The U.S. government is directing a broad review of supply chains for critical materials with the aim of spurring domestic production while strengthening ties with allies. As noted in our Feb. 18th blog, chip shortage is squeezing auto makers in the U.S. and world-wide. Cars use chips for numerous systems, including engine management, automatic braking and assisted driving.
The U.S. mandates a review of supply chains for four areas reports The Wall Street Journal (Feb. 25, 2021): semiconductors, used in products from cars to phones; large-capacity batteries used in electric vehicles; pharmaceuticals and rare-earth elements that are key to technology and defense, and supply chains covering six broader sectors, from technology to food production. Senators Rubio (R., Fla.) and Coons (D., Del.) recommended the government invoke the Defense Production Act to “incentivize or, if necessary, require American companies to retain their domestic capacities during this time.”
The government intends to encourage domestic production with incentives such as job-training programs and business loans, in addition to using the federal procurement process for more American-made purchases. “This problem was decades in the making. We can solve it by making smart investments that are long term in nature,” said the National Economic Council. While China was not named directly, it dominates the rare-earths market and is a major player in other supply areas, including pharmaceuticals. “Right now, semiconductor manufacturing is a dangerous weak spot in our economy and in our national security. That has to change,” added Sen. Schumer.
A group of associations representing technology companies, the automotive industry and other businesses called for action to improve supply chains, including promoting the construction of semiconductor-manufacturing facilities and investing in research.
Classroom discussion questions:
- What are the obstacles to revamping these “critical” supply chains?
- Are the government incentives sufficient? What else can be done?