Biden Just Released 1,358 Pages of Supply Chain Plans. A House Bill Is Key to Making Them a Reality.
March 4, 2022
By Todd N. Tucker
Overshadowed by last week’s Russian invasion of Ukraine was the release of six massive plans from seven federal agencies to strengthen supply chains for everything from high-end semiconductors and solar panels to low-end consumer electronics.
These plans prioritize active government defining and shaping of markets to promote the public interest. After all, during the decades since the 1970s when a more hands-off approach reigned, companies in many of the six industries studied outsourced and offshored their way into very vulnerable positions. The plans offer a vision for what government could do to reduce industries’ dependence on volatile parts of the world; if coupled with the policy muscles and money contemplated in America COMPETES, a recently passed piece of legislation in the House of Representatives, they could represent a major contribution to what some are calling “supply side progressivism.”
A New Role for Government
Taken together, the plans represent a change in the way policymakers are thinking about the role of government in the material economy.
For example, the plan from the Department of Health and Human Services (HHS), an agency that has historically focused on arm’s-length regulation of industry and protecting the well-being of patients and consumers, instead gives definition to a new concept of the Public Health Industrial Base. This idea of a “base” recognizes that health providers are not just a random assortment of individual firms operating in isolation, but rather an interconnected web of public and private institutions that defines our collective capacity to produce and distribute goods to meet fundamental human needs. Accordingly, HHS has established new public capacities like a Supply Chain Control Tower, which centralizes production and logistics information previously held only by individual firms into a common database so that possible shortages and threats can be identified early.
The shift in governing philosophy is even clearer in the Department of Energy’s (DOE) impressive 950-page plan for the Clean Energy Sector Industrial Base. Compared to the other plans, the DOE document (which accounts for 70 percent of the total page count for all of the plans) is more explicit in stating that combatting the climate crisis will require robust public industrial policy and planning. Indeed, private markets on their own have not, cannot, and will not produce what DOE says is necessary: substantial reshoring of clean energy production (initially developed with US taxpayer support), creation of a new domestic mining industry that supports environmental justice, and creation of (publicly backstopped) markets to guarantee demand for 11 technologies ranging from offshore wind to high-powered magnets. If these emerge, it will be because the public sector chose to play a catalyzing role. And because of the public nature of this policy enterprise, industries can be built and rebuilt with more attention to the common good than would be the case if left to the private sector, including through explicit empowerment of labor unions and communities living amid this new energy base.
A New Tool for Geoeconomic Security
It was an unplannable coincidence that these plans—which took over a year to complete—were released just hours after the Russian invasion. These events showed the peril of Europe’s economic exposure to Russia, and raised broader concerns about dependence on Russia’s authoritarian allies like China.
Not a moment too soon, the plans lay out the contours of what a successful break might look like. The DOE report, for instance, describes how:
“China controls roughly 80 percent of rare earths production and refining that are key for components in technologies such as direct drive generators in wind turbines, and China also controls 61 percent of global lithium refining key for battery storage and electric vehicles. China also controls 100 percent of the processing of natural graphite used for battery anodes.”
China also controls 80 percent of the world’s solar panel production. Let’s put these numbers in comparison. For decades, the Organization of the Petroleum Exporting Countries (OPEC) has dominated energy policy conversations, with policymakers trying to plan for any small shift OPEC countries might make and the press reporting on these in real time. Yet OPEC “only” accounts for 40 percent of crude oil production and 60 percent of oil trade. Moreover, OPEC consists of 13 countries with different types of governments across multiple continents, and so faces collective action hurdles. China is a single country with an authoritarian government that controls twice or more the market share of certain clean energy inputs as OPEC does oil.
The DOE plan begins to address this resiliency risk with the seriousness it merits by setting out clear targets and requirements for successful onshoring of renewables, such as an $8 billion investment to build up 40 gigawatts of solar energy supply by 2030, which could be equivalent to 125 million solar photovoltaic panels or the energy needs of five New York Citys.
But Challenges Remain
However, the path forward is not without hurdles. The Build Back Better Act, which would inject more than $550 billion into green investments, remains held up by Sen. Joe Manchin (D-WV). The US Innovation and Competition Act (USICA) has bipartisan support in the Senate, but would fund only a subset of the supply chain concerns the administration laid out—mostly semiconductors—and with few conditions attached.
The House version of USICA—called America COMPETES—would go the furthest in making Biden’s supply chain vision a reality. Unlike the Senate version, it would authorize $45 billion for the Department of Commerce to invest in domestic supply chains. In addition to this carrot, it would establish a stick of greater government scrutiny of certain outbound investments by US companies, so that their production location decisions are consistent with the national economic interest. After all, government investment in private industry has little long-term value if companies can cut and run as soon as subsidies end. Additionally, the bill authorizes a new $3 billion fund for reshoring the solar supply chain, and companies that receive its funding must commit to neutrality in labor union drives. This is crucial to making sure that the supply chain money not only creates jobs, but creates good jobs—especially in the anti-union, right-to-work states where many of these investments are slated to go.
Finally, the bill addresses perhaps the biggest constraint of all: ensuring government officials are up to the task of taking on this new market-shaping role in the economy. For example, the bill includes $500 million in capacity-building for a new Office of Supply Chain Mapping and Monitoring, and authorization for officials to make greater use of the Defense Production Act (DPA)—which allows substantial executive branch autonomy in nimbly responding to changes in markets.
How much of the House bill will survive the pending bicameral conference process is unknowable at this point. But if both Republicans and Democrats are as serious as they say they are about building more economic autonomy from authoritarian countries, America COMPETES is perhaps the most obvious way of doing so in the near term, and the latest poll indicates Americans of both parties support the bill by a 65 percent margin. Indeed, as Arnab Datta of Employ America has written, lawmakers should go further and actually appropriate (instead of merely authorize) the supply chain monies. If 1,358 pages of supply chain plans meet $50 billion of actual money, more economic resilience is in reach.