Biden’s supply chain management review: key findings for automotive & aerospace
In June 2021, President Joe Biden released his 100-day supply chain management review. This was an executive order designed to address the severe impact of Covid-19 on the supply of critical materials to U.S. manufacturers and industries. So, looking to the future, what does this mean for the aerospace and automotive industries?
Since the early days of the pandemic, there have been shortages of strategic metals, semiconductor chips, high-capacity batteries and other valuable components needed for aerospace and automotive manufacturing. Indeed, when China locked down at the start of 2020, and other countries subsequently began to shut their borders, shockwaves rippled throughout the global supply chain.
In this blog, I’ll provide a brief summary of Biden’s supply chain management review and its significance. I’ll then move on to consider its recommendations for improving the supply of three different categories of materials that are critical for automotive and aerospace manufacturers:
- Critical rare earth materials
- Large capacity batteries
Biden’s supply chain review: summary of findings
Biden’s executive order identifies risks in four key categories of critical materials: semiconductors; rare earth minerals; active pharmaceutical ingredients and large capacity batteries. In a nutshell, it found that the U.S. economy and national security would be endangered without secure access to these materials.
Americans are only just beginning to understand how dependent the U.S. economy is on China for manufactured goods.
With regard to the supply of critical items and materials, such as the ones addressed in Biden’s report, America’s dependency on China creates what Tom Derry describes as ‘both an economic security and national security challenge.’
Addressing these challenges, the report suggests that the U.S. needs to embrace a transnational perspective and build strong relationships with suppliers in other countries to ensure consistent access to critical materials. It proposes strategies for encouraging the domestic production of critical materials and national stockpiles to minimise dependence on foreign supply. It also recommends the adoption of ‘industrial policy’: government-induced incentivisation and/or direct investment in selected industries, as I shall now outline.
Semiconductors: seven recommendations
In particular, the automotive industry has been severely knocked by the shortage of semiconductors. This is because demand for semiconductors has steadily increased (as they are now used in a vast number of products!) and automotive OEMs are no longer the biggest players in the market.
Biden’s supply chain review emphasises the importance of a ‘whole-of-country effort’ to secure a resilient semiconductor supply chain. It makes seven major recommendations:
- Investment and collaboration. Although it falls on the private sector to address semiconductor shortage in the near term, the Biden-Harris administration can assist by facilitating investment, transparency and collaboration between key stakeholders (e.g., ensure that information flows between producers, suppliers and end-users.)
- Fully fund the CHIPS for America provisions to promote long-term U.S. leadership. Congress should fund the CHIPS provisions with at least $50 billion in funding. (Note that this was passed on June 8th See the CHIPS for America Act). Production incentives aim to promote U.S. leadership in leading edge chip production, secure mature node supply chains for critical industries, and ensure the safety and security of products produced domestically and by allies and partners.
- Strengthen the domestic semiconductor manufacturing ecosystem. It recommends investment in infrastructure required to support semiconductor manufacturing, as well as investment in industries that use semiconductors (e.g., power generation transmission, clean energy, broadband, and electric vehicles). The Department of Defense should also support domestic chip production for national security needs.
- Support SMEs and disadvantaged firms along the supply chain to enhance innovation. Washington should support small businesses to grow, scale and connect to the commercial production of semiconductors, including through existing SBA programs.
- Build a strong and diverse talent pipeline. Efforts should be made to grow and develop the STEM talent pipeline, which is essential for semiconductor manufacturing. The government should strengthen partnerships with schools, universities, training providers and other organisations to create pathways to jobs.
- Work with allies and partners to build resilience. Congress should deepen engagement with foreign allies and partners in order to foster a more robust global semiconductor supply chain. It should also emphasise the shared benefits of additional research and development, especially with the countries that critical to the manufacture and supply of semiconductors.
- Protect the U.S. technological advantage
Rare Earth Materials
Rare earths encompass 15 minerals from the lanthanide section of the periodic table (extended to include scandium and yttrium). The sought-after minerals, which are expensive to extract, occur naturally in low concentrations.
According to NLR, the commercial aviation industry has long relied on REEs (Rare Earth Elements) because they give materials enhanced strength and durability. They are also essential for the manufacture of electric cars.
As China dominates supply of these elusive metals, Biden’s supply chain review recommends that it is a top priority to address their supply in the U.S. It makes the following recommendations:
- Establish new sources, including the (controversial) possibility of U.S. based mining operations.
- Invest in R&D to develop new technologies and forms of production that either recycle rare earths or use alternative materials that can be sourced domestically.
Large Capacity Batteries
With the global lithium battery market expected to grow by a factor of five to ten by 2030, it is imperative that the United States invest immediately in scaling up a secure, diversified supply chain for high-capacity batteries here at home that supports good-paying, quality jobs with a free and fair choice to join a union and bargain collectively.
The Biden review's top recommendations for tackling battery shortage:
- Domestic development: invest in the domestic development of batteries.
- Reduce dependence on rare materials: invest in technologies that aim to reduce dependence on critical or scarce minerals, including cobalt and nickel, for next generation electric vehicles and grid storage technologies.
- Research and development: invest in R&D for next generation lithium ion, lithium metal batteries and solid-state design.
- Recover and reclaim rare materials: develop processes to recover spent lithium batteries, reclaim key materials, and re-introduce those materials to the supply chain.
While the findings of the report have been broadly welcomed, the recommended actions will still need to be approved by Congress. It remains to be seen how many of them will survive this lengthy and complex process.
Even as lockdowns begin to lift, and some countries begin their post-pandemic chapters, the global supply chain issues are far from resolved. What the crisis has demonstrated is how fragile the supply chain is—and how dependent the West is on China for the supply of critical materials! As Lewis Black (CEO of Almonty) said. “We still haven’t seen all the ripples yet. I don’t think American manufacturers appreciate how difficult the next 18 months are going to be because of supply chain issues.”
In spite of these ongoing challenges, the aerospace and automotive sectors are bracing themselves to ramp up their production in the coming years. Leaders in these industries will no doubt welcome the proposals made by Washington to take the supply chain issue seriously and implement meaningful measures now to mitigate future crises and shortages.
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