White House Issues Supply Chain EO and Asks Congress For $37 Billion To Help Production of Semi-Conductors

The Biden Administration orders an assessment of key U.S. supply chains, including policy changes. The White House is also seeking funding to help ease the semi-conductor shortage.

As rumored, President Joe Biden signed an executive order on United States (U.S.) supply chains. Executive Order (EO) 14017, “America’s Supply Chains” directs the new administration to undertake a wide-ranging review of key U.S. sectors and their dependence on increasing attenuated supply chains. Nonetheless, it will take time before the reviews ordered by the President are completed and policy proposals considered and ultimately implemented. There may even be legislation that flows from this review, but it remains to be seen.

Before turning to the EO and what it entails, Biden held a signing event at the White House during which he made remarks, most notably on his Administration’s plans to push for $37 billion to help bridge a shortfall in semiconductor production. Biden stated:

  • Recently, we’ve seen how a shortage of computer chips…has caused delays in production of automobiles that has resulted in reduced hours for American workers.
  • I’m directing senior officials in my administration to work with industrial leaders to identify solutions to this semiconductor shortfall and work very hard with the House and Senate.  They’ve authorized the bill, but they need (inaudible) $37 billion, short term, to make sure we have this capacity.  We’ll push for that as well.  But we all recognize that the particular problem won’t be solved immediately.
  • In the meantime, we’re reaching out to our allies, semiconductor companies, and others in the supply chain to ramp up production to help us resolve the bottlenecks we face now. 

As has been reported in the media, automakers decreased chip orders last year when sales went into freefall because of the pandemic. Other consumer goods makers (e.g., tablets, smartphones, and computers) stepped up their orders, so when demand for cars in the U.S., Japan and Europe resumed, chip manufacturers could not accommodate the renewed demand. American, Japanese, and European automakers naturally turned to governments to see if they could remedy this problem. The German foreign minister reached out to the Taiwanese government to see if they could increase production at contract chip manufacturers such as the Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation, the world’s largest and fourth largest makers of such semi-conductors.

However, a number of stakeholders do not expect the shortage to be resolved soon. For example, an unnamed official at the Ministry of Economy, Trade and Industry in Japan said in late January “[t]he semiconductor shortage will probably continue for several months.” The Semiconductor Industry Association (SIA), an American trade association, explained “[t]he shortage is largely the result of substantial swings in demand due to the pandemic and the increased use of semiconductors in advanced vehicles…[but] [t]he semiconductor industry is working diligently to ramp up production to meet renewed demand.” Additionally, the limited chip producing capacity in the U.S. has been hampered by the Texas power outages.

In mid-February, SIA’s Board of Directors, “comprised of CEOs and senior executives at leading U.S. chip companies,” wrote Biden asking “him to include substantial funding for semiconductor manufacturing and research in the administration’s economic recovery and infrastructure plan.” However, SIA did not make the case these funds are needed to bridge the worldwide shortfall; rather, they made a broader argument about how important the industry is to the U.S. and how federal funding and/or tax credits fit into the Biden Administration’s Build Back Better approach (i.e, they want funds in the $1.9 trillion COVID stimulus bill Democrats are currently moving through the House and Senate. They also call out a provision in the FY 2021 National Defense Authorization Act that believe deserves funding.

The “William M. “Mac” Thornberry National Defense Authorization Act for Fiscal Year 2021” (H.R.6395) contained the “Creating Helpful Incentives To Produce Semiconductors For America,” legislation that “require[s] the Secretary of Commerce to establish a program that provides grants to covered entities to incentivize investment of semiconductor fabrication facilities, or assembly, testing, advanced packaging, or advanced research and development of semiconductors in the U.S.” Moreover, the Department of Defense and other national security agencies “shall establish a public-private partnership through which the Secretary shall work to incentivize the formation of one or more consortia of companies (or other such partnerships of private-sector entities, as appropriate) to ensure the development and production of measurably secure microelectronics, including integrated circuits, logic devices, memory, and the packaging and testing practices that support these microelectronic components by the Department of Defense, the intelligence community, critical infrastructure sectors, and other national security applications.” The bill also created a Multilateral Semiconductors Security Fund the Departments of the Treasury and State would administer jointly to fund the activities Congress requires, with the crucial caveat that Congress must appropriate funds.

Hence, back to SIA’s request. SIA even wrote another letter with “a broad coalition of 16 other tech, medical, auto, and other business groups” urging the Biden Administration to:

  • to work with Congress to fully fund domestic semiconductor manufacturing and research provisions established in the recently enacted National Defense Authorization Act (NDAA).
  • to enact an investment tax credit to help build and modernize more semiconductor manufacturing facilities in the United States.

However, the House passed “American Rescue Plan Act of 2021” (H.R.1319) does not contain any such funds. It is possible the Senate put such funds into its COVID stimulus bill, but few details about that package have been made public.

A final issue before we turn to the EO. American chip manufacturer Intel may be in trouble. In early December, it was reported that Amazon and Apple had opted against buying Intel’s chips in favor of new faster, cheaper chips, which may start a negative trend for the last American producer of semi-conductors. In this case, both companies turned to a British firm, Arm. Moreover, Intel has not been able to design and market first rate chips, throwing into question how well it will compete with international competitors. The company’s new CEO has floated the possibility the company will outsource some production to chip foundries, a move that could further erode the industry in the U.S.

And, of course, operating in the background is the fact that one of the pressure points the U.S. has used against the People’s Republic of China (PRC) during the Trump Administration was in strangling off the flow of chips. The PRC still lacks the capability of producing its own chips, making its tech giants like Huawei and ZTE dependent on companies like TSMC.

With all those preliminary considerations out of the way, let’s examine the EO on supply chains. Firstly, in the policy sections, Biden stressed different policy considerations than former President Donald Trump typically did, especially in not naming the PRC, even though reading between the lines makes clear this EO, in terms of substance, is keeping with Trump Administration directives intended to maintain U.S. advantage and superiority. However, Biden stresses a multilateral approach, mentioning more than once allies and partners. Moreover, unlike many Trump Administration efforts, the Biden Administration is defining supply chains very broadly to include in addition to information and communications technology (ICT) transportation, health, pharmaceutical, COVID, and critical mineral supply chains. Another difference is the Biden Administration’s emphasis on more than national security and jobs. The new White House makes clear that climate change and inequality are also national security considerations. And all of these facets are tucked under the umbrella policy of maintain, building, or reviving “resilient supply chains.”

And yet, there will likely not be any fast action, for the assessments key agencies are to undertake in evaluating their supply chains are due in one year, at which point the National Security Advisor Jake Sullivan and the Assistant to the President for Economic Policy Joelle Gamble would need to make further recommendations, including legislative and regulatory changes to U.S. policy. Consequently, this effort will require focus in the White House to ensure agencies follow through and also to ensure the Biden Administration does not let this initiative fall by the wayside as new crises and priorities threaten to crowd this and other early efforts out.

Section 2 of the EO requires Sullivan and Gamble to coordinate executive branch activities in meeting the requirements of the directive, suggesting the effort will be funneled through the National Security Council. Section 3 tasks Sullivan and Gamble with overseeing the following agencies in “complet[ing] a review of supply chain risk” and submit reports identifying risks to selected supply chains and recommendations to remedy said risks within 100 days:

  • The Department of Commerce (DOC) must do so with the semiconductor manufacturing and advanced packaging supply chains
  • The Department of Energy (Energy) is tasked with high-capacity batteries, including electric-vehicle batteries
  • The Department of Defense (DOD) must comply with respect “to the supply chain for critical minerals and other identified strategic materials, including rare earth elements.” The DOD must also update the White House on actions taken per Executive Order 13953, “Addressing the Threat to the Domestic Supply Chain From Reliance on Critical Minerals From Foreign Adversaries and Supporting the Domestic Mining and Processing Industries.”
  • The Department of Health and Human Services (HHS) is to do the same with “the supply chain for pharmaceuticals and active pharmaceutical ingredients” and must also update the White House on “ongoing work…conducted pursuant to Executive Order 14001, “A Sustainable Public Health Supply Chain.”

Sullivan and Gamble must “include a cover memorandum to the set of reports submitted pursuant to this section, summarizing the reports’ findings and making any additional overall recommendations for addressing the risks to America’s supply chains.”

Section 4 requires agencies to conduct the aforementioned assessments of specified supply chains according to a very long, detailed list of criteria. These are due in one year’s time, creating a possible future action point for the Administration, including actions it could take under its existing authority. Nonetheless, the following agencies have been assigned the following supply chains:

  • The DOD will handle “supply chains for the defense industrial base that updates the report provided pursuant to Executive Order 13806, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” building “on the Annual Industrial Capabilities Report mandated by the Congress pursuant to section 2504 of title 10, United States Code.” DOD must also “identify areas where civilian supply chains are dependent upon competitor nations.”
  • HHS will be tasked with “supply chains for the public health and biological preparedness.”
  • DOC and the Department of Homeland Security (DHS) are assigned “supply chains for critical sectors and subsectors of the information and communications technology (ICT) industrial base…including the industrial base for the development of ICT software, data, and associated services.”
  • Energy has “supply chains for the energy sector industrial base.”
  • The Department of Transportation gets “supply chains for the transportation industrial base.”
  • The Department of Agriculture is given “supply chains for the production of agricultural commodities and food products.”

It bears note that in a number of cases, the agencies will make the determination as to what is in a sector’s industrial base, and, to cite just one example, it may turn out the DOD has a different sense of civilian supply chains effected by competitor nations (i.e., the PRC) than the White House.

As mentioned, the list of requirements is very long but includes:

  • the critical goods and materials, as defined in section 6(b) of this order, underlying the supply chain in question;
  • other essential goods and materials, as defined in section 6(d) of this order, underlying the supply chain in question, including digital products;
  • the manufacturing or other capabilities necessary to produce the materials identified in subsections (c)(i) and (c)(ii) of this section, including emerging capabilities;
  • the defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human-rights or forced-labor risks or other contingencies that may disrupt, strain, compromise, or eliminate the supply chain—including risks posed by supply chains’ reliance on digital products that may be vulnerable to failures or exploitation, and risks resulting from the elimination of, or failure to develop domestically, the capabilities identified in subsection (c)(iii) of this section—and that are sufficiently likely to arise so as to require reasonable preparation for their occurrence;

And on the very detailed criteria goes. A few caught my eye, however, for the Biden Administration is asking for any and all ideas in remaking U.S. supply chains:

  • specific policy recommendations for ensuring a resilient supply chain for the sector. Such recommendations may include sustainably reshoring supply chains and developing domestic supplies, cooperating with allies and partners to identify alternative supply chains, building redundancy into domestic supply chains, ensuring and enlarging stockpiles, developing workforce capabilities, enhancing access to financing, expanding research and development to broaden supply chains, addressing risks due to vulnerabilities in digital products relied on by supply chains, addressing risks posed by climate change, and any other recommendations;
  • any executive, legislative, regulatory, and policy changes and any other actions to strengthen the capabilities identified in subsection (c)(iii) of this section, and to prevent, avoid, or prepare for any of the contingencies identified in subsection (c)(iv) of this section; and
  • proposals for improving the Government-wide effort to strengthen supply chains

Once these assessments have been submitted, Sullivan and Gamble must review and report on any actions taken between now and February 2022 and also generate their own recommendations for statutory, policy, regulatory, and other changes necessary to effectuate the policy of building stronger supply chains across a number of dimensions. This process could generate even more policy options and changes.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

Photo by Tommy on Unsplash

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s