US-China relations: Biden administration to set up ‘strike force’ to go after China on trade
By Jodi Xu Klein, South China Morning Post
June 8, 2021
The United States will set up a “strike force” to fight China’s unfair trade practices and strengthen American supply chains, the Biden administration said in a report reviewing the nation’s reliance on foreign countries for critical products from semiconductor to pharmaceuticals.
In a 255-page White House report released on Tuesday, National Security Adviser Jake Sullivan said that US trade policy toward China should include examining how existing trade agreements and future measures can help make domestic supply chains more resilient.
The strike force, led by United States Trade Representative Katherine Tai, will identify unfair practices “that have eroded critical supply chains and to recommend trade actions”, according to Sullivan and Brian Deese, director of the White House’s National Economic Council. The force will look for specific violations that have contributed to a “hollowing out” of supply chains that could be addressed with trade remedies, including toward China, the advisers said in the report.
The 100-day inter-agency review was directed by US President Joe Biden in February, just weeks into his administration. Federal agencies – the departments of Commerce, Defence, Energy, and Health and Human Services (HHS) – were asked to look into how much they depend on imports for semiconductors, pharmaceuticals, automobile batteries, and rare earth elements crucial to technology development and defense.
Across all four sectors, the report said, “China stands out for its aggressive use of measures – many of which are well outside globally accepted fair trading practices”.
Beyond the initial evaluation, Biden also asked the agencies for a broader, year-long examination. That review, to be completed by February, focuses on industrial bases in six sectors: defense; public health and biological preparedness; information and communication technology; energy; transportation; and agricultural commodities and food products.
Nick Vyas, executive director of the Marshall Centre for Global Supply Chain Management at the University of Southern California, called the administration’s handling of supply chain problems “calm, composed, and thorough”.
”Unlike previous administrations, which often engaged in loud anecdotes and tariffs as weapons to deal with supply chain issues with China, the Biden administration is working through a review strategic framework,” said Vyas.
Tuesday’s report, for example, noted that the US is heavily dependent on imports of neodymium magnets, a key rare earth element used in computer hard disks and electric motors. The Commerce Department is considering initiating a Section 232 investigation into the national security impact of neodymium magnet imports used in motors and other industrial applications, which the US largely sources from China.
The report also underscored the heavy US dependence on imports of lithium. The Department of Energy said it planned to release a national blueprint for building a domestic supply chain for the metal.
The vulnerabilities inherent in depending on foreign supplies manifested clearly last year, as the Covid-19 pandemic ravaged the country. American hospitals struggled to secure enough personal protective equipment like surgical masks and gloves, a shortage that devastated frontline health care workers. As the health care system scrambled to procure life-saving equipment such as ventilators, the severely ill died by the thousands.
To prevent shortages in medical supplies, the HHS said it planned to establish a consortium on the base of the existing public-private partnerships to bring essential medicines production onshore.
“The consortium will select 50 to 100 critical drugs, drawn from the Food and Drug Administration’s essential medicines list, to be the focus,” the department said.
The department said that “the core of these failures is the inability of the market to reward quality” – a reference to US medical supply companies maximizing profits by using low-cost, low-skilled workers overseas.
The search for low-cost production “has led to geographic concentrations of key supply chains in a few nations”, it said. “Such concentration leaves companies vulnerable to disruption, whether caused by a natural disaster, a geopolitical event or indeed, a global pandemic.”
Though not explicitly directed at China, the review is part of a broader Biden administration strategy to shore up US competitiveness in the face of economic challenges posed by the world’s second-largest economy.
The news comes as the two nations seem to be increasing their economic discussions, with Chinese Vice-Premier Liu He speaking with Tai and US Treasury Secretary Janet Yellen over the past two weeks.
“Obviously, a number of Chinese industrial policies have contributed to vulnerable US supply chains,” an official said to reporters. “I think you are going to see this strike force focusing on feeding into some of our China policy developments.”
The US was not looking to “wage trade wars with our allies and partners,” the official added, noting the strike force would be focused on “very targeted products.”
Semiconductors are a central focus in sprawling legislation currently before the US Congress, which would pump billions of US dollars into creating domestic production capacity for the chips used in everything from consumer electronics to military equipment.
Recently, a shortage of semiconductors hit vehicle manufacturers, causing US carmakers to cut production. Ford Motor canceled shifts at two plants that make F-150 pickup trucks. General Motors, Honda, and Toyota also slowed production.
The US has worked to expand semiconductor production, attracting Taiwan Semiconductor Manufacturing, the global chipmaking giant, to build a plant in Arizona. Intel recently announced plans to build two factories in Arizona as well.
At a separate event on Tuesday, US Commerce Secretary Gina Raimondo said that incentivizing businesses to build semiconductor production capacity in America would be “probably the biggest thing I work on”.
Asked whether the government was concerned whether semiconductors produced domestically are made in factories owned by foreign entities, Raimondo said in an interview with Fortune chief executive Alan Murray that proposals to build plants – or foundries, as they are known in the industry – would go through “an economic analysis as well as a national security screen”.
The nationality of companies looking to build foundries in the US “absolutely matters, but it really matters that we’re producing this stuff in America”, she said, noting that the US produces only 12 percent of domestic demand and none of the “leading edge” semiconductor chips.
The report, noting that the US retains an “unparalleled innovation ecosystem” of universities, research centers, and incubators, said the administration would “double down on our innovation infrastructure, reinvesting in research and development and accelerating our ability to move innovations from the lab to the marketplace”.
White House economic adviser Deese said at a briefing last week that the administration would also focus on addressing short-term bottlenecks in housing, construction materials, transport, and logistics.
For these issues, the report said, a task force examining “supply-chain disruption” will be set up, led by the Commerce, Transportation, and Agriculture secretaries. The task force will identify mismatches in supply and demand in the past months and coordinate among agencies to address them.
Even so, Deese acknowledged last week, for “a lot of these supply-chain issues, there is no immediate magic bullet”.
The global supply chains on which the US relies today were built up for more than 75 years since the end of World War II, according to a recent report by McKinsey & Company. Over time, industries from apparel to semiconductors have spread complex chains of suppliers widely around the world, with the result that thousands of companies might contribute to an end product.
The US has also moved to focus more on cutting-edge research and new tech development and has become increasingly dependent on overseas manufacturing and production.
As a result, US manufacturing capacities have declined. The country now imports 72 percent of the active pharmaceutical ingredients it uses domestically, according to a report by PwC.
The world depends on Taiwanese firms for 92 percent of advanced semiconductors, according to the White House review. China has over 75 percent of global cell fabrication capacity for advanced batteries, and the country refines 60 percent of lithium and 80 percent of cobalt in the world, two core metals for high-capacity batteries crucial to the US auto industry, the review found.