The Biden Administration has released reports assessing the vulnerabilities of four critical supply chains: semiconductor manufacturing and advanced packaging; large capacity batteries, such as those for electric vehicles; critical minerals and materials; and pharmaceuticals and advanced pharmaceutical ingredients (APIs).

Four federal agencies took the lead in authoring each of the reports: the Department of Commerce on semiconductor manufacturing and advanced packaging; the Department of Energy on large capacity batteries; the Department of Defense on critical materials and minerals; and the Department of Health and Human Services, particularly the Food and Drug Administration, on pharmaceuticals and APIs.

Across the four sectors, there are a set of inter-related themes and findings that contribute to supply chain vulnerabilities. These are:

• Insufficient US manufacturing capacity. The loss of manufacturing capabilities has led to a loss in innovation capacity. Manufacturing capabilities underpin innovation in a range of products and once lost, are challenging to build back. In recent decades, when production capacity headed overseas, the R&D and broader industrial supply chains often followed.

• Misaligned incentives and short-termism in private markets. Current US market structures fail to reward firms for investing in quality, sustainability or long-term productivity.

• Industrial policies adopted by allied, partner, and competitor nations. As US investment in the domestic industrial base has declined, its allies, partners and competitors have adopted strategic programs to advance their own domestic competitiveness. The Department of Energy’s analysis of the advanced battery supply chain documents the European Union’s (EU) support for demand policies, investment incentives, and regulatory tools—at both the EU and member-state level—to stimulate domestic production of electric vehicles and lithium-ion batteries. After a 2019 EU report designating the battery of “strategic interest,” the EU announced a $3.5 billion R&D fund to increase the industry’s competitiveness.

  Across all four reports, China stands out for its aggressive use of measures to stimulate domestic production and capture global market share in critical supply chains. Several strategies, including public investments in R&D, domestic demand incentives, and strategic international partnerships have been used to support both resilience and competitiveness of key economic sectors.

• Geographic concentration in global sourcing. To ensure resilient supply chains, it is essential that they be globalized, the reports said. However, the search for low-cost production, combined with the effective industrial policy of key nations, has led to geographic concentrations of key supply chains in a few nations, increasing vulnerabilities for United States and global producers. Such concentration leaves companies vulnerable to disruption, whether caused by a natural disaster, a geopolitical event or a global pandemic.

  It is clear in the Department of Commerce’s report that the United States is dangerously dependent on specific countries for parts of the value chain of all of these products. The global economy depends on Taiwanese firms for 92% of leading-edge semiconductor production. China has more than 75% of global cell fabrication capacity for advanced batteries, as noted in the Department of Energy’s report. While the Department of Health and Human Services’ data suggests India and China compete for market share of many US medicines, industry analysis suggests India imports nearly 70% of its APIs from China.

• Limited international coordination. Aside from a handful of pilot projects and other comparatively small diplomatic and multilateral initiatives to secure supply chains, the United States has not systematically focused on building international cooperative mechanisms to support supply chain resilience.

Batteries. Global demand for EV batteries is projected to grow from approximately 747 gigawatt hours (GWh) in 2020 to 2,492 gigawatt hours by 2025. Absent policy intervention, US production capacity is expected to increase to only 224 GWh during that period, but US annual demand for passenger EVs will exceed that capacity, according to the report.

Maintaining America’s innovative and manufacturing edge in the automotive sector and other key industrial sectors will require the United States to undertake a concerted effort to shore-up sustainable critical material supply and processing capacity, expand domestic battery production, and support EV and storage adoption.

The Administration said that:

• The Department of Energy (DOE) will release a National Blueprint for Lithium Batteries. (Earlier post.)

• DOE’s Loan Programs Office (LPO) will immediately leverage the approximately $17 billion in loan authority in the Advanced Technology Vehicles Manufacturing Loan Program (ATVM) to support the domestic battery supply chain. LPO will leverage full statutory authority to finance key strategic areas of development and fill deficits in the domestic supply chain capacity. This will include the ATVM program making loans to manufacturers of advanced technology vehicle battery cells and packs for re-equipping, expanding or establishing such manufacturing facilities in the United States.

• DOE’s Federal Energy Management Program (FEMP) will launch a new effort to support deployment of energy storage projects by federal agencies.

Critical minerals and materials. The United States and other nations are dependent on a range of critical minerals and materials. Rare earths metals are essential to manufacturing everything from engines to airplanes to defense equipment. Demand for many of these metals is projected to surge over the next two decades, particularly as the world moves to eliminate net carbon emissions by 2050.

For example, global demand for lithium and graphite, two of the most important materials for electric vehicle batteries, is estimated to grow by more than 4,000% by 2040 in a scenario in which the world achieves its climate goals, with graphite projected to grow nearly 2,500%.

China was estimated to control 55% of global rare earths mining capacity in 2020 and 85% of rare earths refining. The United States must secure reliable and sustainable supplies of critical minerals and metals to ensure resilience across US manufacturing and defense needs, and do so in a manner consistent with America’s labor, environmental, equity and other values, the report said.

The Administration said that:

• The Department of Interior (DOI), with the support of the White House Office of Science and Technology Policy, will establish a working group composed of agencies such as the Department of Agriculture (USDA) and the Environmental Protection Agency (EPA) to identify sites where critical minerals could be produced and processed in the United States while adhering to the highest environmental, labor, and sustainability standards.

  The Administration said its working group will collaborate with the private sector, states, Tribal Nations, and stakeholders—including representatives of labor, impacted communities, and environmental justice leaders—to expand sustainable, responsible critical minerals production and processing in the United States.

• The Administration will establish an interagency team composed of staff from agencies including DOI, USDA, EPA, and others with expertise in mine-permitting and environmental law. This team will identify gaps in statutes and regulations that may need to be updated by Congress to ensure: new production meets strong standards before mining begins, during the mining process, and after mining ends; meaningful community engagement and consultation with Tribal Nations, respecting the government-to-government relationship at all stages of the mining process; and opportunities to reduce time, cost, and risk of permitting without compromising strong environmental and consultation benchmarks are fully explored.

• DOD will deploy DPA Title III incentives—including grants, loans, loan guarantees, and offtake agreements—to support sustainably-produced strategic and critical materials, including scaling proven research and development (R&D) concepts and emerging technologies from other programs such as the Small Business Innovation Research awardees.

• The DOE LPO, through its Title 17 Renewable Energy and Efficiency Energy Projects solicitation, has more than $3 billion in loan guarantees available to support efficient end-use energy technologies, such as mining, extraction, processing, recovery, or recycling technologies, of critical materials projects that satisfy Title 17 requirements.

• The US Development Finance Corporation will expand international investments in projects that will increase production capacity for critical products, including critical minerals and other products, ensuring that investments that support supply chain resilience and uphold international standards of environmental and social performance.

In the short-term, the Administration will establish new Supply Chain Disruptions Task Force to provide a whole-of-government response to address near-term supply chain challenges to the economic recovery.