The Biden administration ordered a 100-day review of the chip supply chain

Biden's executive order, scheduled to be signed at 4:45 p.m. EST on Wednesday, February 24, will conduct a 100-day review of the supply chains of four key products: semiconductor chips, large-capacity batteries for electric vehicles, rare earth minerals, and pharmaceuticals. 

Biden holds a chip in his hand during the executive order signing ceremony

Through this executive order, the United States attempts to review its external dependence on key products, hoping to increase the diversification of the supply chain and avoid over-reliance on other countries for specific products. According to reports, Biden has been under pressure from Republican lawmakers to invest in domestic manufacturing of next-generation semiconductor chips to take more measures to protect the U.S. supply chain from China.

Specifically, when Biden signed the executive order, he mentioned that the order mainly included two intentions:

1. Four key products will undergo a 100-day review: semiconductors, critical minerals and materials such as rare earths (used to make everything from hard steel to aircraft), pharmaceuticals and their ingredients, and advanced batteries (such as those used in electric vehicles).

2. The order will begin a long-term review of the industry base of six sectors in the U.S. economy next year, including production in areas such as defense, public health, energy and transportation equipment.

Protecting the U.S. supply chain from China?

Affected by the epidemic, consumers' demand for game consoles and laptops has increased, resulting in a shortage of chips. In particular, the shortage of automotive chips has had a huge impact on the automotive industry, forcing car manufacturers such as General Motors and Ford to cut production.

The severe global chip shortage has put the Biden administration under great pressure. On February 11, technology companies including Intel, Qualcomm, Micron and AMD and representatives of automobile companies jointly wrote to the White House, requesting funding to support the development of the semiconductor industry. In response, the White House said that the Biden administration will work to solve the "chip shortage" problem.

“To maintain competitiveness and strengthen the resilience of critical supply chains, we believe the United States should encourage the construction and upgrading of semiconductor facilities and invest in research. This need is urgent and should be acted upon now,” they wrote.

According to the latest report released by the Semiconductor Industry International (SEMI) and the Semiconductor Industry Association (SIA), U.S. companies accounted for nearly half of the global market in 2020, but U.S. chip manufacturing accounted for only 12% of the world, far lower than the manufacturing capacity of 37% in the 1990s.

On January 25 this year, SIA warned: "If the United States does not change its chip export rules to China, it will expose the U.S. technology industry to unnecessary risks, which will ultimately only harm others and not benefit itself."

In addition, this executive order will also target supply chains in six major areas for a one-year review, including defense, public health, communications technology, transportation, energy, and food production.

The White House said of the signing of the decree: "We cannot foresee what the next crisis will be, but we should be able to respond to it quickly. The United States should ensure that raw material shortages, trade disruptions, natural disasters, or possible actions by foreign competitors and adversaries will never again endanger Americans."

The United States is attempting to review its external dependence on key products through this executive order, hoping to increase the diversification of the supply chain and avoid over-reliance on other countries for specific products. Federal procurement will also give priority to purchasing American-made goods, while considering restricting the import of some materials.

The United States wants to join forces with allies to encircle and suppress Chinese chips?

This executive order will help Biden fulfill his promise to "create American jobs", especially in the manufacturing sector where competitiveness is not as good as that of China. As for products that the United States cannot produce domestically, they will seek assistance from Asian and Latin American allies and strengthen bilateral relations.

A Bloomberg report on February 24 also showed that in order to reduce dependence on China, Biden will sign an executive order as early as this month. In terms of semiconductors, the United States is expected to cooperate with Taiwan, Japan, and South Korea, with which it has good relations; in terms of rare earths, the United States is considering cooperating with Asian countries or regions such as Australia.

The report said the Biden administration will focus on government contractors and private industry to ensure that U.S. industrial supplies are secured from competitors, including China. The order states that "working with allies can lead to strong, resilient supply chains," indicating that international relations will be at the heart of the plan.

According to the draft, the Biden administration of the United States will share supply chain-related intelligence on important products with its allies and complement each other in production items. At the same time, they will be able to quickly exchange what they have in an emergency, thereby reducing transactions with China.

Currently, about 80% of the rare earths in the United States are imported from China, and 90% of medical supplies are also imported from China. China has long dominated the rare earth market and also holds a key position in the supply of products such as medicines. This is when the United States is joining forces with its allies, which not only triggers the association that this move is to deal with China. White House officials responded that this executive order is not aimed at any specific country.

Supply chain shift or a fantasy?

In fact, in April 2020, news about the large-scale withdrawal of the supply chain was reported. Larry Kudlow, then director of the White House National Economic Council, mentioned that a policy that might attract American companies to return from China is to make 100% of the return expenditures immediate expensing. In other words, this is equivalent to "paying the cost of American companies moving back to the United States from China."

A survey by UBS Evidence Lab in 2020 showed that export-oriented companies have a strong desire to move some of their production capacity out of China, and this has increased over the past two years. In a survey of entrepreneurs in China, North Asia, and the United States, 60%, 85%, and 76% of the companies surveyed said they had moved some of their production capacity out of China or planned to move it, respectively.

In recent years, although the United States, Japan, and South Korea have successively introduced policies to attract companies to move production back to their home countries, judging from the current data, these measures are unlikely to be effective.

Wang Tao, head of Asian economic research and chief China economist at UBS, once wrote: "In the short term, the continued shift in the supply chain will have a direct negative impact on manufacturing investment, while the impact on employment and other investments will be relatively limited. In the long run, the decoupling of the technology supply chain is the most worrying."

On the other hand, Dan Wang, an analyst at Gavekal, pointed out in an April 2020 report: "China's position as a manufacturing base is still difficult to match by other countries, based on its large number of skilled laborers, deep supplier networks, reliable government support for manufacturers, and trustworthy infrastructure."