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Biden’s $51 billion supply chain planning exercise

Canada 451 China 2775 Cons. Discr. - Autos 1039 Coronavirus 479 European Union 721 Health Care 306 India 441 Info Tech - Tech Hardware 685 Japan 550 Materials - Chemicals 191 Materials - Metals/Mining 673 Mexico 788 Russia 94 South Korea 531 Taiwan 175 U.S. 4937 United Kingdom 316

President Biden has signed the long-awaited Executive Order regarding critical supply chain security which will be executed in two stages. As flagged in Panjiva’s 2021 Outlook the Order will generate a list of both the strategies and tactics to be used by the Biden administration over the next four years.

In the first stage the EO aims to address “production shortages, trade disruptions, natural disasters and potential actions by foreign competitors” for four key sectors including pharmaceutical APIs, critical minerals, semiconductors and large capacity batteries. A 100 day review (through June 3) will “identify near term steps” for Executive and Congressional action “to address vulnerabilities“. Given a period of consultation and legal “scrubbing” that would suggest firm actions may not come into place until the fall.

Panjiva’s data shows that imports in the four key product groups were worth $51.0 billion in 2020 and have seen growth of just 1.0% annually since 2016. The largest and arguably most diffuse group is semiconductors worth $31.8 billion which contracted by 3.6% year over year as a result of the pandemic’s impact on demand for automotive and industrial applications. 

Imports of pharmaceutical APIs (1) increased by 2.8% year over year to reach $16.3 billion, with lackluster growth suggesting medical spending has been focused more on packaged pharmaceuticals needed during the treatment of the pandemic. 

Critical minerals (2) imports dropped by 27.9% year over year to reach $2.37 billion, potentially as the result of a reduction in industrial demand as well as against the backdrop of lower commodity prices. The smallest, but fastest growing group was large capacity batteries as defined by the electric vehicle battery import category which jumped 39.5% to reach $673 million on the back of the boom in electric vehicle manufacturing.

Minimal growth in critical imports

Chart shows U.S. imports of products subject to the Biden administration’s new Executive Order on a monthly and three-month average basis. Source: Panjiva

After the initial review there’ll then be a similar, one year review to address the defense, public health, ICT, energy, transportation and goods sectors that will also include Agency actions more broadly. 

Clearly the actions will matter more than the intent. Short-term measures after the 100 days review may include a wider implementation of the Defense Production Act, particularly for semiconductors and large capacity batteries. Direct funding for investments in new mines and refining plants and pharmaceutical API manufacturing may also be possible. In any event there’s likely to be WTO and USMCA complaints if the measures preclude purchases from allied countries.

In aggregate 37.9% of the imports of the four product categories are sourced from clear U.S. allies including the EU, U.K., Switzerland, Canada, Mexico, Japan and South Korea while 9.4% are sourced from clear strategic rivals including China and Russia. China represented 15.3% of pharmaceutical APIs, 9.7% of critical minerals and 15.9% of large batteries while Russia accounted for 8.9% of critical minerals.

Imports of key products dominated by American allies

Chart segments U.S. imports of products subject to the Biden administration’s new Executive Order by origin in 2020. Source: Panjiva

There’ll be a clear preference for onshoring vs. “friendshoring” which will inevitably mean significant investments in new manufacturing facilities and mines. Among the simplest to deliver quickly would be increased production of large capacity batteries. Indeed, the leading importers of lithium ion batteries including Samsung SDI and LG Chem whose sibling companies opened home appliance manufacturing plants in the U.S. in response to market and government prerogatives.

Panjiva’s data shows that U.S. seaborne imports of lithium ion batteries have continued to surge in the new year, with a 64.5% year over year expansion led by a 282% rise in imports linked to Samsung SDI and a 339% increase in shipments linked to LG Chem. Imports by the automakers themselves are also expanding but at a slower rate including a 27.6% rise in imports associated with Daimler.

Samsung SDI leads latest battery boom

Chart segments U.S. seaborne imports of lithium ion batteries by shipper on a monthly and three-month average basis. Source: Panjiva

1 The definition of APIs within HS codes is a somewhat complex process which we presume the implementation of the Executive Order will rule on. As a stop-gap we’ve used the Singaporean government’s definition of APIs within organic chemistry used for import restriction purposes as well as tariff group 3003 which covers bulk medicines.

2 The definition of critical minerals has varied across prior administrations’ reviews. For the purposes of this analysis we’ve used the 23 minerals defined by the U.S. Geological Survey in 2017, but excluding platinum which accounts for the majority by value but includes non-industrial applications. 

Update (March 9): Deadline for review added.

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