WASHINGTON – Automakers were forced to stop production because of a lack of computer chips. Health care workers battling the coronavirus pandemic had to fend for themselves without masks while the United States waited for supplies from China. And pharmaceutical executives feared that the supply of essential drugs could end if countries tried to stock up on essential ingredients and block exports.
Deep disruptions in the global movement of essential products during the pandemic led President Biden to take steps to reduce the country’s dependence on foreign materials on Wednesday. He issued an executive order requiring his government to review critical supply chains to support American manufacturing of semiconductors, pharmaceuticals and other cutting-edge technologies.
In comments at the White House, the president called the move an important step towards creating well-paid jobs and making the economy more resilient in the face of geopolitical threats, pandemics and climate change.
“It is about ensuring that the United States can meet all the challenges that we will face in the new era,” he said.
But the effort, which has bipartisan support, will do little to immediately address global shortages, including semiconductors – a key component in cars and electronic devices. The lack of these components has forced several major American car factories to close or cut production and has caused the government to struggle to appeal to allies like Taiwan for emergency supplies.
Government officials said the order would not offer a quick fix, but would initiate an effort to isolate the American economy from future shortages of important imported components.
Biden discussed the issue in the Oval Office on Wednesday afternoon with nearly a dozen Republican and Democratic members of Congress. Senator Chuck Schumer, a New York Democrat and majority leader, called for a bill to be drafted and passed this spring to address supply chain vulnerabilities.
“At the moment, semiconductor manufacturing is a dangerous weak point in our economy and national security,” said Schumer. “Our automotive industry is facing a significant chip shortage. This is a technology created by the United States; we must lead the world in this. The same goes for the construction of 5G, the next generation telecommunications network. There is bipartisan interest in both issues ”.
Republicans left the White House meeting optimistic that such efforts could move forward soon. Rep. Michael McCaul, a Republican from Texas, said he was pleased to see that the White House made the issue a top priority and that the president was responsive. “His words were, ‘Look, I have it all in,'” he said.
McCaul said that much of the conversation revolved around legislation that Congress passed last year to encourage the chip industry – but that it still needs funding for research grants and a refundable investment tax credit – as well as the current shortage of chips and possible employment imminent losses in the auto industry.
“China is thinking of investing $ 1 trillion in its digital economy,” said McCaul. “If we want to be competitive, we have to encourage these companies to manufacture these advanced chips in the United States.”
Mr. Biden rated the meeting as one of the best in his presidency to date. “It was like old times,” he said. “In fact, people were on the same page.”
The president ordered one-year analyzes of six sectors and a 100-day analysis of four classes of products in which American manufacturers depend on imports: semiconductors, high-capacity batteries, pharmaceutical products and their active ingredients and critical minerals and strategic materials, like rare earth.
Additional actions to strengthen these supply chains will depend on the vulnerabilities identified, officials said.
“We are going to get out of the business of responding to supply chain crises as they arise and go into the business of preventing future supply chain problems,” Peter Harrell, senior director of economics and international competitiveness at the White House, told reporters in a news briefing.
The executive order did not target imports from any specific country, but is being seen as an initial salvo in the government’s economic battle with China. Beijing’s dominance of global supply chains of raw materials and essential products, such as medical masks, has raised serious concerns that its authoritarian government could isolate the United States, causing further economic upheaval.
At the start of the coronavirus pandemic, China diverted exports of surgical masks and protective equipment to its local governments and hospitals, leaving foreign buyers empty-handed. Along with India, China is also an important source of active ingredients for the manufacture of vital medicines, including antibiotics and pain relievers.
China has also periodically banned exports of rare earth materials that are crucial for the manufacture of electronics, fighters and weapons; proposed new restrictions on exports this year.
China, which produces most of the world’s rare earth supply, has used much of its own to create domestic supply chains, causing exports to slow in recent months, said Pini Althaus, chief executive of USA Rare Earth, which is to develop a rare earth and lithium deposit in Texas.
Without these minerals, the United States cannot manufacture quantum computers, deploy a 5G network or make electric vehicles, he said.
“Panic is starting to settle in various sectors and in various government agencies, because we are in a very precarious position at the moment,” said Althaus.
Schumer announced on Wednesday that he had instructed Senate committee leaders and members to begin drafting a new legislative package “to win over China and create new American jobs”. He said he intended to put the bill, which would be based on the bipartisan Endless Frontier Law that he introduced last year, to the Senate floor for voting this spring.
The legislation would encourage investments in American semiconductor manufacturing, which he called “a dangerous weakness in our economy”, as well as 5G, artificial intelligence and biomedical research.
“I want this bill to address America’s short and long-term plan to protect the semiconductor supply chain and keep us first in things like AI, 5G, quantum computing, biomedical research, storage,” said Schumer. “We need to get a bill like this to the president’s desk quickly.”
The semiconductor industry welcomed the ambitious Congressional legislation and Biden’s executive order.
Bob Bruggeworth, president of the Semiconductor Industry Association and chief executive of Qorvo, a semiconductor company, said his industry was ready to work with the Biden administration. He asked the president and Congress to “invest ambitiously” in manufacturing and research.
“This will ensure that more chips our country needs are produced on the shores of the United States, while promoting the United States’ sustained leadership in technology at the heart of America’s economic strength and job creation, national security and critical infrastructure.” said Mr Bruggeworth.
But semiconductor industry analysts say the government shouldn’t do much to deal with the shortage of chips in the short term. Most chip factories are operating close to maximum capacity, and production expansion is likely to take three to six months, if not more.
The Biden government 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 were forced to close factories and cut production; Both estimate that the chip shortage will reduce their operating profit by at least $ 1 billion this year. A GM executive said at a Wolfe Research conference on Wednesday that the company has begun to see the situation improve in recent weeks.
Charlie Chesbrough, a senior economist at Cox Automotive, said that Biden’s executive order would likely have little effect on the auto industry in the short term, since supply chains were generally determined years in advance.
“Tighter inventory problems on the market today and the factory slowdown caused by a shortage of computer chips are expected to follow us through most of 2021,” he said,
“Executive order or not”.