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US-China tensions

US enlists Quad to strengthen critical supply chains

White House outlines plan to curb dependence on China for chips and rare earths

President Joe Biden holds a silicon wafer at an online meeting April 12. The growing U.S. rivalry with China, combined with a global chip shortage, is pushing Washington to fortify domestic supply chains.   © AP

WASHINGTON -- The U.S. will work with countries in the Quadrilateral Security Dialogue and the Group of Seven to address supply chain vulnerabilities for semiconductors and other strategic materials, according to a White House report published Tuesday.

American dependence on China for chips and other critical products has provoked mounting concern, especially as the countries compete globally. President Joe Biden aims to bolster domestic supply chains in cooperation with partners such as Quad members Japan, Australia and India, though it remains unclear whether Washington can secure enough funding for its ambitious plans.

"It is important to rebuild domestic manufacturing capability for key products," a senior administration official told reporters Monday ahead of the report's release. "We want to see a more diverse set of suppliers."

The report was issued in response to an executive order by Biden in February to review supply chains covering semiconductors, electric vehicle batteries, pharmaceuticals and rare-earth minerals.

"We must rebuild our small and medium-sized business manufacturing base, which has borne the brunt of the hollowing out of U.S. manufacturing," the report said, citing a lack of investment in critical fields, policy failures, a short-term approach in the private sector and other factors.

"The United States cannot address its supply chain vulnerabilities alone," the report warned. Washington should expand "multilateral diplomatic engagement on supply chain vulnerabilities, particularly through groupings of like-minded allies such as the Quad and G-7," and host a global forum on supply chain resilience with government and private sector stakeholders from U.S. allies.

On semiconductors, which have emerged as a key economic security concern worldwide, the report encouraged the U.S. to continue commercial diplomacy with countries like Japan and South Korea.

Biden and Japanese Prime Minister Yoshihide Suga agreed on greater cooperation in chip supply chains at their April summit. South Korea, during Biden's meeting in May with President Moon Jae-in, said that Samsung Electronics will invest $17 billion to build a new U.S. plant.

American semiconductor companies have long outsourced production to Asian suppliers. The U.S. accounted for 12% of global chip output in 2020, the Semiconductor Industry Association says, ranking below Taiwan's 22%, South Korea's 21% and Japan's 15%. China, which also produced 15%, is heavily subsidizing domestic chipmakers to expand its global footprint.

Taiwanese companies produce 92% of cutting-edge chips. To curb U.S. dependence on overseas supply, the report urged Congress to provide at least $50 billion to support the development and production of semiconductors.

Taiwan Semiconductor Manufacturing Co. is building a new American plant, and Biden wants to offer subsidies to encourage more chipmakers to set up shop in the U.S.

The report also calls for shoring up the EV battery industry by tapping the $17 billion in the Energy Department's Advanced Technology Vehicles Manufacturing Loan Program. Ford Motor last month announced a joint factory with South Korea's SK Innovation, and the U.S. looks to help American and South Korean players catch up to China's Contemporary Amperex Technology Ltd., which leads the industry with a roughly 25% share.

China also leads in rare-earth metals, supplying roughly 60% of global production. The report urged the U.S. International Development Finance Corp. to boost investment in projects to expand output of these elements, with an eye toward greater cooperation with Australia. The administration also will explore potential sites for production and processing facilities at home, and look into easing regulations in the field.

In the pharmaceutical sector, the White House will launch a public-private body to bolster U.S. output. It will identify 50 to 100 products and look into establishing new supply chains that do not rely on China. The report identified India as a key producer of pharmaceuticals, suggesting potential partnerships with the country.

Biden also will target dumping and other unfair trade practices as the administration creates a "trade strike force." It also will consider whether to open an investigation into neodymium magnets under Section 232 of the Trade Expansion Act of 1962, which lets the U.S. restrict imports that threaten national security. The magnets are a key component in motors and other devices.

The U.S. has grown increasingly concerned by its dependence on overseas supply chains, especially as a global chip shortage hits automakers and a variety of other businesses. The report recommends that the government track supply and demand and "improve information sharing between federal agencies and the private sector" to identify near-term risks.

But the government can do little over the short term, and long-term changes require legislative backing. The Senate is deliberating funding to bolster the semiconductor industry. The report urged Congress to approve $15 billion for national EV-charging infrastructure, and to pass legislation to establish a Commerce Department body that monitors supply chains.

The report also called for congressional action to enact the American Jobs Plan -- a $2 trillion proposal by the Biden administration to rebuild U.S. infrastructure and industry. But the Republican Party has opposed raising corporate taxes to fund the initiative, and future efforts to bolster U.S. supply chains hinge on negotiations between the Democratic and Republican parties.

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