Finance

Amid Shortfalls, Biden Signs Executive Order to Bolster Critical Supply Chains

WASHINGTON — Automakers have been forced to halt production because of a lack of computer chips. Health care workers battling the coronavirus pandemic had to make do without masks as the United States waited on supplies from China. And pharmaceutical executives worried that supplies of critical drugs could dry up if countries tried to stockpile key ingredients and block exports.

Deep disruptions in the global movement of critical goods during the pandemic prompted President Biden on Wednesday to take steps toward reducing the country’s dependence on foreign materials. He issued an executive order requiring his administration to review critical supply chains with the aim of bolstering American manufacturing of semiconductors, pharmaceuticals and other cutting-edge technologies.

In remarks at the White House, the president cast the move as an important step toward creating well-paying jobs and making the economy more resilient in the face of geopolitical threats, pandemics and climate change.

“This is about making sure the United States can meet every challenge we face in the new era,” he said.

But the effort, which has bipartisan support, will do little to immediately resolve global shortages, including in semiconductors — a key component in cars and electronic devices. A lack of those components has forced several major American auto plants to close or scale back production and sent the administration scrambling to appeal to allies like Taiwan for emergency supplies.

Administration officials said the order would not offer a quick fix but would start an effort to insulate the American economy from future shortages of critical imported components.

Mr. Biden discussed the issue in the Oval Office on Wednesday afternoon with nearly a dozen Republican and Democratic members of Congress. Senator Chuck Schumer, Democrat of New York and the majority leader, called for the crafting and passage of a bill this spring to address supply chain vulnerabilities.

“Right now, semiconductor manufacturing is a dangerous weak spot in our economy and in our national security,” Mr. Schumer said. “Our auto industry is facing significant chip shortages. This is a technology the United States created; we ought to be leading the world in it. The same goes for building-out of 5G, the next generation telecommunications network. There is bipartisan interest on both these issues.”

Republicans emerged from the White House meeting optimistic that such efforts could soon move forward. Representative Michael McCaul, Republican of Texas, said he was pleased to see that the White House made the issue a top priority and that the president was receptive. “His words were, ‘Look, I’m all in,’” he said.

Mr. McCaul said that much of the conversation revolved around legislation that Congress had passed last year to incentivize the chips industry — but which still needs funding for research grants and a refundable investment tax credit — as well as the current chips shortage and possible looming job losses in the auto industry.

“China is looking at investing $1 trillion in their digital economy,” Mr. McCaul said. “If we’re going to be competitive, we have to incentivize these companies to manufacture these advanced chips in the United States.”

Mr. Biden called the meeting one of the best of his presidency so far. “It was like the old days,” he said. “People were actually on the same page.”

The president ordered yearlong reviews of six sectors and a 100-day review of four classes of products where American manufacturers rely on imports: semiconductors, high-capacity batteries, pharmaceuticals and their active ingredients, and critical minerals and strategic materials, like rare earths.

Additional actions to strengthen those supply chains would depend on the vulnerabilities that were identified, officials said.

“We are going to get out of the business of reacting to supply chain crises as they arise and get into the business of preventing future supply chain problems,” Peter Harrell, the White House’s senior director for international economics and competitiveness, told reporters at a news briefing.

The executive order did not target imports from any specific country, but it is being viewed as an early salvo in the administration’s economic battle with China. Beijing’s dominance of global supply chains for raw materials and critical products like medical masks has prompted deep concerns that its authoritarian government could cut off the United States, causing even bigger economic disruptions.

Early in the coronavirus pandemic, China diverted exports of surgical masks and protective gear to its local governments and hospitals, leaving foreign purchasers empty-handed. Along with India, China is also a major source for the active ingredients that go into making vital drugs, including antibiotics and pain medicines.

China has also periodically moved to ban exports of rare earth materials that are crucial for manufacturing electronics, fighter jets and weaponry; it proposed new export curbs this year.

China, which produces the bulk of the world’s supply of rare earths, has been using much of its own to set up domestic supply chains, causing exports to dwindle in recent months, said Pini Althaus, the chief executive of USA Rare Earth, which is developing a deposit of rare earths and lithium in Texas.

Without those minerals, the United States cannot manufacture quantum computers, deploy a 5G network or make electric vehicles, he said.

“Panic is starting to set in in a number of industries and a number of government agencies, because we’re in a very precarious position right now,” Mr. Althaus said.

Mr. Schumer announced on Wednesday that he had directed the leaders and members of Senate committees to start drafting a new legislative package “to outcompete China and create new American jobs.” He said he intended to put the bill, which would build on the bipartisan Endless Frontier Act that he introduced last year, on the Senate floor for a vote this spring.

The legislation would encourage investments in American semiconductor manufacturing, which he called “a dangerous weak spot in our economy,” as well as 5G, artificial intelligence and biomedical research.

“I want this bill to address America’s short-term and long-term plan to protect the semiconductor supply chain and to keep us No. 1 in things like A.I., 5G, quantum computing, biomedical research, storage,” Mr. Schumer said. “We need to get a bill like this to the president’s desk quickly.”

The semiconductor industry has welcomed both ambitious legislation from Congress and Mr. Biden’s executive order.

Bob Bruggeworth, the chairman of the Semiconductor Industry Association and the chief executive of Qorvo, a semiconductor company, said his industry was ready to work with the Biden administration. He urged the president and Congress to “invest ambitiously” in manufacturing and research.

“Doing so will ensure more of the chips our country needs are produced on U.S. shores, while also promoting sustained U.S. leadership in the technology at the heart of America’s economic strength and job creation, national security and critical infrastructure,” Mr. Bruggeworth said.

But semiconductor industry analysts say the administration is unlikely to be able to do much to address chip shortages in the near term. Most chip factories are running at close to maximum capacity, and expanding output is likely to take at least three to six months, if not longer.

The Biden administration has tried to appeal to Taiwan and other major chip makers to put American manufacturers at the top of their lists. But General Motors and Ford have been forced to shutter factories and curtail production; both estimate that the chip shortage will lower their operating profit by at least $1 billion this year. A G.M. executive told a Wolfe Research conference on Wednesday that the company had begun to see the situation improve in recent weeks.

Charlie Chesbrough, a senior economist at Cox Automotive, said that Mr. Biden’s executive order was likely to have little effect on the auto industry in the near term, given that supply chains were generally determined years ahead of time.

“The tighter inventory issues in the market today, and the plant slowdowns caused by a shortage of computer chips, are expected to be with us through most of 2021,” he said,
“executive order or not.”

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