Supply chains have been thrust into the international spotlight by the economic disruptions of the COVID-19 pandemic, which exacerbated preexisting concerns about Chinese dominance in critical sectors. As a result, the U.S. has come to emphasize supply chain resilience as an essential element of its economic security, focusing particularly on key industries such as semiconductors, critical minerals, high-capacity batteries, and pharmaceuticals. To facilitate selective decoupling with China in such areas, the Biden administration is pursuing supply chain resilience through a two-pronged strategy of domestic and foreign policy initiatives: attempting to revitalize U.S. industry through onshoring while also promoting ally-shoring or friend-shoring abroad. Essentially, bolstering supply chain resiliency is seen by the U.S. as fully compatible with rejuvenating industries that have declined in recent decades. However, it is not yet clear whether the American aims of resilience and revitalization will be truly complementary or whether the drive toward revitalization will lead to pitfalls of protectionism and inefficiency that eventually compromise resilience. Moreover, while the creation of new initiatives and dialogues offers increased opportunities for coordination, a balance must be struck between the roles of governments and firms in order to formulate a coherent long-term plan for supply chain restructuring.
The first part of the U.S. supply chain strategy, revitalization of the American manufacturing base, is driven by domestic politics and the need to clearly connect economic policies with benefits for American workers. For example, Biden’s February 2021 Executive Order on America’s Supply Chains declared that resilient supply chains would revitalize and rebuild domestic manufacturing capacity, maintain America’s edge in research and development, and create well-paying jobs. The June 2021 White House supply chain report put forward many domestic policy recommendations such as investment, consumer rebates, tax incentives, grant programs, creation of pathways to quality jobs, support for small and medium enterprises, identification of potential U.S. production and processing locations, increased federal procurement, and strengthened domestic production requirements. These documents and other government statements clearly make the case that revitalization of American industry is an integral component of ensuring supply chain resilience.
The U.S. Congress has passed legislation geared toward domestic revitalization that also includes supply chains, with a specific focus on semiconductors due to recent shortages and the strategic importance of the industry. In January 2021, Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act, authorizing a series of programs to promote domestic research, development, and fabrication of semiconductors. It was enacted under the National Defense Authorization Act (NDAA) for FY2021; however, no funding was allocated for these programs at that time. Funding for CHIPS Act implementation is currently pending as Congressional leaders negotiate to reconcile the United States Innovation Competition Act (USICA) passed by the Senate in July 2021 with the America COMPETES Act passed by the House in February 2022. Both bills appropriate $52 billion for CHIPS Act implementation, and the America COMPETES Act also appropriates an additional $45 billion for a new Supply Chain Resilience Program.
The second part of the U.S. supply chain strategy seeks increased resilience through bilateral and mini-lateral cooperation with allies and partners. This approach is also discussed in government documents such as Biden’s executive order on supply chains, the White House supply chain report, and the U.S. Indo-Pacific Strategy. The Biden administration has placed more emphasis on international collaboration than the Trump administration, both in pragmatic recognition that onshoring is not always realistic and in an attempt to build relationships with Indo-Pacific countries. At a time when the U.S. is unable to engage its regional allies and partners in formal trade agreements, supply chain resiliency is a shared goal that can be pursued without prompting domestic opposition.
Consequently, the Biden administration has been active in launching bilateral initiatives with key Indo-Pacific allies and partners. For example, supply chains were included in the U.S.-Japan Competitiveness and Resiliency (CoRe) Partnership established in April 2021, and the two countries established the U.S.-Japan Commercial and Industrial Partnership (JUCIP), whose activities will include promoting the resiliency of supply chains for semiconductors, 5G, and other industries. The U.S. and Australia have committed to collaborating on supply chains, with a strong emphasis on critical minerals. In the May 2021 U.S.-ROK leaders’ joint statement, Biden and Moon agreed to cooperate to increase resiliency in supply chains, including semiconductors, electric vehicle batteries, strategic and critical minerals, and pharmaceuticals. The U.S. will also cooperate with Taiwan on critical supply chains through a new Technology Trade and Investment Collaboration (TTIC) framework, and it has launched a high-level supply chain dialogue with Singapore.
In addition to these bilateral initiatives, the U.S. has pursued mini-lateral regional cooperation on supply chains. The Quad announced that it would launch a semiconductor supply chain initiative in September 2021 as part of its work on critical and emerging technologies, and its work on COVID vaccines also emphasizes the importance of open and secure supply chains. The 2021 Aotearoa Plan of Action adopted by the Asia-Pacific Economic Cooperation (APEC) forum also set promotion of resilient supply chains as one of its objectives. Although much remains to be revealed about the broader U.S. plan for economic engagement in the Indo-Pacific region, supply chains are expected to feature prominently. Supply chains were mentioned in the recently released Indo-Pacific Strategy as part of the U.S. objective to drive Indo-Pacific prosperity, and supply chains are expected to be one of the pillars of the forthcoming U.S. Indo-Pacific Economic Framework. It is possible that such minilateral regional agreements have the potential to create a platform for intergovernmental supply chain cooperation.
At the moment, these different lines of effort seem like potentially complementary parts of a broad diversification strategy, and they reflect an impressive whole-of-government effort to map supply chains, identify vulnerabilities, and pursue increased resilience. However, there is also a potential tension between promoting domestic revitalization and pursuing resilience, which will also require international cooperation on supply chains. The revitalization and innovation policies that the U.S. plans to adopt are in many ways similar to the industrial policies that the U.S. has criticized in competitor nations, as well as among its allies and partners. As policymakers move toward policy implementation, it will be important to keep the overall aim of increasing supply chain resiliency in mind as they attempt to strike a balance between promoting domestic welfare and international cooperation. The U.S. is not the only country facing decisions about these tradeoffs, so this is an especially important time for engaging in dialogue with allies and partners to ensure that coordination is achieved where it can be most beneficial. Neither domestic nor international solutions alone can effectively enhance supply chain resilience; an overemphasis on internal revitalization initiatives may lead to inefficiency or protectionism that end up undermining the robustness and adaptability of supply chains.
Moreover, in addition to coordination between national governments, enhancing supply chain resiliency will require consultation and collaboration between the public and private sectors across multiple borders. Most of the government policies being proposed are intended to encourage or constrain the decisions of firms, but firms remain the principal actors in the process of increasing supply chain resilience. Although government and firms share many common concerns about supply chain vulnerabilities, firms tend to be more narrowly focused on efficiency and profit considerations within specific industries, while governments have a broader view that spans multiple sectors and entire economies. These different perspectives are valuable: by engaging in close dialogue, the public and private sectors can help to make sure that private capital is mobilized in an efficient yet coordinated manner and that government is focusing its support in the correct areas. The creation of so many new mechanisms and dialogues for supply chain resilience presents opportunities, but care must also be taken to avoid the proliferation of so many dialogues that it confuses industry or hinders the progress of meaningful collaboration. Moving forward, improving supply chain resilience will require a balanced, multi-faceted approach that weighs tradeoffs between domestic and foreign policy initiatives and leverages the respective strengths of the public and private sectors.
This booklet is promoted within the fourth edition of the Asia & Europe Initiative "Stability and Security in the Indo-Pacific: The US, Japan, the EU and the Elephant in the Room" which gathers together leading experts, Asian and European think thank representatives, as well as Italian companies and agencies to discuss the increasing geopolitical interest in the Indo-Pacific Region.
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