New reports written at the direction of President Biden review supply-chain vulnerabilities in semiconductors, high-capacity batteries, critical minerals and materials, and pharmaceuticals. They stress that support for innovation should be coupled strongly to domestic manufacturing incentives in order to bolster U.S. industry.
The White House released a 250-page collection of reports on June 8 that review supply-chain vulnerabilities in four “critical products”: semiconductors, high-capacity batteries, critical minerals and materials, and pharmaceuticals. The reviews were respectively conducted by the Departments of Commerce, Energy, Defense, and Health and Human Services in response to an executive order President Biden issued on Feb. 24.
The administration envisions an important role for R&D in reducing reliance on foreign sources of products and raw materials, arguing the U.S. must “double down” on investing in its “unparalleled innovation ecosystem” of universities, startups, and other research centers. Beyond R&D, the reviews also stress the importance of undertaking an integrated policy strategy that makes international supply chains more secure and reinforces the domestic manufacturing base.
Recommendations in the reviews back relevant proposals in the American Jobs Plan that Biden submitted to Congress this spring and justify a number of steps his administration is taking on its own initiative. The reviews are also a first step in a year-long investigation the administration is undertaking of six “critical industrial base sectors”: defense, public health and biological preparedness, information and communications technology, energy, transportation, and agriculture and food.
Production ties deemed integral to semiconductor innovation
In its semiconductor review, the Commerce Department observes that the U.S. has lost manufacturing market share in the sector partly because many companies have focused on semiconductor design while outsourcing manufacturing to other firms. Meanwhile, manufacturing has increasingly clustered in a handful of Asian countries that actively support the construction of cutting-edge fabrication facilities, known as fabs, increasing supply-chain risks.
The department stresses it will be challenging to redistribute production as the associated facilities are extremely expensive and require advanced capabilities the U.S. does not possess. “Semiconductor design and production are already highly sophisticated and take place at the subatomic level. Technology advancements are pushing against the barriers of physics, and breakthroughs to move beyond current limits will involve massive costs,” it explains.
While stating the U.S. position in design is “robust and world-leading,” the department argues the country’s overarching innovation ecosystem is eroding, both because capabilities are honed through experience with fabs, and because companies insufficiently invest in basic research.
“Many individual firms do not have the risk-tolerance necessary to undertake the long-term, high-rate-of-failure basic research projects that will be necessary to advance radically new chip designs and manufacturing processes to support emerging computing methods,” it states, adding, “Even in the event of a successful outcome, it is difficult for a single firm to capture all of the economic benefits associated with a breakthrough in fundamental science, making them even less interested to try.”
Accordingly, the department argues, “Federal scientific and research agencies, including the [Defense Advanced Research Projects Agency], the national labs, and [the National Institute of Standards and Technology], can take the lead on building public-private partnerships and consortia to advance semiconductor innovations across the spectrum of scientific fields — materials, designs, architecture, and manufacturing technology.”
The department further argues, though, that building up a sustainable innovation and production ecosystem will require subsidies for new fabs alongside increased support for R&D and workforce development. Accordingly, among its recommendations, the department endorses the proposal currently pending in Congress to provide more than $50 billion to implement the production subsidies and R&D programs authorized in the recently enacted CHIPS for America Act.
Battery strategy focuses on bolstering US producers
The other three reviews in the compilation emphasize matters such as materials supply, technology lifecycle management, trade and labor policy, and economic demand. For example, DOE’s high-capacity battery review makes a case for stimulating domestic demand through support for electric vehicle adoption, diversifying sources for raw materials such as cobalt and nickel, and strengthening battery recycling efforts.
DOE also outlines steps to build up the U.S. battery industry directly. For instance, it states it will leverage about $17 billion in loan authority available through its Advanced Technology Vehicles Manufacturing Loan Program to spur the establishment and improvement of manufacturing facilities for battery cells. It notes that of 38 plants established using funding from the American Recovery and Reinvestment Act of 2009, 31 are still in operation.
While battery manufacturing is not so intensely dependent on cutting-edge techniques as semiconductor manufacturing, DOE argues that R&D plays an important role in how international competition unfolds.
The department states, “For years, U.S. institutions have been at the forefront of this research, often only to see that technology purchased and implemented overseas. U.S. leadership in R&D presents an opportunity to establish domestic production of future battery technologies, thus allowing the United States to leapfrog our competitors in the battery cost and performance race.” Accordingly, it recommends Congress appropriate “new R&D funding” to reduce battery cell costs, enhance performance, and reduce dependence on key critical materials.
A National Blueprint for Lithium Batteries released alongside the supply-chain review elaborates that near-term objectives include improving electrodes and developing cathodes that do not employ cobalt, much of which is mined in the Democratic Republic of the Congo, often in inhumane conditions. In a 10-year timeframe, the blueprint sets a goal of developing “revolutionary battery technologies” that have a production cost of less than $60 per kilowatt-hour, a specific energy of 500 watts per kilogram, and are free of not only cobalt but also nickel, which is expected to be increasingly in demand in the years ahead.
To aid in translating R&D into new ventures, DOE recommends establishing a new Manufacturing USA institute for high-capacity batteries. It explains, “Scaling from a lab prototype to the pilot scale is expensive and uncertain, sometimes taking as long as a decade. Manufacturing USA’s public-private model, collaborating with academic, industry, and other stakeholders to test applications, train workers, and de-risk investments, is important to helping new technologies move from lab to market.”
In a bid to ensure new ventures are based in the U.S., DOE has also announced a policy requiring that products developed with funds from the department’s science and energy programs be “substantially manufactured” in the U.S. To do so, it is issuing a “determination of exceptional circumstances” under the Bayh-Dole Act, a 1980 law establishing patent rights for recipients of federal funding.
Although Bayh-Dole broadly strengthened funding recipients’ ability to patent, it also permits agencies to restrict patent rights if they deem it serves the act’s overarching aims, namely encouraging domestic industry. DOE previously issued such a determination in 2013 to require submission of a “U.S. manufacturing plan” in proposals for certain grants and contracts from its Office of Energy Efficiency and Renewable Energy and Advanced Research Projects Agency–Energy. Another determination in 2020 covered quantum information science technologies.
DOE’s newly expanded domestic manufacturing requirement could become a model for even broader efforts. The executive summary of the supply-chain reviews recommends the administration “update” such requirements for federal grants, cooperative agreements, and R&D contracts. Accordingly, the administration states it is establishing an interagency working group to “identify best practices to develop and implement further improvements across the government.”
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