The United States New Supply Chain Strike Force: A Metaphor For Sanctioning China?

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Russia will be the key to reducing dependencies upon China 

Op/Ed by Chris Devonshire-Ellis 

US President Joe Biden announced on Tuesday that he would be establishing the somewhat aggressively titled “supply chain trade strike force” to look for unfair trade practices that contribute to the United States supply chain weaknesses. The logic is that in doing so, the US aims to safeguard its supply chains for critical products by increasing its own manufacturing capabilities and competitiveness, especially to withstand and overcome competition from China. This goes hand in hand with the ‘Strategic Competition Act’ also aimed at China, which we discussed here.

Biden had commissioned a report on US supply chains in February, with the report now having been made available. A copy can be downloaded here.

The report highlights US reliance on the production of critical components in four specific sectors: semiconductors, large capacity batteries, critical minerals and materials, and pharmaceutical ingredients. We can outline these as follows:

Semiconductor manufacturing: Taiwan

The United States sources 92% of its advanced semiconductors manufacturing from Taiwan. While the companies’ nationality in supplying these is not considered an issue, the US still aims to attract domestic and foreign investors to build manufacturing facilities in the United States and is poised to add incentives to investors to do so. TSMC are being asked to build a plant in Arizona, with Intel also announcing plans to build two plants in the state. This would nullify in part any disruptions caused in any future China-Taiwan conflict.

Batteries – China

The US largely depends on China for its manufacturing. China has built 75% of global cell fabrication capacity and refines 60% and 80% of the world’s lithium and cobalt, these being crucial for the manufacturing of high-capacity batteries.

Rare Earths and Minerals – China 

China dominates the global market, producing around 84% of the world’s rare earths, however Russia recently announced the discovery of what would be the world’s third largest reserves in Yakutia, Siberia. It is possible that the United States may take a more liberal approach to Russia in future because of these and other minerals that Russia possesses. President Biden is meeting Russian President Vladimir Putin on June 16. Should Washington for example drop its sanctions over Russia providing Natural Gas to Europe via the North Stream pipelines, that would point to Washington intending to divide China-Russia mineral dominance.

Pharmaceuticals – India 

India is the world’s largest pharmaceutical manufacturer, while the Covid pandemic has illustrated supply chain inefficiencies on a global scale. The report calls for an American consortium to be created, based on existing B2G partnerships to re-establish the production of essential medical supplies of both equipment and products such as vaccines back to the United States. Also targeted are what the report labels “unfair practices” (without stating what these are) that have led to such manufacturing investments being based overseas.

Indian Prime Minister Modi is attending the G7 meeting this weekend virtually from New Delhi, without being one of the G7 member states. Australia, South Korea, and South Africa are also all attending as non-members, making it akin to a G11 – principally because Biden wishes to discuss supply chain options. The real issue at stake for the United States and global manufacturers in these industries is how far it can persuade other countries to supply it, rather than China, and what extent of incentivizing and demonizing in the form of sanctions it is prepared to get its way. How the United States intends to negotiate with Russia on June 16 is really the key to the entire G7 future direction, and how Washington intends to implement its ”supply chain trade strike force”. 

There are signs. Russia’s recent backdoor supplies of gold to the US Treasury indicate Putin is gunning for an economic deal with Biden, after also agreeing the New Start extension. Why else sell all this gold to Washington? It seems that Moscow doesn’t want all its eggs in one basket – China – and that Putin’s relationship with Xi may not be as strong as envisaged.  For the United States to shore up and develop alternative supply chains and attempt to do so without making concessions to Moscow, when trying to slow down China’s global supply chain dominance looks a big ask, even with the G7. It’s the Biden-Putin Geneva summit on the 16th that holds the keys. The G7 is just the hors d’oeuvres to getting supply chain strengths on board – and that cannot be done without Russia.    

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