Publications & Events
Alert

President Biden Orders Review of Supply Chain Risks in Critical Sectors

On February 24, President Biden signed an Executive Order (EO) directing federal agencies to perform a 100-day review of "supply chain risks" for four classes of products: (1) semiconductors; (2) high-capacity batteries, including for electric vehicles; (3) critical and strategic minerals, including rare earths; and (4) pharmaceuticals and their active ingredients. The EO also directs agencies to perform year-long reviews of supply chains in six critical sectors: (1) defense; (2) public health; (3) information technology; (4) transportation; (5) energy; and (6) food production. The reviews will seek to identify supply chain risks that leave the United States vulnerable to reductions in the availability and integrity of critical goods, products, and services, and will include policy recommendations for mitigating such risks. The EO indicates that, among other approaches, the Biden administration will explore how trade policies and agreements can be used to strengthen the resilience of US supply chains.

The evaluation of critical minerals supply chains mandated by the EO will build upon similar initiatives carried out by the Trump administration, which carried out its own review to identify critical minerals that were vulnerable to supply chain disruptions, and developed a federal strategy to ensure secure and reliable supplies of such minerals. In the previous administration's view, the risks posed by current critical minerals supply chains were severe:  in 2020, President Trump declared that the United States' "undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries" constituted a "national emergency."  We expect that the Biden administration also will identify supply chain risks associated with critical minerals, though it is unclear whether (or to what extent) its policy response will overlap with that proposed by the previous administration.

We provide an overview of the EO and its implications below.

 

Outlook

The EO follows President Biden's campaign promise to launch a "comprehensive review of US supply chain vulnerabilities" based on his view that the United States is "dangerously dependent on foreign suppliers" in certain critical sectors. Biden administration officials have emphasized that the reports required by the EO are only the first stage of the process, and that the administration intends to take action to mitigate supply chain risks that might be identified in the reports.

As the EO makes clear, the Biden administration believes that trade policy can play a role in efforts to strengthen the resilience of supply chains, and that bolstering domestic manufacturing capabilities should be a priority. However, it is premature to conclude that the supply chain reviews will lead to the imposition of trade restrictions. The EO does not expressly contemplate the use of trade restrictions as a means of promoting supply chain resilience. Moreover, where the EO does mention trade policy, it seeks recommendations for "engag[ing] allies and partners to strengthen supply chains jointly" and for reforming trade rules and agreements (including to promote supply chain "diversity"). This could presage efforts to facilitate trade, particularly with countries that are close allies of the United States.

On the other hand, Biden administration officials have indicated that the EO was motivated in part by concerns about perceived "over-reliance" on specific countries for critical supplies. This concern is reflected in the EO's requirement for agencies to assess US reliance on countries that "are, or are likely to become, unfriendly or unstable." In practice, assessing and mitigating the United States' reliance on China in particular is likely to be a focus of the forthcoming supply chain reviews and assessments. Nevertheless, it is clear the Biden administration plans to use trade policy to work with allies in addressing this issue and views trade as one tool among many on which the EO seeks recommendations.

 

Purpose of the EO

The EO is intended to support the Biden administration's policy "to strengthen the resilience of America's supply chains." The preamble to the EO identifies a range of threats that can "reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services," including "[p]andemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition[.]" Given such threats, the United States "needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security."

The EO explains that, in the Biden administration's view, "resilient" supply chains are both "secure and diverse," facilitating "greater domestic production, a range of supply, built-in redundancies, adequate stockpiles, safe and secure digital networks, and a world-class American manufacturing base and workforce." While a key objective of the EO is to promote domestic production of critical items, the EO also acknowledges that "close cooperation on resilient supply chains with allies and partners who share our values will foster collective economic and national security and strengthen the capacity to respond to international disasters and emergencies."

 

Purpose of 100-Day Supply Chain Reviews

The EO directs the Assistant to the President for National Security Affairs (APNSA) and the Assistant to the President for Economic Policy (APEP), in coordination with the relevant agency heads, to complete reviews of "supply chain risks" for four categories of goods, as follows:

  • The Secretary of Commerce, in consultation with the heads of appropriate agencies, will submit a report identifying risks in the semiconductor manufacturing and advanced packaging supply chains
  • The Secretary of Energy, in consultation with the heads of appropriate agencies, will submit a report identifying risks in the supply chain for high-capacity batteries, including electric-vehicle batteries
  • The Secretary of Defense (as the National Defense Stockpile Manager), in consultation with the heads of appropriate agencies, will submit a report identifying risks in the supply chain for critical minerals and other identified strategic materials, including rare earth elements
  • The Secretary of Health and Human Services, in consultation with the heads of appropriate agencies, will submit a report identifying risks in the supply chain for pharmaceuticals and active pharmaceutical ingredients

These reviews must be completed within 100 days (i.e., by June 5, 2021). The Order specifies that the reports containing the results of the reviews are to be submitted to the President "in an unclassified form" but may include a classified annex, indicating that at least some portion of the reports will be made public.

With respect to the report identifying risks in and policy recommendations with respect to the supply chain for critical minerals and rare earth elements, the EO refers to interagency assessments completed during the Trump Administration pursuant to Executive Order 13953 of Sept. 30, 2021 (Addressing the Threat to the Domestic Supply Chain From Reliance on Critical Minerals From Foreign Adversaries and Supporting the Domestic Mining and Processing Industries) (EO 13953). The Biden administration EO directs the report to be produced by the Secretary of Defense and agency officials to describe and update those assessments.

EO 13953 specifically targeted the 35 types of "critical minerals" identified by the Department of the Interior in 2018, pursuant to President Trump's 2017 Executive Order mandating the development of a multi-agency federal strategy to ensure secure and reliable supplies of minerals that are essential to the economic and national security of the United States. The strategy outlined in the 2017 executive order emphasized removing regulatory impediments to domestic minerals production and expanding trade with allied countries. EO 13953 contemplated the potential use of tariffs, quotas and other import restrictions on critical minerals from China and other "foreign adversaries," but the Trump administration ultimately abandoned this approach and no such restrictions were imposed. It is difficult to envision the Biden administration reaching a fundamentally different conclusion regarding the desirability of import restrictions, and it might even embrace some of the Trump administration's other proposed strategies for facilitating domestic production. The Biden administration may also propose new policy responses to fortify the nation's supply chains.

 

Sectoral Supply Chain Assessments

Within one year of the date of the EO, the relevant agency heads must submit the following "sectoral supply chain assessments" to the President through the APNSA and the APEP:

  • The Secretary of Defense, in consultation with the heads of appropriate agencies, will submit a report on supply chains for the defense industrial base, identifying areas where civilian supply chains are dependent upon competitor nations
  • The Secretary of Health and Human Services, in consultation with the heads of appropriate agencies, will submit a report on supply chains for the public health and biological preparedness industrial base
  • The Secretary of Commerce and the Secretary of Homeland Security, in consultation with the heads of appropriate agencies, will submit a report on supply chains for critical sectors and subsectors of the information and communications technology (ICT) industrial base, including the industrial base for the development of ICT software, data, and associated services
  • The Secretary of Energy, in consultation with the heads of appropriate agencies, will submit a report on supply chains for the energy sector industrial base
  • The Secretary of Transportation, in consultation with the heads of appropriate agencies, will submit a report on supply chains for the transportation industrial base
  • The Secretary of Agriculture, in consultation with the heads of appropriate agencies, will submit a report on supply chains for the production of agricultural commodities and food products

 

Scope of "100-Day Supply Chain Reviews" and "Sectoral Supply Chain Assessments"

The EO requires that each "100-day supply chain review" and "sectoral supply chain assessment" identify risks to the covered supply chain and offer policy recommendations to mitigate such risks.

The EO requires agencies to evaluate a wide range of potential risks to the covered supply chains, including the "defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human-rights or forced-labor risks or other contingencies that may disrupt, strain, compromise, or eliminate the supply chain — including risks posed by supply chains' reliance on digital products that may be vulnerable to failures or exploitation[.]" Agencies must also evaluate risks resulting from "the elimination of, or failure to develop domestically" the manufacturing or other capabilities to produce the goods or materials underlying the supply chain in question. Additionally, for each covered supply chain, the agencies must assess "the resilience and capacity of American manufacturing supply chains and the industrial and agricultural base — whether civilian or defense" to support national and economic security and emergency preparedness. This will include assessments of "the location of key manufacturing and production assets" and situations where there is "exclusive or dominant supply of critical goods and materials…by or through nations that are, or are likely to become, unfriendly or unstable," among other factors.

For each covered supply chain, the EO requires agencies to produce "specific policy recommendations for ensuring a resilient supply chain[.]" Such recommendations "may include sustainably reshoring supply chains and developing domestic supplies, cooperating with allies and partners to identify alternative supply chains, building redundancy into domestic supply chains, ensuring and enlarging stockpiles, developing workforce capabilities, enhancing access to financing, expanding research and development to broaden supply chains, addressing risks due to vulnerabilities in digital products relied on by supply chains, addressing risks posed by climate change, and any other recommendations[.]" In addition, agencies must recommend "any executive, legislative, regulatory, and policy changes and any other actions" to strengthen necessary manufacturing and other capabilities and "to prevent, avoid, or prepare for" the contingencies identified in the EO.

 

General Review and Recommendations

The EO requires the APNSA and the APEP to provide a "general review" and recommendations to the President "as soon as practicable" after the submission of the sectoral supply chain assessments described above. These may take the form of "one or more reports" that review the actions taken over the previous year and provide recommendations on specified topics. The EO seeks recommendations on a wide range of potential trade, foreign and domestic policy measures, including the following:

  • Steps to strengthen the resilience of America's supply chains
  • Diplomatic, economic, security, trade policy, informational, and other actions that can successfully engage allies and partners to strengthen supply chains jointly or in coordination
  • Reforms to domestic and international trade rules and agreements needed to support supply chain resilience, security, diversity and strength
  • Education and workforce reforms needed to strengthen the domestic industrial base
  • Federal incentives and any amendments to Federal procurement regulations that may be necessary to attract and retain investments in critical goods and materials and other essential goods and materials

The Executive Order can be viewed here.

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP