Last year, US President Joe Biden was elected posing as the anti-Donald Trump. But on at least one thing, Biden and Trump agree: The United States needs to reassess its relationship with a rising China.
Three months ago, Biden ordered a review to identify vulnerabilities and gaps in U.S. supply chains. The article, published on June 8, does not explicitly distinguish China, but mentions the country 566 times (out of 250 pages) and clearly identifies China as the United States’ biggest competitor in key industries. (Japan, Taiwan, and South Korea also return regularly, but less than 100 times each.) His main warning to the Biden administration: Critical US supply chains are not sufficiently secure or resilient, and resolving these issues will require âsustained focus and investmentâ. This includes fostering domestic production capacities, working with allies to secure and diversify supply chains, and investing in worker training and research at home and abroad.
In which sectors do the United States and China compete?
Biden tasked the report’s authors to assess the vulnerability of supply chains for four key products in the United States:
- Semiconductor manufacturing and advanced packaging
- Large capacity batteries
- Critical minerals and materials
- Pharmaceuticals and active pharmaceutical ingredients
As the report indicates, the United States has underinvested both in its domestic manufacturing capacity and in global coordination efforts with its allies to address supply chain vulnerabilities. This shows that the United States has been slow to identify and protect industries critical to national security and economic growth, and to address existing weaknesses in supply chains.
For example, 75% of all semiconductor chips are produced in East Asia. The pandemic and the U.S.-China tensions have led to a global shortage as countries rushed to find or create alternative suppliers. As the report notes, 30 years ago the United States produced 37% of the world’s semiconductors, and today it’s 12%. In 2019, six new semiconductor factories were built around the world, including four in China and none in the United States. This gives China a likely future advantage in the production of this essential technology in which the United States traditionally played a much larger role in production.
The second part of the review will be released in February 2022 and will include six other industries, including defense, transportation and agriculture.
What should the United States do about trade with China?
The total value of trade between the United States and China was $ 634.8 billion in 2019, making China America’s third largest trading partner. So the United States’ trade with China is not going anywhere.
But the review contains a long list of recommendations for the U.S. government to change the terms of that relationship, one of which is to establish a “commercial strike forceLed by US Trade Representative Katherine Tai to identify countries that engage in unfair trade practices and design strategies to combat such practices. These, according to the report, could include integrating supply chain resilience at the heart of the United States’ trade relationship with China.
Other recommendations include launching a $ 50 billion supply chain program within the Department of Commerce to track and address weak points in the supply chain, and replenish U.S. government inventories. minerals and critical materials, while helping the private sector protect corporate inventories.
What are other countries doing about China?
The pandemic has made it clear how much entire economies depend on China and the potential disruption when these supply chains shut down. In February 2020, the Chinese government nationalized the production and distribution of all medical supplies to deal with the emerging pandemic, including personal protective equipment or PPE. Since China is the world largest exporter of PPE (pdf), this “probably further exacerbated supply shortages in the United States and other markets”, according to a congressional report (pdf; p. 15).
Natural causes such as a tsunami or a pandemic are only one source of supply chain shocks. Geopolitical threats such as sanctions or war are now increasingly common, and growing tensions between China and the West signify these disruptions increase. For example, a high-stakes trade war is underway between Australia and China since 2020, putting winegrowers and charcoal makers in the crosshairs. Canberra conducted a view similar to that of the United States earlier this year and found that most of its imported goods “vulnerable” to disruption originated from China.
A second source of tension between China and its Western trading partners is efforts to reduce human rights violations and activities that contribute to climate change in supply chains. The UK government recently committed to enforce and expand export controls on goods bound for Xinjiang, a region of China where he accused the Chinese government of committing Human rights abuse against Uyghur Muslims âon an industrial scaleâ. (China denies.)
But some politicians say that is not enough. Iain Duncan Smith is a member of the British Parliament and co-chair of the Inter-Parliamentary Alliance on China (IPAC), a group of global lawmakers concerned about China’s rising power.
Washington “has always been ahead on the issue of Uyghur forced labor,” Duncan Smith told Quartz in response to the review of the US supply chain. âUnfortunately the UK has dragged its feet and we have yet to see any of the promised actions materialize. It cannot continue.