The Trump administration and other Western nations have a growing interest in an alliance to establish critical supply chains outside of China, but the plan for how to do it remains in its infancy.
Some Trump advisers think of this international coalition as an “economic prosperity network.” The effort would seek achievements like the announcement last week that a major Taiwanese electronic chips manufacturer plans to make a $12 billion investment in the United States.
“The deal is a game-changer for the U.S. semiconductor industry,” State Department Undersecretary Keith Krach told reporters late Friday. “This is a giant leap towards bringing high-tech manufacturing back home where it belongs and keeping that commitment that President Trump has made.”
But despite this tactical victory, the broader strategic effort lacks clarity.
“There is widespread consensus that something needs to be done, it’s really a bigger question of what is there consensus around doing,” said a senior Senate Republican aide. “Some folks want to go carrot approach, others a stick approach, and others a mix of the two.”
Much of the public discussion has focused on the Western dependence on China for medical supplies and pharmaceuticals, a natural emphasis given that the coronavirus pandemic exposed those vulnerabilities while dealing a blow to U.S.-China relations. The telecommunications industry is also a priority, due to growing unease about Chinese espionage and military modernization, yet irreconcilable differences between Washington and Beijing could drive a broader divorce.
“It is essential to understand where the critical areas are and where critical bottlenecks exist,” Krach told Reuters recently.
To break those bottlenecks likely will require time and an international coalition, given the difficulty of inducing all those companies to move their operations to the U.S. “The No. 1 preference is bringing them back to the States; No. 2 would be allied nations,” the Senate Republican aide. “Both are going to take time.”
This isn’t the first time that Western allies have found themselves eager to insulate their economies from a communist rival, as a senior British lawmaker observed while recalling the World Trade Organization and its predecessor, the General Agreement on Tariffs and Trade signed in 1947.
“The idea of having democratic states working together to reduce dependency on states that don’t share our values would seem like, if you like, a reinvention of the WTO, or rather GATT, which started off in many ways as that sort of a partnership,” Tom Tugendhat, who chairs the British Parliament’s Foreign Affairs Committee, said during a Tuesday hearing.
The pharmaceutical industry has emerged as a focal point for prominent lawmakers in both parties as the coronavirus pandemic paralyzed American society. Sen. Marco Rubio, a Florida Republican, and Sen. Elizabeth Warren, a Massachusetts Democrat, led a bipartisan bloc in offering legislation that would require the Defense Department and the Food and Drug Administration to provide reports that, taken together, would reveal the degree of U.S. dependence on China and other foreign countries for key pharmaceutical ingredients.
How to act on that information remains unclear. “There is a reasonable expectation that we could encourage companies to come back here, at least to duplicate supply chains — so they might have supply chains just for China’s market,” the senior Senate Republican aide said. “If they were to keep them, that’s fine, but for the U.S. market and the Western world market, there should be a separate supply chain.”
That encouragement might take the form of tax incentives or other inducements for companies to fortify their supply chains, but American officials may struggle to outbid Beijing, given the subsidies that the Chinese Communist Party has brought to bear.
“Tax incentives are nice, [but] they won’t do the job,” said American Enterprise Institute resident scholar Derek Scissors, an expert in U.S. economic relations with Asia. “You have to identify what we need, whether it’s masks or some sort of ingredients into a vaccine, the chemical ingredients, and say you cannot sell to the United States if China is part of that supply chain.”
Scissors argued that Trump’s team has neglected to make more aggressive use of executive orders and other measures that spur companies to move. “We have 80,000 dead Americans now, and we’re thinking about tax incentives, really?” Scissors said. “We’re being publicly mean to the Chinese, and I don’t know of any actual steps — [there’s been] discussion of them, lots of it, going back months — I don’t know of any actual steps the U.S. has taken to actually shift supply chains.”
Krach is expected to make an aggressive push to overcome the inertia that has delayed the supply chain migration. “I think the train is just getting into motion, generally,” said an international trade expert close to the administration. “It’s still nebulous and not completely formed into a machine that’s going to deliver as much as we want right now, but it’s building.”
