US must reduce dependence on China-dominated supply chains, says Baker Institute report

The United States must reduce its dependence on China-dominated supply chains for critical goods, according to a new report by experts in the Center for Energy Studies at Rice University’s Baker Institute for Public Policy and at the U.S. Naval War College’s China Maritime Studies Institute.

"Economic Statecraft: Options for Reducing U.S. Overdependence on Chinese-supplied Materials and Medications” offers foundational building blocks for the formulation and implementation of a larger strategy to reduce American vulnerabilities to China. It was co-authored by Gabriel Collins , the Baker Botts Fellow in Energy and Environmental Regulatory Affairs at the Baker Institute, and Andrew Erickson , professor of strategy at the Naval War College.

"From the outset, we want to be crystal clear about a core premise of our thinking: the United States will - and decidedly should - remain closely connected to the global economy,” the researchers wrote. "But the corporate quest over the past 25 years to cut supplier costs, with insufficient concern for resilience, has saddled the nation with gaping strategic vulnerabilities in the supply chains for certain critical materials, medications and technology inputs. Our analysis describes what it will take to begin reclaiming U.S. security and strategic autonomy in those areas.”

The report explains how applying specific tools of economic statecraft can reduce risk and suggests ways to onshore production of goods that are most critical to U.S. national and economic security. It explains critical scenarios, identifies key weak points and suggests 12 potential countermeasures.

"While employing these tools will be neither easy nor cheap, the coronavirus already reveals the alternative: mounting costs in American economic well-being, strategic resilience and lives,” the researchers wrote.

The researchers offer 12 wide-ranging ideas on how the federal government might incentivize the onshoring of important supply chain elements while minimizing moves to "pick winners” and other interference in the market economy.

They include improving strategic situational awareness by creating a national strategic mineral and critical medication inventory reporting system with a structure similar to the Energy Information Administration’s weekly petroleum inventory data reporting; leveraging alliances by coordinating with neighbors and partners (Japan just allocated $2.2 billion of its own stimulus package to help shift supply chains from China); and leveraging the U.S. government’s world-leading purchasing power by using federal procurement to incentivize accelerated supply chain shifts.

The researchers said the U.S. must also leverage existing private sector capacity and establish a detailed set of guidelines to advise private sector firms and support their efforts to source and stockpile rare earths and other strategic metals more resiliently.

Collins conducts a range of globally focused commodity market, energy, water and environmental research. He focuses on shifts in China’s domestic oil consumption, oil field water issues, evolutions in the global gasoline market, water governance and groundwater valuation in Texas and the nexus between food, water and energy.


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