Biden Import Ban Impacts Infrastructure Efforts

Biden Import Ban Impacts Infrastructure Efforts
(Credit: Tim Herman/Intel Corporation)
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As the U.S. Senate returns this week for an intense work period, Republicans and Democrats are busy crafting language for a bipartisan infrastructure package that has the potential to be a game-changer. While President Biden continues to tout the positive potential of this bipartisan proposal, the Administration also just imposed a far-reaching Withhold Release Order (WRO) as part of the U.S. Government’s continued efforts to ban imports of products manufactured using forced labor. This action will temporarily impact the importation of critical goods required for U.S. infrastructure development and has the potential to be the largest import ban in American history.

The import ban covers all silica and derivatives of silica products manufactured by Chinese entity Hoshine Silicon Industry, Co., Ltd. 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, mobile phone, aerospace, communication, 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 impacts all segments of the economy and military that use electronic devices. It is surprising, then, that so few have taken the time to fully understand the potentially broad scope of this import ban.

At a time when the United States 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 now 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 WRO’s prohibition essentially disqualifies 50% to 55% of the global silica production base from entering the United States whether as a raw material, a semi-finished product, or incorporated into a finished good. But the practical impact is even larger. Given the highly complex and layered nature of electronic supply chains, it will be extremely difficult for many 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 large number of impacted 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 appropriately manage their supply chains 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 longstanding supply chain vulnerabilities and, while there is no question that the process of reshoring and friend-shoring supply chains for critical raw materials may be very painful, the outcome will ultimately 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 United States and the nations of our allies (e.g., 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 has now clearly changed the calculus.

Over the next several months, our silica mines will necessitate large capital investments in equipment, machinery, and workforce, and will require regulatory permit flexibility to realize their full potential. The U.S. Government can help speed this up, 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 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, in a bipartisan manner, to re-shore 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 United States can Build Back Better without the use of forced labor, as President 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 non-exclusive functions and duties of the Under Secretary for Industry and Security, at the U.S. Department of Commerce. Hon. Nikakhtar is now a Partner at Wiley, a leading law firm in Washington D.C.

Mark J. Duffy served as a senior advisor to Baroness Nicholson of Winterbourne, the U.K. Prime Minister’s Trade Envoy. Mr. Duffy is now a public affairs leader in Washington D.C.

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