Can US reclaim leadership in critical products?

Ajay Srivastava | Updated on June 28, 2021

While the US’ new action plan seems holistic, the WTO rulebook could be an irritant in its quest to catch up with China

What are the new measurements of strategic autonomy of a country? The strength in four product groups: semiconductors, large capacity batteries, critical minerals, and medicines. While the US, Taiwan, Korea, and China are the key players in semiconductors, China has an overriding lead in the remaining three product groups.

In response, the US has prepared an action plan for gaining strength in these four product groups. The White House report titled ‘Building resilient supply chains, revitalising American manufacturing, and fostering broad-based growth’ contains the details. It was released in the first week of June.

The US report may be a valuable reference for India, which has its own plans to manufacture these products. The report includes a detailed reference to India’s PLI scheme. The major action points proposed in the report for each of the four product groups are as follows.

One, semiconductors: Semiconductor or the electronics chip powers computers, electronic gadgets, white goods and also has military and industrial applications. The US, the pioneer of this technology, has lost its share in global semiconductor production from 37 per cent in early 2000 to 12 per cent now. It does not produce high-end logic chips and imports these from Taiwan, which makes 92 per cent of such chips. Worse, China’s share in semiconductors has increased over these years, riding on the high government spending.

The US plan for semiconductors revolves around massive investments to create production capacities, bridging the skill gap, and tying up with partner countries to cut reliance on China.

The US has supported $75 billion investments from the private sector. To ensure the availability of professionals, the US is relaxing its visa policy by eliminating per-country visa caps for high-skilled persons from countries like China and India. It is also partnering with friendly countries to create a more resilient global semiconductor supply chain.

One such example is the Quadrilateral Security Dialogue, where the US, India, Australia, and Japan are collaborating on many subjects, including semiconductors.

Two, large-capacity storage batteries: The lithium-ion battery would continue to rule the automobile segment for at least a decade more when the next generation battery would be ready. Other uses of storage batteries are stationary energy storage in industry and defence installations.

Due to the increasing switch to electric vehicles (EVs), the demand for the lithium-ion battery is estimated to rise five-fold in this decade. The problem is that the US and most large countries are dependent on China for the raw materials.

The US plans to invest in large-scale storage battery manufacturing. It would also secure supply critical minerals like lithium and cobalt used in battery production. The US also wants to invest in next-generation batteries which would use less critical minerals. The only issue is that next-gen batteries may not hit the market anytime before the next decade.

Three, critical minerals: These are used to manufacture mobile phones, flat-screen monitors, wind turbines, electric cars, solar panels, and many other high-tech applications. Their stock availability is vital for the economic well-being of a country. Yet, these are critical as their supply may be at risk due to scarcity, political tensions, or other factors. Major critical minerals are lithium, chromium, cobalt, antimony, arsenic, barite, beryllium, bismuth, cesium, fluorspar, gallium, germanium, graphite, hafnium, etc.

China controls the supply of the most critical minerals. For example, it refines 60 per cent of the world’s lithium and 80 per cent of the world’s cobalt, two core inputs to lithium-ion batteries. It has bought mines in Congo, Chile, and Australia to secure future supplies.

The US plans to increase the production, refining, and recycling capacity of strategic and critical materials. It also seeks to invest in international projects and work with partners to diversify supply chains.

Four, pharmaceuticals and APIs. The US is a big user of generic drugs. They account for 90 per cent of all prescription medications filled in the US, but only 20 per cent of prescription drug spending. Thus they save much money for the country. The problem is that the US is critically dependent on the import of generics.

As usual, China is the dominant supplier of generic APIs. Europe imports 90 per cent of its requirements from China, while India imports 70 per cent from China. The US imports 40 per cent of drugs from India, which are mostly made from the APIs imported from China. But this was not the case till early 2000.

Today, the US does not produce antibiotics for treating children’s ear infections, pneumonia, urinary tract infections, sexually transmitted diseases, and many other infections. The US plans to manufacture 50-100 critical drugs. It would incentivise novel platform technologies to manufacture APIs. The pandemic proved that supply chain disruptions might cause havoc with national health.

The US has helped China build its formidable lead in critical sectors, mainly through the outsourcing of manufacturing. Now, with everyone aware of the rulebook, only limited options are available to countries to play catch up with China. It would be interesting to see how many of the new initiatives survive at the anvil of WTO laws.

The writer is from Indian Trade Service. Views are personal

Published on June 28, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like