The Big Ideas

'Buy American!': Pushing U.S. Companies to Onshore Supply Chains

Center for Strategic & International Studies (CSIS)

Bill Reinsch

Senior Adviser and Scholl Chair in International Business

'Buy American!': Pushing U.S. Companies to Onshore Supply Chains
'Buy American!': Pushing U.S. Companies to Onshore Supply Chains
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April 6, 2021
BIG IDEA | The debate about how to deal with China commercially ‘has moved in two directions: running faster—improving our innovation capabilities in critical technologies to better compete with China—and slowing China down by restricting its access to U.S. technology.’
[I have reorganized Bill Reinsch’s excellent analysis ‘Buy American!’ to focus on government pressure on U.S. companies to restructure their supply chains in ways that favor domestic production.]

Five factors are pushing U.S. companies to restructure their supply chains in ways that favor domestic production.’

First, ‘refocusing supply chain management on resiliency and redundancy as result of the pandemic.’

  • ‘Managers need not only plan A, but plan B and plan C as well, and all those alternatives will involve more domestic sourcing or nearshoring.’
  • ‘They will also involve some movement away from just-in-time manufacturing to rebuilding inventories.’

Second, the ‘deteriorating relationship with China.’ The debate has moved in two directions:’

  • ‘running faster—improving our innovation capabilities in critical technologies to better compete with China—'
  • ‘and slowing China down by restricting its access to U.S. technology.’

‘Both strategies have involved efforts to reorient supply chains away from China, sometimes by banning the use of Chinese equipment in the United States, as in the case of Huawei, and sometimes by encouraging companies to “decouple” from China and return manufacturing on shore.’

Third, dealing with critical sectors.

  • ‘The government has further encouraged U.S. companies to restructure their supply chains in ways that favor domestic production that by beginning the process of identifying critical sectors of the economy, where companies in those sectors will be encouraged, probably through tax benefits, to return to the United States.’

Fourth, ‘changing U.S. government procurement rules to further favor domestic production’ – ‘Buy American.’

  • ‘We treat some parts and components incorporated into a product as domestic even if they are imported.’
  • ‘Changing that methodology will force some manufacturers to adjust their supply chains to include more U.S. content.’

Fifth, defining ‘national security.’

  • ‘There were officials in the Trump administration who defined it very broadly, and a glance at President Biden’s supply chain executive order shows similar breadth.’
  • ‘President Biden has ordered urgent studies on four critical sectors: semiconductor manufacturing and packaging, batteries, critical minerals, and pharmaceuticals.'
  • ‘He has also ordered year-long studies of major sectors of the economy: defense industrial base, public health, information and communications technology, energy, transportation, and agriculture.’

‘Taken together, these sectors amount to nearly 60 percent of U.S. GDP.’

  • ‘If all the studies recommend actions to reorient supply chains to the domestic economy, the administration’s policy will have a significant impact’ on U.S. companies' decisions.'