U.S.-China Commission Examines Critical Vulnerability in the Global Supply Chain: China

China’s chokehold on critical minerals and manufacturing threatens U.S. national security, experts said during a U.S.-China Economic and Security Review Commission hearing.

Witnesses testified to the threat of China’s supply chain dominance before the U.S.-China Economic and Security Review Commission Thursday, highlighting the need to bolster domestic manufacturing.

The commission’s investigation comes as the global supply chain has been buffeted by the COVID-19 pandemic and geopolitical conflict. Though the phrase “supply chain issues” has so deeply saturated our collective awareness that it’s an easy punchline, the world continues to grapple with its serious consequences (shortages of semiconductors, pharmaceuticals, rare earths, etc.). And these problems aren’t going away.

“Supply chain resiliency is a top-of-mind issue in a way it has not been for decades, and efforts are underway across the U.S. government to understand and mitigate some of our most glaring supply chain vulnerabilities,” said Deborah Rosenblum, who is performing the duties of assistant secretary of defense for Industrial Base Policy within the Department of Defense. “For more than 50 years, market forces in the United States have prioritized supply chain efficiency over supply chain resiliency; events of the last few years have crystallized the need to prioritize and build supply chain resilience.”

At the top of the list of problems within the global supply chain is China. Testimony during the hearing evidenced China’s capture of the world’s most critical manufacturing capabilities and minerals. It accounts for “nearly 20% of global manufacturing trade and a far greater share of many intermediate [global value chains] inputs that are essential for modern production,” said David J. Bulman, an assistant professor of China Studies at Johns Hopkins University.

Additionally, China is the sole source of a host of critical minerals that are essential to America’s advanced technologies, such as lithium-ion batteries. This reliance could potentially have profound consequences for America’s national security.

“China’s competitive pricing and aggressive market capture strategy has led DOD suppliers to source materials from Chinese producers,” Rosenblum said. “Predatory capital from the PRC continues to erode DOD’s mission by undermining the foundation of the defense industrial base’s manufacturing and technology advantage.”

This race to the bottom that came with China’s entrance into the World Trade Organization in 2001 led to the obliteration of 3.7 million U.S. jobs between 2001 and 2018, an Economic Policy Institute report showed. Not only has globalization caused tremendous losses for American workers, it has also fundamentally destabilized our supply chains.  

“Unfortunately, when we all started offshoring manufacturing back in the 1990s, we all simply got lazy and left supply chains very global, single threaded and fragile,” said Jennifer Bisceglie, the CEO of Interos Inc., a supply chain analysis firm. “The good news is, via the education of the past almost three years, we all realize that sometimes a global and unknown supply chain is not necessarily resilient — nor does it support national security and military readiness.”

“We now have the option to change,” Bisceglie continued. “The challenge is going to be a strong enough desire, the right leadership and the available funding as security comes at a cost. But so does not being secure.”

Part of that change must be in reshoring America’s lost manufacturing capability through a strong and permanent industrial policy, Reshoring Initiative President Harry Moser attested.

“Ideally, the industries and companies should not need to be approached to reshore,” Moser said. “A well designed, permanent industrial policy would level the playing field enough that the companies would decide to reshore in their own self-interest. In the short- term it is necessary to select and subsidize specific critical industries such as chips. In the longer run the subsidized industries will fail if their manufacturing costs are not competitive, and they do not find a growing domestic market.”

Moser’s comments underscore the importance of including trade tools in the Bipartisan Innovation Act under consideration in Congress. You can join us in urging lawmakers to support the Leveling the Playing Field Act 2.0, which would expedite trade remedies and relief for domestic companies contending with nations that repeatedly dump imports, as part of the American competitiveness legislation.