Reinsch holds the Scholl Chair in International Business at CSIS.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2022 by the Center for Strategic and International Studies. All rights reserved.

Image
Emily Benson
Senior Fellow, Scholl Chair in International Business