How a law to bolster US manufacturing and supply chains could usher in a new industrial era

01 March, 2022

Matthew Comte
Operations Transformation Practice Leader for Consulting, PwC US
Michael J Whitman
Principal Supply Chain Transformation, PwC US
Ron Klein
Partner, Operations Strategy, PwC US

In a time of increasing geopolitical uncertainty, it's more important than ever for business leaders to assess their operations. New legislation in Washington could present opportunities for companies in many industries to rethink where they make goods and how they move them. But they shouldn’t wait for a bill to become law to start assessing and potentially adapting their operations.

The US House of Representatives recently passed the America COMPETES Act of 2022, aimed at boosting the competitiveness of US companies and strengthening supply chains in the global economy. The legislation follows a similar Senate bill, the US Innovation and Competition Act, which passed with bipartisan support in 2021. It also aligns with the Infrastructure Investment and Jobs Act passed last year, which includes strengthening US supply chains.

The differences in the House and Senate bills would need to be reconciled into one set of legislative items before being considered by President Joe Biden, who has voiced support for helping American businesses become more competitive. Given the general sentiment, companies should consider moving beyond simply understanding the potential benefits and requirements they’ll have to navigate with a new law. They also should assess how they can improve their long-term positions in an environment in which the US government may increase its support of domestic manufacturing, supply chains and other critical elements of the economy.

What’s on the table?

The House bill includes a host of measures aimed at increasing US competitiveness with other countries, including China, and it could have far-reaching implications beyond that. The measures include:

  • Federal investment boosting semiconductor research, design and manufacturing. Semiconductors are used in a wide range of products, and the $52 billion over five years would aim to help address the growing gap between the US global share of semiconductor manufacturing and semiconductor sales.
  • Grants and loans to shore up US supply chains while bolstering manufacturing of goods critical to national and economic security, including public health, communications technology and food supply. In addition to $45 billion in funding over six years, the government would establish a program to promote US supply chain resilience, identifying vulnerabilities and designating and stockpiling critical products to prevent future shortages. The House bill also would fund strategic stockpiles of medical equipment and essential drugs, as well as solar manufacturing to reduce reliance on Chinese-made parts or imports.
  • Policy changes affecting imports and offshore manufacturing. A program that supports imports from developing countries would be revised to enhance US competitiveness. Another program that suspends tariffs on imported materials critical to manufacturing would exclude finished products. (Similarly, the Senate bill requires that iron, steel, manufactured products and construction materials used in federally funded infrastructure projects be made in the US.) The House bill would also empower trade officials to block US companies from moving manufacturing of products critical to the national supply chain abroad if it poses a national security threat.

What to think about right now

In the near term, companies that could benefit from these funding initiatives should consider these key questions:

  • Are you optimally positioned overall to compete for these subsidies and loans? If not, what could you do in the coming months to increase your chances—not only for government funding but for any subsequent knock-on or spillover investment from other sources?
  • How could you adapt your facilities and product portfolio to align with the legislation? Could the new law help you to move faster than competitors? Or do you have competitive vulnerabilities that should be proactively addressed?
  • How would you envision engaging your Tier 2 and Tier 3 suppliers to support the kind of supply chain efficiencies that could make a new ecosystem of cooperation and co-investment not only possible but also sustainable?
  • How well do you understand the potential tax implications of the legislation, and how ready are you to address them?
  • If the federal government becomes more active in improving US supply chains, how will that impact your company—especially if you make or use components that could be designated national security priorities? What scenarios should you start planning for now, and what could they mean for your suppliers and customers?

What to watch in the long term

Industrial shifts over the last few decades have spurred arguments that the US is now at a competitive disadvantage, and the new legislation raises a key question: Could this be the dawn of a new era of industrial agenda-setting at the federal level?

There are signs that it might be. In addition to the provisions discussed above, the House bill would strengthen US anti-dumping and countervailing duty rules, reauthorize key tariff relief programs and renew the Trade Adjustment Assistance Program, which provides aid to American workers who lose their jobs or whose wages shrink because of competition from imports.

The national industrial policy outlined by these measures could potentially guide the US into a new phase of supply chain resilience. Government and business leaders have been advocating the reshoring and nearshoring of US manufacturing for several years, with scant results to date. Could that now start to change? If microchip manufacturing provides a model, could other sectors follow? Given the prevalence of semiconductors and the importance of secure supply chains in many industries, companies should prepare for long-term evolution as they assess the immediate impacts of a new law.

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