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Supply chains endanger American security. Here’s what Biden is doing.

China controls many goods and materials that are critical for the U.S.

- May 17, 2022


In late February, as most people were focusing on the war in Ukraine, the White House published over 1,300 pages of reports from a year-long and unprecedented investigation into the economic vulnerabilities caused by global supply chains.

These reports received almost no press attention. Yet they shed light on one of the crucial side effects of the war in Ukraine. Decoupling the economies of the United States and its allies from the economies of authoritarian nations may cause massive disruption.

Shortly after coming into office, the Biden-Harris administration issued an executive order on “America’s Supply Chains.” Seven federal agencies were directed to undertake comprehensive studies of the national and international economic organization of supply chains for strategic minerals, pharmaceuticals, semiconductors and batteries within 100 days. The administration also told the government departments to report back within a year about how those industries related to broader “industrial bases” for defense, green energy, public health, information technology, transportation and food.

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The Biden-Harris administration wanted to discover security risks

The idea of a “defense industrial base” gained prominence after the Vietnam War, as military planners argued that national military readiness depended on businesses that were not in direct public control. That meant U.S. security sometimes relied on foreign businesses, which produced materials that were critical to U.S. self-defense.

What is different is that this concern now goes well beyond the military sector. Before these reports, nondefense departments had no mandate to think broadly about, say, the energy industrial base for the civilian economy. The Energy Department might have contemplated how to maximize the supply of civilian energy itself, but it wasn’t really focused on the “industrial base” beneath — e.g., the supply chains for the machinery to produce energy.

The U.S. government found that key supply chains go through China

The reports — which I review in detail in a new issue brief for the Roosevelt Institute — reveal that many of the supply chains that are key to U.S. national security go through China. A few examples: China accounts for 80 percent of rare earth production and refining, 61 percent of global lithium refining for batteries and electric vehicles, 100 percent of the processing of natural graphite needed for batteries, 97 percent of production of silicon wafers used in solar panels and 80 percent of the global lithium-ion battery recycling capacity.

Even in industries like cobalt mining, which other countries, such as the Democratic Republic of Congo, dominate, it’s Chinese companies that own and control the production process. Not even flagship domestic production is totally disentangled from Chinese connections. According to an investigation by Quartz, the only significant rare earths producer in the United States — MP Materials — is minority owned by a partly Chinese state-owned company, Shenghe Resources, which also is the sole purchaser of its output.

To put these numbers in context, the cartel power of the Organization of Petroleum Exporting Countries (OPEC) has caused angst among U.S. geopolitics experts for decades. But the 13 OPEC nations control only 40 percent of global petroleum production. If the world moves to a post-carbon economy, countries will be more than twice as dependent on China for some energy products as they are now on OPEC for petroleum, unless something changes. The Energy Department summarized these patterns starkly: “U.S. decarbonization goals are reliant on both Chinese firms and the Chinese government.”

This dependency was illustrated this month when Commerce Secretary Gina Raimondo came under fire for not immediately dismissing a request made by a domestic solar producer for an investigation into whether Chinese solar panel producers were circumventing U.S. duties, possibly with forced labor. U.S. solar installers are almost totally reliant on imported panels and have argued that decarbonization goals require keeping solar prices low, rather than prioritizing the rebuilding of the U.S. production capacity.

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The reports call for green industrial policy

The U.S. government reports argue that these critical dependencies could be reduced by an ambitious green industrial policy. By 2030, the U.S. agencies are targeting goals that 50 percent of vehicles sold in the United States will be electric, 30 gigawatts of offshore wind will be built in the United States (that’s about four times the annual energy use of New York City), battery storage costs will be reduced by 90 percent, production costs for green hydrogen (made from water and electricity) will be lower than fossil fuel-derived hydrogen, and 90 percent of the key mineral iridium will be recycled. The agencies recommend strengthening the federal government’s “Buy American” program, subsidizing green industries through the Defense Production Act and building stockpiles of clean energy like the United States has for petroleum, along with other measures.

These recommendations are ambitious by current standards, but may not go far enough to be truly successful. For instance, the reports note that large power transformers and electric vehicles will compete for steel, and consumer electronics industries will compete with wind and solar industries for semiconductors. This competition for resources could send prices for these critical materials through the roof, but the departments do not recommend price controls, government ownership of critical firms or government planning to allocate resources to the most socially important uses.

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The reports also express alarm about bitcoin mining’s skyrocketing increases in energy use but don’t call for policy measures to shrink the size of the industry. Nor do they call for financing tools that are not dependent on annual congressional appropriation, like national development banks. These more robust policy tools were common in the United States during the Franklin D. Roosevelt administration and have been used by competitors such as China and allies such as France.

Events may force policymakers toward more ambitious industrial policy. As nations ratchet up efforts to decarbonize their economies, isolate Russia and find alternative sources of products affected by the war, it could become increasingly clear that only the public sector can deliver the public goods and coordination these deep transformations may require. These new reports may herald a new era of political battles over whether it is better to trust business or the government to make decisions about critical sectors of the economy.

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Todd N. Tucker (@toddntucker) is the director of industrial policy and trade at the Roosevelt Institute. He is author of “Everything is Climate Now: New Directions for Industrial Policy from Biden’s Supply Chain Reports.”