Republicans and Democrats have been busy crafting language for the bipartisan infrastructure package. While President Joe Biden continues to tout the bipartisan proposal, the administration just imposed a far-reaching withhold release order as part of the government’s continued efforts to ban imports of products manufactured using forced labor. This action will temporarily affect the importation of critical goods required for American infrastructure and has the potential to be the largest import ban in United States history.
The import ban covers all silica and derivatives of silica products manufactured by Chinese entity Hoshine Silicon Industry and its subsidiaries. The range of products containing silica is extensive and includes solar panels and semiconductor chips, the building blocks of renewable energy systems and high-technology products, which are incorporated into television, computer, cellphone, aerospace, communication, and defense equipment, and more. And because Hoshine and its subsidiaries dominate the global supply of silica and products produced from silica, this far-reaching action affects all segments of the economy and military that use electronic devices. It is surprising, then, that so few have taken the time to understand fully the broad scope of this import ban.
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At a time when the U.S. is making unprecedented moves, through historic legislation, to invest in domestic infrastructure and high-technology products, the importation of critical goods required to make this happen may be temporarily paused. Consider the fact that Hoshine accounts for approximately 75% to 80% of China’s silica production from mines. Further, China as a whole accounts for approximately 68% of global silica production. These facts together mean that Hoshine’s silica accounts for 50% to 55% of the total volume of silica produced worldwide.
At a minimum, in terms of U.S. imports, the order’s prohibition essentially disqualifies 50% to 55% of the global silica production base from entering the U.S., whether as a raw material, a semi-finished product, or incorporated into a finished good. But the practical impact is much, much larger. Given the highly complex and layered nature of electronic supply chains, it will be nearly impossible for companies to trace each grain of silica to its finished product (for example, through the polysilicon substrate, the physical microelectronic chip, and the final laptop in which it is incorporated). Consequently, compliance with the WRO may not be feasible for a majority of affected companies, and the likely outcome will be a reorientation of supply chains out of China.
In the meantime, global trade flows may be temporarily disrupted until manufacturers and suppliers worldwide determine how to manage their supply chains appropriately or find alternative sources of supply. For most, the former will be nearly impossible. The latter is realistic, but it will take time. If we are patient, we can reap the benefits. The WRO is pushing the market to cure long-standing supply chain vulnerabilities, and while there is no question that the process of reshoring and friend-shoring supply chains for critical raw materials is very painful, the outcome will strengthen U.S. national security. This should always be our collective goal.
The first step to solving this supply chain puzzle is recognizing that there are ample reserves of silica across the U.S. and the nations of our allies, such as Canada, France, India, Malaysia, and South Africa, to meet our collective demand. Although output from these mines has been low due to their inability to compete on price with Chinese forced labor, the U.S. government massively changed the calculus.
Over the next several months, U.S. silica mines will necessitate large capital investments in equipment, machinery, and workforce, and they will require regulatory permit flexibility to realize their full potential. The U.S. government can help speed this up with a “Supply Chain Operation Warp Speed” of sorts. The Department of Defense has the ability to deploy Title III Defense Production Act funds to inject much-needed capital into these mines, and the U.S. International Development Finance Corporation can use its funds to assist mines in partner counties.
Even more to the point, the executive branch agencies are well equipped with effective legal authority to strengthen our supply chains, and Congress needs to play a proactive role through the appropriations process. The government must act responsibly and in a bipartisan manner to reshore now and protect critical U.S. supply chains. If this nation is truly committed to making our economy work and demonstrating to the world that the U.S. can “Build Back Better” without the use of forced labor, as Biden has promised, time is of the essence.
The Honorable Nazak Nikakhtar served as U.S. assistant secretary for industry and analysis while also performing the nonexclusive functions and duties of the undersecretary for industry and security at the Department of Commerce. Nikakhtar is now a partner at Wiley, a leading law firm in Washington, D.C. Mark Duffy is the executive vice president and chairman of the international practice at Signal Group.
