In order to ensure that the United States possesses resilient supply chains that protect national security, meet America’s needs during emergencies and keep America competitive globally, the Biden Administration has issued an executive order on “America’s Supply Chains.” The order initiates two tiers of supply chain reviews: a 100-day supply chain review of four specific U.S. industries and a year-long review of six sector-wide U.S. supply chains. These reviews will lead to the issuance of reports by relevant agencies and departments that will analyze the current conditions of the respective supply chains and recommend steps to reduce reliance on specific countries for critical goods and services, and to avoid such reliance in the future.

The executive order is notable in that it represents the first serious attempt by the U.S. government to develop a comprehensive, government-wide policy on supply chains.  The fact that President Biden is taking this step during his second month in office only underscores the extent to which supply chains have become a critical issue in such a short period of time.

While the immediate cause of this increased focus may have been the pandemic, the text of the order evidences that the Administration’s concerns go beyond COVID.  Indeed, the U.S. government has been working on a new regulatory structure for the Information and Communications Technology and Services (“ICTS”) supply chain for over a year, as we previously advised here.

The first tier of reviews under the executive order will cover four specific areas:

  • semiconductor manufacturing and advanced packaging,
  • high capacity batteries,
  • critical minerals and other identified strategic materials, and
  • active pharmaceutical ingredients (API).

These reviews are to be conducted within 100 days of the issuance of the order and the results must be submitted to the Assistant to the President for National Security Affairs (APNSA) and the Assistant to the President for Economic Policy (APEP).  The reports will include a review of the goods and materials required in each supply chain, and the manufacturing or other capabilities necessary to produce said goods/materials.  They will also include a review of potential risks to these supply chains, such as forced labor, natural disasters, environmental/ climate and defense/homeland security issues.  The reports will also make policy recommendations, including possible executive, legislative, regulatory and policy changes such as “reshoring supply chains and developing domestic supplies, cooperating with allies and partners to identify alternative supply chains, building redundancy into domestic supply chains, [and] ensuring and enlarging national stockpiles…”

The second tier of supply chain assessments will focus on six sectors:

  • the defense industrial base,
  • the public health and biological preparedness industrial base,
  • the information and communications technology (ICT) industrial base,
  • the energy industrial base,
  • the transportation industrial base, and
  • agricultural commodities and food production.

The results of these reviews are due one year from the issuance of the order.  Once these reports have been completed, the order instructs the APNSA and APEP to provide additional reports which contain recommendations on “steps taken to strengthen the resilience of America’s supply chains”, “the establishment of a quadrennial supply chain review”, “Federal incentives and any amendments to Federal procurement regulations that may be necessary to attract and retain investments in critical goods and materials,” and possible reforms to international trade rules that address supply chain resilience and security. Further, the order charges agencies and departments with consulting stakeholders as appropriate as they implement its provisions.

The key takeaway is that the administration intends to take an evidence-based, consultative, and strategic approach to supply chains.  The order appears to recognize the need to create integrated sector-specific strategies that account for a myriad of factors and address sometimes- competing policy priorities. At the same time, it discusses the need to address cross-cutting priorities like worker skills, climate change, and transportation systems to ensure that U.S. supply chains are globally competitive and sustainable.  While acknowledging that “geopolitical and economic competition” is one of the drivers for the order, it does not mention any country by name and it cites the importance of collaborating with trusted international partners to ensure resiliency, an implicit recognition that not every product can be manufactured domestically.  In addition, the order provides flexibility to adjust the scope of the assessments and analyze additional sectors if necessary.

Focus on Semiconductors

One of the primary areas of focus for the executive order is semiconductors.  Notably, the order acknowledges the “{r}ecent shortages of automotive semiconductor chips” that resulted in “forced slowdowns at car manufacturing plants” as one of the primary motivations behind its issuance.

In the weeks leading up to the signing, the U.S. semiconductor and automotive industries released statements asking President Biden for greater investments to address the chip shortages in the United States.  For instance, on February 18, 2021, 17 major industry associations spanning the automotive, technology, semiconductor, telecommunications, and defense sectors signed a joint letter to President Biden urging him to “work with Congress to reinvigorate semiconductor manufacturing in the United States and increase semiconductor research by funding the initiatives authorized in the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act in the National Defense Authorization Act for Fiscal Year 2021.”  While the CHIPS for America Act authorized federal incentives for chip manufacturers and increased investments in chip research, the group of associations implored the President “to work with Congress to provide robust funding . . . and enact an investment tax credit in [the] forthcoming recovery and infrastructure proposal.”

It is clear that Congress is ready to take further action to address US industry concerns. This executive order comes just one day after Senate Majority Leader Schumer (D-NY) announced that he had directed lawmakers to draft a legislative package that would “target investment in US manufacturing, science and technology, supply chains, and semiconductors.” Leader Schumer also indicated that at the center of the package would be a re-introduced version of the Endless Frontiers Act, a bill that would, among other things, “strengthen US leadership in critical technologies through fundamental research in key technology focus areas.

Actions by both the President and Congress signal that the United States will increase its efforts to address chip shortages and continue to reduce US reliance on chip imports in 2021.

For specific advice on how to engage with the administration on the executive order, adopt effective supply chain management strategies, or navigate the potential legal and operational impacts of emerging U.S. supply chain policies, contact the Steptoe Supply Chain team.