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Biden’s step towards China-free supply chains

US-President Joe Biden signed an executive order aiming at cutting supply chain dependencies on China and other countries. More specifically, the order directs federal agencies to review supply chains in key sectors within 100 days. The sectors targeted are semiconductors, pharmaceuticals, electric vehicle batteries and rare-earth minerals. Although the order does not specifically name China, government officials nevertheless say that over-reliance on Beijing is a key risk that needs to be addressed.

Before signing the order, Biden emphasized in regards to the recent chip shortage that the U.S. has to “stop playing catch up”. The global semiconductor shortage especially hit the automotive industry hard with the world’s largest carmakers facing billions in lost earnings. Senate Majority Leader Chuck Schumer is supporting plans for a legislative package to strengthen the U.S. semiconductor industry. “To outcompete China and stop depending on foreign sources”, he told media representatives.

According to Boston Consulting Group, the U.S. share of global semiconductor manufacturing capacity has dropped to 12% from 37% in 1990. As of now, the worldwide leader in chip production is Taiwan, but Boston Consulting is forecasting China to lead by 2030.

“China-free” supply chains with allies

However, restructuring supply chains cannot be done overnight. Particularly in semiconductors where the number of top chipmakers is limited.

“In some cases, building resilience will mean increasing our production of certain types of elements here at home; in others it will mean working more closely with our trusted friends and partners, nations that share our values so that our supply chains can’t be used against us as leverage”, Biden said.

With Taiwan the U.S. already found an ally in November when officials of both countries signed a memorandum of understanding promoting technological cooperation and “safe, secure and reliable supply chains.”

The world’s largest chip contract manufacturer, Taiwan Semiconductor Manufacturing (TSMC), will build a new factory in Arizona. The Taiwanese company plans to invest around 12 billion USD in the new site by 2029, the U.S. government is providing subsidies.

Besides Taiwan, Japan and South Korea are also partners when it comes to the chip industry. Japan, for its part, is also making efforts to bring TSMC into the country. Apparently with success: According to Nikkei Asia, the foundry is making plans to build a R&D center in Japan.

“Unrealistic”, says China

Meanwhile, China hit back just hours after Biden signed the order. Foreign Ministry spokesman Zhao Lijian said during a regular news briefing in Beijing that such measures will only harm global trade.

“China believes that artificial efforts to shift these chains and to decouple is not realistic. We hope the U.S. will earnestly respect market laws and free trade rules and uphold the safety and reliability and stability of global supply chains”, Zhao said.

The exact outcome of the 100-day review remains to be seen. Besides increased production of key products on american grounds or close cooperation with allies, financial incentives or punitive tariffs would also be possible. Unlike his predecessor, however, Biden is not banking on “America First” but on broader international support.