Supply Chain Reports Home In on Trade Protection, Forced Labor Risks

For instance, in solar panels, the Department of Energy wrote that 97% of silicon wafer production is in China; 75% of the solar cells installed in the U.S. are made by Chinese companies in Vietnam, Malaysia or Thailand; and 54% of Chinese polysilicon, an input for ingots, is produced in Xinjiang, though they added, "this share is expected to decrease."

DOE talked about how trade policy in the U.S. and China has affected the domestic industry. The production of solar panels has not gone beyond the tariff rate quota limit for solar cells under the global safeguard, it noted. (That TRQ just doubled.) "Using imported cells, U.S. module assembly scaled up significantly in 2018 and 2019, primarily due to U.S.-placed tariffs on imported modules," DOE said, referring to the safeguard again.

"There is no active U.S.-based ingot, wafer, or silicon cell manufacturing capacity, and polysilicon production capacity is not being used for solar applications," the report said. "The concentration of the supply chain in companies with close ties to China, a country with documented human rights violations and an unpredictable trade relationship with the United States, is already creating disruption in the solar supply chain."

Domestic polysilicon production fell after China put tariffs on U.S. polysilicon in 2014, DOE said.

"To reestablish domestic solar manufacturing in the United States, companies that produce and sell solar components will require financial support to offset the 30-40% higher cost of domestic solar production," DOE said. The current safeguard only neutralizes about half that difference in costs.

For the mounts that solar arrays are attached to, the shipping cost is significant, which would make domestic production more competitive, DOE said, "however tariffs on imported raw steel and aluminum have led multiple firms to decrease U.S. production."

The Commerce Department, in concert with the Department of Homeland Security, wrote about how the information and communications technology supply chains have similar risks. "Structural vulnerabilities across the ICT supply chains have presented several risks that have become more apparent as a result of disruptions caused by the COVID-19 pandemic. These include the lack of a domestic ecosystem for many segments of ICT production, overreliance on single-source and single-region suppliers, and the difficulty in maintaining product integrity due to complex supply chains," the report said. "The current state of the ICT industrial base supply chain leaves the United States overexposed to a variety of externally derived risks stemming from intellectual property theft, economic dependencies, weak labor standards and climate concerns."

The Biden administration said the Chips Act, which is part of the China competition bills that need to be merged by House and Senate lawmakers, could fund domestic production of printed circuit boards and semiconductors. It also said that international collaboration should bolster supply chain security and diversity, and should coordinate trade enforcement.

Communications equipment's supply chain is the most vulnerable to supply chain shocks, even more than semiconductors, the report said. But all the products under the ICT purview had risks. Forced labor in mining of tungsten, silicon, cobalt and others in the Congo, China and Brazil, and China's dominance in rare earth mineral processing -- it does 80% of it -- are all potential problems, the report said. This isn't just a problem in ICT, it's also a problem for the green transition, the DOE report said. "China also controls 100 percent of the processing of natural graphite used for battery anodes," the report said.

To track inputs that could be made with forced labor, CBP and other agencies will work "to continue to improve and promote implementation of traceability efforts but also expand support to carbon footprinting. NASA will contribute its technical expertise on forensic analysis capability," the report said. The goal is to establish the capability to determine the source of "any critical material at all points in the supply chain." That will allow the government to fight forced labor in mining, and to promote social responsibility, it said.

The report suggested there should be federal money for U.S. companies investing in, or exporting to, foreign countries in supply chain inputs "that fill challenging domestic gaps."

At the Department of Health and Human Services, the agency wrote, logistical challenges, such as shipping and regulatory delays, can lead to shortages in public health goods, as can export controls from other countries. "Ethical considerations, such as avoiding the products of forced labor, can limit the overall number of suppliers," the report said. Surgical gloves from Malaysia have been subject to withhold release orders. "HHS is supporting other agencies, including the Department of State (DOS), in mitigating risks caused by forced labor, counterfeits, and deficient product quality in the public health supply chain," the agency said.