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Biden's supply chain decoupling moves can rein in China and the climate

Biden's supply chain decoupling moves can rein in China and the climate
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President Biden’s executive order aimed at securing supply chains of strategic sectors signals a change in course of action from the previous administration that used trade wars to address the economic challenges associated with China. The Biden administration’s decision to diversify supply chains will prove to be a more prescient strategy to decouple from China and protect American partners and allies from China’s economic coercion than the tariff and trade wars of the Trump administration. 

The executive order comes at the backdrop of a sudden halt in vehicle production among the Detroit three, due to shortage of semiconductor chips, that has led to millions in losses to American automakers — General Motors closed three plants in North America, production on Ford Motor’s popular pickup trucks was impacted and Stellantis (formerly Fiat-Chrysler) stopped production of the Jeep, Dodge Charger and Challenger for most of January. 

While the order will not be a silver bullet to the auto industry’s woes this year, it will prove to be a long term solution. Furthermore, the vulnerability to supply chain disruptions is not limited to the auto industry. The order mandates a 100-day review of supply chains of semiconductors, large capacity batteries, pharmaceuticals and rare earth elements and a separate yearlong review of six strategic sectors from technology to food production. This review will reduce America’s dependence and over reliance on few nations, in particular, nations that are in competition with the United States for vital goods and services.  

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The review is not an isolationist measure of bringing entire supply chains back home, but a cost-effective one that leverages the potential of American allies and partners in the Indo-Pacific region. In contrast to the trade wars and isolationist trade measures of the Trump years, Biden’s approach is not going it all alone but engaging and partnering with like-minded countries in the Indo-Pacific region. 

Under Biden, America does not go alone and not without reason. The impetus to partner with nations in the Indo-Pacific region arises from the bitter experience of American partners in simultaneously handling the COVID-19 virus and China’s economic coercion. 

The COVID-19 pandemic had exposed the economic vulnerabilities of America and nations of what is known as the “Quadrilateral Security Dialogue,” or the “Quad” — which includes the U.S., Japan, Australia and India. These economies ran large trade deficits with China and the pandemic underscored their over reliance on China, for basic necessities to goods of strategic significance. Moreover, any criticism toward China’s policies or actions were met with trade tariffs and sanctions. Australia’s demand for an international probe into the origins of the coronavirus was met with the banning of beef exports and by issuing tariffs on its barley and wine exports. 

To protect its economy and businesses from supply chain disruptions, Japan began subsidizing its businesses to move out of China. Biden’s measure is a similar one that addresses the China challenge without much chaos like the ones that arise from trade wars. 

While the White House has not explicitly classified the executive orders as targeted toward China, there is a bipartisan consensus that China must be addressed. When Biden met with House and Senate lawmakers before signing the order, Michael McCaulMichael Thomas McCaulSenate Intelligence panel working on legislation around mandatory cyber breach notification McCarthy unveils House GOP task forces, chairs Republican, Democratic lawmakers urge fully funding US assistance to Israel MORE (R-Texas) singled out China as the main reason to address supply chains. “Obviously COVID was a wakeup call,” he said. The day before, Senate Majority Leader Charles SchumerChuck SchumerHow to fast-track climate action? EPA cutting super pollutant HFCs On The Money: How demand is outstripping supply and hampering recovery | Montana pulls back jobless benefits | Yellen says higher rates may be necessary Senate Democrats announce B clean bus plan MORE (D-N.Y.) said bipartisan legislation to address competition with China and boost domestic semiconductor production was in the works. “We cannot rely on foreign processors for the chips. We cannot let China get ahead of us into production,” he said. 

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The Biden administration’s order has struck multiple birds with one stone — climate change action, domestic employment generation and global leadership.  

The administration’s supply chain diversification review will reduce the United States dependence on China for vital inputs required to manufacture batteries used in electric cars and for energy generation and other clean energy products that will in turn ease the transition to a green economy as envisioned in the Green New Deal. Secondly, the review will resuscitate American global competitiveness in the technology sector, ending the decade of catch-up with China. The two developments combined will enable the United States take back the mantle of leadership from China to lead the world of the future, which will run on renewable energy and advanced technologies. 

Unlike the costly and myopic trade wars of the Trump years, the Biden administration’s decision to use supply chains to decouple from China will prove to be a cost effective, less domestically polarizing and a non-transient strategy. The targeted measure will increase domestic production and contribute to employment generation in the long term, reduce America and its allies dependence on China for strategically significant goods and finally, put to rest erroneous claims of Biden’s soft approach toward China. 

Akhil Ramesh is a non-resident Vasey fellow at the Pacific Forum. He has worked with risk consulting firms, think tanks and in the blockchain industry in the United States, India and in the Philippines. His analysis has been widely published across global journals such as The South China Morning Post, The Diplomat, Asia Times and the Jerusalem Post. Follow him on Twitter at @akhil_oldsoul