Deborah Rosenblum, the acting assistant secretary of defense for industrial base policy, told the U.S.-China Economic and Security Review Commission that safeguarding supply chains has become a national priority.
“Supply chain resiliency is a top-of-mind issue in a way it has not been for decades, and efforts are under way across the U.S. government to understand and mitigate some of our most glaring supply chain vulnerabilities,” Rosenblum said during a Thursday hearing. “For more than 50 years, market forces in the United States have prioritized supply chain efficiency over supply chain resiliency. Events of the last few years [COVID-19, Ukraine conflict] have crystallized the need to prioritize and build supply chain resilience.”
The supply chain challenge was one of four topics reviewed during the meeting. The USCC is a bipartisan commission created by Congress to monitor and report on trade, economic and defense issues in the U.S.-China relationship.
Commissioner Bob Borochoff, in an opening statement to begin the sixth hearing of the commission’s 2022 annual report cycle, said an overreliance on Chinese manufacturing presents serious national security concerns.
He said the United States must restore its robust manufacturing base at home and coordinate with allies to build more diverse and secure supply chains.
Commissioner Carte Goodwin, in his opening statement, said the commission aims to help create a better understanding of the multitude of factors that have contributed to the concentration of supply chains in East Asia and the impact that has in other parts of the world.
“In addition to certain structural features of China’s economy and CCP policies, western companies’ short-term pursuit of lower costs and increased efficiencies has encouraged production and supply lines to migrate across the globe,” said Goodwin, a former West Virginia senator. “Unfortunately, this shift has often come at the expense of national security and economic concerns and, as COVID-19 has made us all painfully aware, complex and far-flung supply chains can be highly vulnerable to disruption.
“As other countries reconsider their exposure to China’s economy, CCP leaders are attaching increased importance to protecting their position in global supply chains,” he said. “General Secretary Xi Jinping himself has stated Chinese supply chains ‘cannot be broken at critical moments.’''
Rosenblum said President Joe Biden issued Executive Order (E.O.) 14017, America’s Supply Chains, within his first 100 days in office, in an effort to revitalize, fortify and, in some instances, rebuild the domestic supply chains. It called for a comprehensive review of supply chains in the form of two directives to assess supply chain health and resilience.
Rosenblum said the EO was acted upon immediately.
“The first directive was a 100-day assessment of four areas — semiconductors [led by the Department of Commerce], pharmaceuticals [led by the Department of Health and Human Services], high-capacity batteries [led by the Department of Energy], and critical minerals and materials [led by the Department of Defense, which also supported the other three reviews],” she said.
The Department of Defense’s report focuses specifically on addressing challenges in high-priority areas critical to operational readiness, including: kinetic capabilities, energy storage and batteries, castings and forgings, microelectronics, and strategic and critical materials.”
She said it has become apparent that supply chain resilience is “both a whole-of-government and a whole-of-economy requirement,” requiring analysis and solutions emanating from interagency, industry and international partners.
“Revitalizing supply chains requires that the United States make cooperative, strategic, timely decisions to build domestic capacity, collaborate with partners and allies, and safeguard our markets," Rosenbaum said. "This approach, when balanced across both supply and demand, will facilitate the development of robust markets.”
Also offering testimony were Jeff Stoff, founder of Redcliff Enterprises, and Interos Inc. CEO Jennifer Bisceglie.
Stoff focused on U.S. vulnerabilities, challenges and the long-term implications with respect to China regarding future supply chains.
“Specifically, I am referring to the R&D and human capital inputs that make up our innovation ecosystem,” he said. “As this hearing discusses how to secure defense-critical supply chains, it is important that we frame our R&D and innovation ecosystem as a critical supply chain input and a national asset. Yet this is an area that is the least protected and the most vulnerable to China’s predations.”
Stoff added that he believes no government agency or program can overcome their structural limitations without a “radical transformation” of their missions, priorities and resources.
Bisceglie said she has worked in the global supply chain industry for three decades and founded Interos 17 years ago to evaluate risks in the global economy and the business partnerships, alliances and distribution networks in the supply chain.
“During those years I’ve watched risk concerns in the supply chain move from quality to physical security, to resiliency and now to product integrity and the role of the digital connection, i.e., cyber." she said. "Over the last few years, we have seen supply chain crises increase exponentially with COVID-19, SolarWinds, the Suez Canal blockage and, most recently, with baby formula,” she said. “As Interos noted in its 2018 report for the commission, the federal supply chain is reactive. Meaning, until we as a country adopt a centralized government role for supply chain risk management [SCRM], we will continue to suffer consequences of supply chain disruptions."
Bisceglie had four recommendations: Embrace an adaptive SCRM process, promote supply chain transparency, centralize federal SCRM efforts and craft and implement a forward-looking policy.
She said it is clear the threat that China poses to U.S. federal supply chains is real, significant and growing.
“Our reliance on China as a supplier will remain high,” Bisceglie said. “The time to address the supply chain threat and risk to our nation’s national security and military readiness is now, not after a major incident, the scale of which we may not yet have envisioned, is realized.”
Rosenblum said this problem did not arise overnight and will not be correct in the short term.
“We recognize that we are addressing a problem 70 years in the making, and our current efforts are a down payment on a very large and complex set of challenges," she said. "Continuing to build supply chain resilience requires strategy, commitment, and collaboration. The Department of Defense is actively mapping the supply chains linked to the U.S. defense industrial base.”