Diversifying Supply Chains Can’t Be ‘Government-Led’: State Department

The U.S. needs to work with global trading allies to find long-term fixes to the supply chain crisis that will transcend future American administrations, Matt Murray, senior bureau official in the State Department’s Bureau of Economic and Business Affairs, told the Global Trade and Innovation Policy Alliance summit in a keynote Thursday. “We can’t just look at supply chain issues and say we need to fix it by Christmas because there are these short-term disruptions,” he said.

Murray is a “career foreign service officer” with 23 years of State Department experience, he told the summit. “I’ve certainly seen various policy initiatives come and go in different administrations,” he said. “But one of the areas we’re really focused on right now are some of these longer-term concerns.”

Career agency officials “can’t at all control the politics in terms of what the future agenda might be,” said Murray. “But what we can do right now is really get back into multilateralism and engage with these long-term objectives in mind, and not just try and solve the problems of the moment,” he said. “For the past several months, it’s been a very busy agenda.”

There "clearly" should be “more domestic investment” in U.S. tech manufacturing, especially semiconductors, said Murray. “A big part of what we’re doing is through domestic renewal,” he said. The Biden administration also recognizes that “we can’t make everything here,” he said. “That’s why we’ve been doing all this outreach to partners. We also recognize that our partners around the world, they have the same concerns. They know they can’t make everything at home. They know they’re going to need robust, resilient supply chains.”

The U.S. knows it has a “dependency issue” with China in “a lot of these sectors with the manufacturing that happens there,” said Murray. “I don’t think any country is saying we’re going to pull all the manufacturing out of there. But we are in a situation where we need to think about diversification.”

Diversifying supply chains “can’t really be a government-led process,” said Murray. “We can help facilitate and provide information and perhaps provide resources for different decisions, but that really does have to be private sector-led because supply chains are private sector-led.” Government wants to be “part of the solution,” he said. “We don’t want to be part of the problem, and we don’t want to get in the way.”

As a “challenge” to U.S. economic recovery from the COVID-19 pandemic, supply chain disruptions are of “paramount concern right now,” said Murray. The crisis “requires a global response,” he said. There needs to be “very strong international engagement with our partners,” he said, “particularly to avoid protectionist tendencies, to make sure we’re communicating well, to make sure we’re as transparent as possible.”

The pandemic exposed “obvious vulnerabilities” in the chip industry’s supply chains, “and some of those vulnerabilities have been thrown into bold relief,” Semiconductor Industry Association CEO John Neuffer told the summit. “We have built our supply chains to be biased towards efficiency,” and there are “some shortcomings with that,” he said. “We’ve fine-tuned just-in-time delivery, and we found that inventories in crises matter, so you also have to build in just-in-case approaches to supply chain management.”

A big industry vulnerability is that “we don’t manufacture enough chips here in the U.S.,” said Neuffer. Another flaw is that 100% of the world’s “most innovative” chips in nodes of 10 nanometers or less are produced in East Asia, not in the U.S., he said. SIA doesn’t advocate “reshoring all of our capabilities” to the U.S.

The semiconductor industry plans to build “literally hundreds of new fabs in the next 10 years” to meet the “explosion of demand for chips,” said Neuffer. “As these new fabs are being built, we want more of them built here in the U.S.” Other governments around the world offer “massive incentives to attract fab construction,” he said. “Our government has not been in that business.”

Funding legislation in Congress, the Creating Helpful Incentives for the Production of Semiconductors Act, with $52 billion in R&D incentives would be “a good start to level the playing field,” said Neuffer. So would enacting the Facilitating American Built Semiconductors Act to include an investment tax credit for semiconductor design and manufacturing, he said. “The underlying approach is to diversify risk, so that we don’t have 75% of semiconductor manufacturing happening in East Asia anymore. More of it should be happening here and in Europe and in other places around the world so that we can spread the risk out.”