[Senate Hearing 117-789]
[From the U.S. Government Publishing Office]







                                                        S. Hrg. 117-789

                  IMPLEMENTING SUPPLY CHAIN RESILIENCY

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 15, 2021

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation







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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                   MARIA CANTWELL, Washington, Chair
AMY KLOBUCHAR, Minnesota             ROGER WICKER, Mississippi, Ranking
RICHARD BLUMENTHAL, Connecticut      JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii                 ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts         TED CRUZ, Texas
GARY PETERS, Michigan                DEB FISCHER, Nebraska
TAMMY BALDWIN, Wisconsin             JERRY MORAN, Kansas
TAMMY DUCKWORTH, Illinois            DAN SULLIVAN, Alaska
JON TESTER, Montana                  MARSHA BLACKBURN, Tennessee
KYRSTEN SINEMA, Arizona              TODD YOUNG, Indiana
JACKY ROSEN, Nevada                  MIKE LEE, Utah
BEN RAY LUJAN, New Mexico            RON JOHNSON, Wisconsin
JOHN HICKENLOOPER, Colorado          SHELLEY MOORE CAPITO, West 
RAPHAEL WARNOCK, Georgia                 Virginia
                                     RICK SCOTT, Florida
                                     CYNTHIA LUMMIS, Wyoming
                    David Strickland, Staff Director
                 Melissa Porter, Deputy Staff Director
       George Greenwell, Policy Coordinator and Security Manager
                 John Keast, Republican Staff Director
            Crystal Tully, Republican Deputy Staff Director
                      Steven Wall, General Counsel  
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 15, 2021....................................     1
Statement of Senator Cantwell....................................     1
Statement of Senator Wicker......................................     2
    Article dated July 14, 2021 from the Washington Post 
      entitled, ``Biden targets high shipping costs as pandemic 
      ravages global supply chains'' by David J. Lynch...........    52
Statement of Senator Blumenthal..................................    55
Statement of Senator Fischer.....................................    57
Statement of Senator Klobuchar...................................    59
Statement of Senator Peters......................................    60
Statement of Senator Scott.......................................    65
Statement of Senator Sullivan....................................    67
Statement of Senator Thune.......................................    69

                               Witnesses

Gary Gereffi, Ph.D., Emeritus Professor and Founding Director, 
  Global Value Chains Center, Duke University....................     3
    Prepared statement...........................................     5
James A. Lewis, Senior Vice President and Director, Strategic 
  Technologies Program, Center for Strategic and International 
  Studies........................................................    15
    Prepared statement...........................................    16
Richard Aboulafia, Vice President, Analysis, Teal Group Corp.....    21
    Prepared statement...........................................    23
William A. (Lex) Taylor III, Chairman of the Board and Chief 
  Executive Officer, The Taylor Group Inc........................    30
    Prepared statement...........................................    31
Dr. Dario Gil, Senior Vice President and Director, IBM Research..    33
    Prepared statement...........................................    35
John S. Miller, Senior Vice President of Policy and General 
  Counsel, Information Technology Industry Council (ITI).........    39
    Prepared statement...........................................    41

                                Appendix

Response to written questions submitted to Dr. Gary Gereffi by:
    Hon. Maria Cantwell..........................................    75
    Hon. Jacky Rosen.............................................    77
    Hon. Kyrsten Sinema..........................................    79
    Hon. John Hickenlooper.......................................    80
Response to written questions submitted to Dr. James A. Lewis by:
    Hon. Maria Cantwell..........................................    81
    Hon. Jacky Rosen.............................................    82
    Hon. Kyrsten Sinema..........................................    83
    Hon. Raphael Warnock.........................................    84
    Hon. Shelley Moore Capito....................................    84
Response to written question submitted to Richard Aboulafia by:
    Hon. Maria Cantwell..........................................    85
Response to written questions submitted to William ``Lex'' Taylor 
  III by:
    Hon. Maria Cantwell..........................................    86
    Hon. Shelley Moore Capito....................................    86
Response to written question submitted to Dr. Dario Gil by:
    Hon. Jacky Rosen.............................................    87
    Hon. Kyrsten Sinema..........................................    88
    Hon. John Hickenlooper.......................................    89
Response to written questions submitted to John S. Miller by:
    Hon. Kyrsten Sinema..........................................    90
    Hon. Raphael Warnock.........................................    90
    Hon. Shelley Moore Capito....................................    91

 
                  IMPLEMENTING SUPPLY CHAIN RESILIENCY

                              ----------                              


                        THURSDAY, JULY 15, 2021

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:32 a.m., in 
room SR-253, Russell Senate Office Building, Hon. Maria 
Cantwell, Chair of the Committee, presiding.
    Present: Senators Cantwell [presiding], Klobuchar, 
Blumenthal, Peters, Tester, Sinema, Rosen, Hickenlooper, 
Wicker, Thune, Fischer, Sullivan, Blackburn, Young, and Scott.

           OPENING STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    The Chair. The U.S. Committee on Commerce, Science, and 
Transportation will come to order. Thank you all for being 
here. We have a distinguished group of witnesses today to talk 
about a very important issue to us in the United States of 
America, that is the state of competitiveness of our supply 
chain and its resiliency for the future.
    Each one of our witnesses, the distinguished Dr. Gary 
Gereffi, Dr. James Lewis, Mr. Rich Aboulafia, Dr. Dario Gil, 
Mr. William Lex, I am sorry, Taylor, thank you, and Mr. John 
Miller all offer a variety of perspectives on the importance of 
this issue. I can say for me, in the state of Washington, the 
aviation supply chain is something we are very proud of. More 
than 150,000 people work in that supply chain that continue to 
innovate and create new products that, as Mr. Aboulafia says in 
his testimony, that is where the innovation is happening in the 
supply chain.
    That is why we just recently passed the now called U.S. 
Innovation and Competition Act, USICA, that we are trying to 
negotiate with our House colleagues because we believe in 
making an increased investment in the supply chain. So I am 
sure we are going to hear today also about the challenges we 
face in the semiconductor sector, an aspect of our supply chain 
in which we saw great shifts over the last several decades and 
the consequence is obviously less jobs in the United States of 
America.
    So needless to say, I think Congress has caught on that the 
supply chain is key to our economic strategy and that a robust 
supply chain in the United States of America means we are going 
to continue to have robust employment in the United States of 
America. Without the resiliency of the supply chain, it could 
be complicated as to, given the experience of the COVID-19 
pandemic, whether products can be delivered in a timely 
fashion, whether our services and security could be impacted, 
and just how important it is that we have a strategy for a 
global economy in which a variety of products and services can 
be delivered in a much more competitive fashion than in the 
past.
    That means the investments that the Department of Commerce 
should make are important. USICA took several steps to 
contribute to the resiliency of the supply chain, and 
incentivize domestic semiconductor manufacturing, establish a 
supply chain resiliency and response office within the 
Department of Commerce. It makes tremendous investment in the 
Department of Commerce National Science Foundation, and 
Department of Energy to support R&D in translating inventions 
into products, creating regional technology hubs, and expanding 
the workforce and our innovation economy.
    And these important facilities like our Pacific Northwest 
National Laboratory, can help with spinoffs of new technology 
that become critical parts of our R&D and domestic supply 
chain. Also, our NIST funded manufacturing extension programs 
can help in working with developing resiliency and supply chain 
strategies so that we continue to have not just potential 
customers and supply chain connectors, but understand, again, 
how we can best innovate and stay competitive. So I look 
forward to hearing the testimony from our witnesses today.
    I feel very excited to have this distinguished group in 
front of us, and I hope our colleagues will all learn from the 
information here Senator Wicker, I am not sure 20 years ago 
that we would have had the same hearing. I see our colleague, 
Senator Young here, the key sponsor behind what was then the 
Endless Frontier Act.
    I am not sure we would have been having the same 
conversation. But the world has changed. Supply chains have 
changed and are changing and I look forward to how the United 
States stays very competitive here. Thank you.

                STATEMENT OF HON. ROGER WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you, Madam Chair, and good to be here 
with you today and to be with this distinguished panel. What do 
we mean when we say supply chain? It is the process that starts 
with raw materials and ends with sale or consumption. Along the 
way, there are various steps, materials, refinement, 
manufacturing and distribution.
    Resilient supply chains can withstand and quickly recover 
from disruptions, and we have had disruptions, but they also 
include, in addition to infectious disease outbreaks, severe 
weather, international conflict, things like that. In recent 
decades, our manufacturing capacity has declined significantly. 
Between 2000 and 2010, manufacturing jobs were cut by one-
third, with small businesses heavily impacted. And as we all 
know, that is where we create the jobs in the United States of 
America, small business.
    As global competition has increased, control over our 
supply chains has fallen into the hands of fewer and fewer 
countries, most notably China. Such geographic concentration of 
supply chains has left many U.S. companies vulnerable to 
disruption, something we are now acutely experiencing. Helping 
U.S. companies identify, and address areas of vulnerability 
will require strong partnerships and international partners.
    The Federal Government can also help by investing in R&D 
and workforce development to make sure new innovations are 
conceived and developed here in the United States. Taylor 
Machine Works in Mississippi is one great example of a U.S. 
company conducting R&D in the materials handling industry and 
whose innovations are today being replicated around the world.
    This committee took important steps, as the distinguished 
chair mentioned, in passing the Endless Frontier Act, now known 
as the United States Innovation and Competition Act, or USICA. 
I don't like that as well. This bill, authored by Senator 
Young, passed the Senate by a vote of 68 to 32. The legislation 
would create a new supply chain resiliency program within the 
Department of Commerce to monitor key industry supply chains 
and develop ways to address vulnerabilities.
    The bill also includes emergency appropriations to support 
semiconductor manufacturing and R&D. This is a much needed 
response to the semiconductor shortages that have disrupted 
manufacturing across the nation, including my home State of 
Mississippi. And undoubtedly we will hear about that from our 
distinguished panel. The legislation also includes important 
contribution from the Finance committee to combat China's 
manufacturing imbalances and threats to free and fair trade.
    Today's hearing is an opportunity for witnesses to discuss 
how the United States Innovation and Competition Act can make 
our supply chains more resilient. Our witnesses may want to 
share their thoughts on how the Department of Commerce might 
implement the various provisions of this bill. The House passed 
its reauthorization of the National Science Foundation, but it 
still needs to take action on the broad range of topics covered 
by our legislation. The president recently issued a 100 day 
supply chain review that identifies some important supply chain 
vulnerabilities. We perhaps will hear about that today.
    I am honored that among our panel is my good friend and 
fellow Mississippian Lex Taylor, the Chairman and CEO of the 
Taylor Group. It is a leading manufacturer in Mississippi. 
Taylor builds forklifts and a wide variety of material handling 
machines for both industry and defense purposes.
    Mr. Taylor has firsthand experience with the topics we will 
cover. And I know he and other members of the panel will make a 
valuable contribution to this discussion. Thank you, ma'am.
    The Chairman. Thank you, Senator Wicker. We are leading off 
with you, Dr. Gereffi. Thank you so much for being here. We are 
honored to have you before the Committee and hear your 
expertise in this area. So please proceed.

               STATEMENT OF GARY GEREFFI, Ph.D.,

           EMERITUS PROFESSOR AND FOUNDING DIRECTOR,

          GLOBAL VALUE CHAINS CENTER, DUKE UNIVERSITY

    Mr. Gereffi. Thank you very much. Madam Chair Cantwell, 
Ranking Member Wicker, members of the Senate Commerce 
committee, it is a pleasure and an honor to be invited to 
testify before you today. My name is Gary Gereffi. I have been 
a Professor at Duke University for many years, and I direct the 
Global Value Chains Center there.
    And I have spent a number of decades studying global supply 
chains. And this is the first time that I think my neighbors 
and friends want to talk about that topic, not necessarily for 
good reasons the last couple of years. As we know, COVID-19, 
the pandemic has introduced many disruptions and shortages of 
products so supply chains have come to the public 
consciousness, oftentimes through these shortages. But I think 
as the White House report that was released last month on 
building resilient supply chains has emphasized, supply chains 
have been a critical part of globalization and the U.S. economy 
for the last five decades.
    And it is really important that we be aware of disruptions 
not just for products like personal protective equipment or the 
other issues that have come up with COVID-19, but as a matter 
of long term competitiveness. So what I wanted to do is just 
highlight a couple of points that I make in my written 
testimony, one about the nature of supply chain research, two, 
about the concept of resilience, and then I want to give a kind 
of a bottom up perspective of supply chains and conclude with a 
couple recommendations. Supply chain research is surprisingly 
recent in the university context. Businesses deal with supply 
chains all the time. It is a matter of logistics. But from a 
researcher point of view, it is a challenging field for two 
reasons.
    One reason is the boundary problem. We are aware of 
industry studies, but supply chains are bigger and different 
than industries. Supply chains have multiple tiers of companies 
that stretch up and down that supply chain. So we might be 
aware of the end product makers. We are not aware so much of 
the first tier, second tier, third tier suppliers. That is 
critical. But supply chains also have an important breadth. 
They have backward linkages and forward linkages. So in many 
ways, supply chains are much bigger and more complicated than 
our traditional sense of industries.
    So it has been hard to create those boundaries and that 
raises a measurement problem. The data that we have on other 
kinds of economic analysis like trade and investment data are 
easier to find if we are dealing with traditional industries. 
But when we are dealing with supply chains, many of those 
supply chain linkages are confidential. They are not the kind 
of things that you can just go and find easily. So the 
researchers working in different industries have had to try to 
recreate what those supply chains are. Resilience, I agree, as 
a critical concept, but I think we need to look at it at 
several levels.
    There is resilience from the level of the firm, but from a 
firm perspective, they are thinking of resilience in terms of 
operational efficiency and how do they risk--how do they deal 
with risk management if supply chains are disrupted? There is a 
second level of supply chains, resilience viewed at the level 
of supply chains themselves, which are bigger than firms. They 
are the industry systems that have organizational and 
geographic characteristics.
    And finally, there are supply chains, resilience in terms 
of countries and what we care about. Part of that is National 
Security. And that was a key emphasis in the White House report 
last month. But also from a country point of view, supply 
chains relate to jobs. They relate to infrastructure. They 
relate to different kinds of economic, social, and 
environmental concerns. So I think when we are talking about 
resilience, it will be helpful to link resilience for whom? For 
firms, for the industries themselves, or for countries? In my 
written comment, I talk about supply chains from top down or 
bottom up.
    In these short remarks, we just mentioned the bottom up 
perspective. How do we look at supply chains from a U.S. 
vantage point? And one of the projects we had done at Duke too 
was something called the North Carolina and the Global Economy 
Project, where we looked at seven key industries in North 
Carolina, natural resource industries like tobacco and hog 
farming, traditional manufacturing like furniture or textiles, 
but also high tech industries like biotechnology or information 
technology or banks and finance.
    Every state in the country has critical industries that 
they care about. So I think if we start looking at supply 
chains from the bottom up, and each state says, here is the 
industries we care about, there are things we can learn from 
supply chain research about how to do that kind of mapping, and 
I gave some examples in the written testimony. Final point on 
some of the recommendations I noticed. What is important to me 
is how universities get tied in to the initiatives that this 
committee and this legislation is talking about.
    I think in the USICA, the Information and Competitiveness 
Act, there is a critical emphasis on an NSF technology 
directorate as a way to perhaps focus some of these efforts. I 
would applaud that. I think that is going to add applied 
research to the kind of basic research that NSF does. But NSF 
also tries to get universities involved in this research. And 
so one thing I would just recommend is that if we think about a 
technology directorate, we think about it as more than just 
engineering. Engineering is embedded in a lot of these other 
social areas that we care about, jobs and the like.
    So I think that that part of what we can do with the 
technology directorate is figure out how do you link 
universities in different parts of the country that are dealing 
with common industry issues. So I think the kind of initiatives 
that have been proposed are really going to be important. But 
some of the advice you might be getting from private sector, 
university folks, and others could help us knit together these 
proposals in a really strong, robust way. Thank you very much.
    [The prepared statement of Mr. Gereffi follows:]

   Prepared Statement of Gary Gereffi, Ph.D., Emeritus Professor and 
     Founding Director, Global Value Chains Center, Duke University
I. Introduction
    Madam Chair Cantwell, Ranking Member Wicker, and Members of the 
Committee, I am honored to appear before you today to offer testimony 
on the hearing topic, ``Implementing Supply Chain Resiliency.'' My name 
is Gary Gereffi, and I am the Founding Director of the Global Value 
Chains Center at Duke University. I have spent much of my academic 
career looking at the structure and dynamics of global industries, and 
how and why U.S. companies decided to set up international production 
and sourcing networks. This research has involved extensive fieldwork 
in a wide variety of industries and countries around the world, 
including in-depth interviews with the companies, business and labor 
groups, policymakers, and other industry stakeholders in each setting.
    In light of this experience, I am very gratified to see the 
excellent White House report on ``Building Resilient Supply Chains, 
Revitalizing American Manufacturing, and Fostering Broad-Based Growth'' 
released in June 2021 that outlines steps to strengthen critical U.S. 
supply chains. In my remarks today, I draw upon my background as both a 
researcher and a policy adviser. I will organize my remarks around 
three main themes: (1) a brief review of the rise of global supply 
chains as a research field; (2) a short list of building blocks of 
resilient supply chains that derive from this research; and (3) a few 
recommendations for actions that the U.S. Federal government can take 
to implement supply chain resiliency.
    Recent disruptions associated with the COVID-19 pandemic have 
brought both the significance and risks of supply chains to the 
American consciousness as never before. COVID-19 has been a unique and 
terrifying event because of its swift global spread and its devastating 
and lingering impact on the health and security of the American people 
and the global community. It has resulted in unprecedented supply 
shortages and demand fluctuations that have affected virtually all U.S. 
industries, from medical supplies to food products and toilet paper, 
and from the transportation and service sectors to critical 
intermediate goods like semiconductors, active pharmaceutical 
ingredients, and rare-earth minerals. These dislocations can provide 
important lessons for the future.
    Supply-chain disruptions are a recurrent risk for many businesses. 
They can be caused by natural events, such as tropical storms, 
earthquakes, or extended droughts, as well as cyclical fluctuations 
like business cycles or financial crises (e.g., the 2008-09 global 
recession). Government policies can also disrupt supply chains, such as 
trade restrictions that impede the cross-border flows of imports and 
exports or local-content requirements that mandate the domestic 
procurement of goods and services. While COVID-19 disruptions were a 
different order of magnitude because of their speed and global impact, 
a supply-chain perspective that links firm strategies, industry 
dynamics and government policies can help address short-term supply-
chain discontinuities in the U.S. economy, and inform plans for long-
term resilience as a basis for dynamic, inclusive and sustainable 
economic growth.
II. Supply Chain Research: A Recent Field
    Although supply chains may sound like a rather arcane or technical 
topic, supply-chain research has flourished in recent decades, 
especially as supply chains have gone global. In contrast to the more 
familiar field of industry studies or intriguing case histories of 
well-known products (such as Barbie dolls or iPhones), supply-chain 
research encompasses the full structure of an industry, including its 
pre-production (R&D and design) phases, the often complex production 
process (raw and processed materials, manufactured components and other 
inputs, and the assembly, testing and packaging of final products), and 
post-production stages (e.g., distribution and logistics, marketing, 
and in some cases recycling).
    During the origins of American big business (19th and early 20th 
centuries), most supply-chain activities were carried out inside large 
vertically integrated corporations where the ``visible hand'' of 
management replaced Adam Smith's famous invisible hand of the 
market.\1\ However, in the post-World War II era, as businesses became 
more specialized and global through the twin processes of 
``outsourcing'' (obtaining goods or services from outside suppliers) 
and ``offshoring'' (moving portions of the production process to 
overseas locations), the global factory model became more common where 
the assembly of goods and later the full range of production activities 
were spread across multiple countries for a combination of cost, 
capability and market reasons.\2\ Thus, a growing proportion of 
international trade was made up of intermediate goods rather than 
finished products. As this globalization process gained momentum from 
the mid-1960s through the 1990s, American manufacturing especially of 
relatively labor-intensive consumer goods moved offshore, imports 
accounted for a growing portion of consumer items sold in the United 
States, and the number of companies and employees in the U.S. 
manufacturing sector fell precipitously.
---------------------------------------------------------------------------
    \1\ Alfred D. Chandler, Jr., The Visible Hand: The Managerial 
Revolution in American Business (Belknap Press, 1977).
    \2\ Joseph Grunwald and Kenneth Flamm, The Global Factory: Foreign 
Assembly in International Trade (Washington, DC: Brookings Institution, 
1985).
---------------------------------------------------------------------------
    Supply chain studies to analyze this globalization process and its 
impact on the U.S. economy were promoted by various U.S. foundations. 
The Alfred P. Sloan Foundation in New York launched an Industry Studies 
program (1990-2010) to foster a closer interaction between academia and 
industry, which grew to include around two dozen centers at U.S. 
universities. The Rockefeller Foundation supported a Global Value 
Chains Initiative (2000-2008) that funded an international network of 
scholars with the goal of creating a paradigm linking global, national, 
and local levels of analysis to address both the knowledge gaps and 
policy gaps created by globalization. What the global value chain (GVC) 
framework added to earlier supply chain studies was an explicit effort 
to understand and measure how and where value is created and captured 
along global supply chains, as well as the main trajectories of 
economic, social and environmental upgrading (or downgrading) 
associated with these changes at the global, national, regional and 
community levels.\3\
---------------------------------------------------------------------------
    \3\ Gary Gereffi, Global Value Chains and Development: Redefining 
the Contours of 21st Century Capitalism (Cambridge University Press, 
2018); Stefano Ponte, Gary Gereffi and Gal Raj-Reichert (eds.), 
Handbook on Global Value Chains (Edward Elgar Publishing, 2019); World 
Bank, Trading for Development in the Age of Global Value Chains, World 
Development Report 2020 (World Bank Group, 2020).
---------------------------------------------------------------------------
    Supply-chain researchers are very interdisciplinary and their work 
is featured at a variety of annual conferences, such as Industry 
Studies Association (ISA), Regional Studies Association (RSA), Society 
for the Advancement of Socio-Economics (SASE), and Academy of 
International Business (AIB). Traditionally, the supply-chain 
literature has relied heavily on industry case studies and cross-
industry comparisons, but the Organisation for Economic Co-operation 
and Development (OECD) in conjunction with the World Trade Organization 
has created a Trade in Value Added database that permits a detailed 
trade mapping of how countries participate in GVCs by calculating the 
value-added of exports (domestic content minus imported inputs), which 
permits modeling of how domestic manufacturing contributes to economic 
growth. The World Bank, in collaboration with other multilateral 
development agencies, created the World Integrated Trade Solution 
software package that allows users to download detailed trade 
information on commodities and over 170 partner countries to assist 
policymakers and practitioners involved in the international trading 
system.
    Academic researchers also build their own unique databases to 
measure supply-chain relationships. For example, a study of the 
aerospace industry collected data on buyer-supplier and partnership 
linkages among more than 2,800 firms across 52 aerospace clusters in 
North America and Europe during 2002-2014,\4\ and another study 
utilized a dataset of over 57,000 sourcing transactions of automotive 
parts manufacturers in Europe and North America between 1993 and 2012 
to test propositions derived from GVC governance theories.\5\ Thus, 
mixed methodologies continue to characterize the field.
---------------------------------------------------------------------------
    \4\ Ekaterina Turkina, Ari Van Assche and Raja Koli, ``Structure 
and evolution of global cluster networks: Evidence from the aerospace 
industry,'' Journal of Economic Geography 16 (2016): 1211-1234.
    \5\ Johannes Van Biesebroeck and Alexander Schmitt, ``Testing 
predictions on supplier governance from the global value chains 
literature,'' Industrial and Corporate Change (2021), https://doi.org/
10.1093/icc/dtab034.
---------------------------------------------------------------------------
    International organizations have increasingly adopted the GVC 
framework as a way to understand how countries at different levels of 
development participate in the global economy, and what kinds of policy 
advice could promote dynamic, inclusive and sustainable economic 
growth.\6\ This was the focus of a Duke GVC Summit in October, 2014 
that invited representatives from 30 international organizations, 
national development agencies, non-governmental organizations (NGOs) 
and universities as well as leading supply-chain researchers to discuss 
how and why they use the GVC approach, and to provide suggestions on 
how it can be improved. This type of policy impact is very unusual for 
most academic research paradigms, and it is a significant catalyst for 
ongoing work in the field.\7\
---------------------------------------------------------------------------
    \6\ Olivier Cattaneo, Gary Gereffi and Cornelia Staritz (eds.), 
Global Value Chains in a Postcrisis World: A Development Perspective 
(World Bank, 2010); UNCTAD, World Investment Report 2013--Global Value 
Chains: Investment and Trade for Development (United Nations Conference 
on Trade and Development, 2013); UNIDO, Global Value Chains and 
Development: UNIDO's Support towards Inclusive and Sustainable 
Industrial Development (United Nations Industrial Development 
Organization, 2015).
    \7\ Gary Gereffi, ``Global value chains and international 
development policy: Bringing firms, networks and policy-engaged 
scholarship back in,'' Journal of International Business Policy 2(3) 
(2019): 195-210.
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III. Building Blocks of Resilient Supply Chains
    Drawing from recent research on global supply chains, I will 
outline six broad themes that intersect with the goals and 
recommendations of the White House's ``Building Resilient Supply 
Chains'' report,\8\ and also address the Department of Commerce's 
concerns to identify concrete steps it can adopt to ensure the 
resiliency of the Nation's critical supply chains. These central 
concepts, findings and trends reflect work on supply chains that cuts 
across the global, national, regional and local levels, and they inform 
my recommendations for U.S. supply chain initiatives such as those 
carried out by the Department of Commerce to advance a broad-based, 
inclusive and sustainable economic agenda.
---------------------------------------------------------------------------
    \8\ The White House, ``Building Resilient Supply Chains, 
Revitalizing American Manufacturing, and Fostering Broad-Based Economic 
Growth,'' 100-Day Reviews Under Executive Order 14017, June 2021.
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1) Resilience for Whom? Firms, Supply Chains and Countries
    In the aftermath of the disruptions caused by COVID-19, there has 
been an intense debate on whether U.S. supply chains are too rigid and 
dependent on a small number of offshore locations in pursuit of cost-
based global efficiency.\9\ The notion of ``resilience'' is often 
proposed as an alternative principle to guide recovery from recurrent 
disruptions. However, resilience has different meanings for companies, 
supply chains, and countries:
---------------------------------------------------------------------------
    \9\ Lizzy O'Leary, ``The modern supply chain is snapping,'' The 
Atlantic, March 19, 2020; Willy C. Shih, ``Bringing manufacturing back 
to the U.S. is easier said than done,'' Harvard Business Review, April 
15, 2020; Aaron Friedberg, ``The United States needs to reshape global 
supply chains,'' Foreign Policy, May 8, 2020; Robert E. Lighthizer, 
``The era of offshoring U.S. jobs is over,'' New York Times, May 11, 
2020.

   For companies, resilience refers to the ability to adjust 
        and respond to disruptions in their supply chains through 
        strategies and capabilities that balance operational efficiency 
        and flexibility via appropriate forms of risk management and 
---------------------------------------------------------------------------
        redundancy.

   For supply chains that extend beyond individual firms, 
        resilience entails adaptation via modes of governance 
        established by lead firms that maximize system-level 
        efficiencies and cushion against vulnerabilities, taking into 
        account the organizational and geographic configurations of 
        each supply chain.

   At the country level, building resilience in the face of 
        supply-chain disruptions involves proposals for reshoring, 
        country and supplier diversification, near-shoring, and 
        reliance on trusted partners, as well as the buildup and 
        maintenance of national stockpiles and strategic reserves that 
        will be driven by national security considerations as well as 
        broader economic and social goals related to jobs, investment, 
        trade, sustainability, and innovation.

    Understanding resilience as a multidimensional concept means that 
coordination and tradeoffs are inevitable to develop robust and 
comprehensive supply chain policies. Resilience strategies may not 
easily align across these different levels, but awareness of the 
interdependencies is a necessary step to ameliorate disruptions in a 
more effective way.
2) Supply Chains Have Multiple Governance Structures
    A core finding and premise of the GVC framework is that global 
supply chains have governance structures that are established by the 
lead firms that set up and orchestrate the activities of the multi-
tiered suppliers in the chain. An initial seminal distinction was 
between producer-driven and buyer-driven supply chains: (a) the lead 
firms in producer-driven chains were integrated manufacturers that 
typically controlled the capital and technology used to establish new 
industries (e.g., automobiles, aircraft, computers, pharmaceuticals); 
and (b) conversely, in buyer-driven chains the lead firms were large 
retailers (e.g., Walmart, JC Penney, Costco, Tesco) and brand-name 
firms (e.g., Nike, Adidas, Liz Claiborne, Disney) that orchestrated but 
did not own vast networks of global suppliers in consumer-goods 
industries, such as apparel, footwear, sporting goods, toys, and food 
products. Whether led from the supply side or the demand side, lead 
firms tend to set the rules of the game in terms of price, quality, 
product standards and delivery schedules for other firms in the 
chain.\10\ Subsequent governance typologies were introduced that cover 
a wider range of structures, such as hierarchical, captive, relational, 
modular, and market forms of governance.\11\
---------------------------------------------------------------------------
    \10\ Gary Gereffi, ``The organization of buyer-driven global 
commodity chains: How U.S. retailers shape overseas production 
networks,'' in Gary Gereffi and Miguel Korzeniewicz (eds.), Commodity 
Chains and Global Capitalism (Praeger, 1994), pp. 95-122.
    \11\ Gary Gereffi, John Humphrey and Timothy Sturgeon, ``The 
governance of global value chains,'' Review of International Political 
Economy 12(1) (2005): 78-104
---------------------------------------------------------------------------
    Within key industries like semiconductors, multiple governance 
structures may be set up by lead firms that adopt distinct production 
models. For example, the integrated device manufacturers (IDMs), such 
as U.S.-based Intel and Texas Instruments and South Korea-based 
Samsung, do the entire production process for finished chips 
themselves, whereas in the alternative ``fabless'' or foundry model, 
the three broad steps for making finished semiconductors--design, 
manufacturing, and assembly, testing and packaging (ATP)--are carried 
out by specialized companies. While U.S. firms are dominant IDM 
players, accounting for over half of global IDM revenues in 2020, the 
fabless/foundry model relies very heavily on chip output from 
Taiwanese-based TSMC (Taiwan Semiconductor Manufacturing Company), 
which accounts for 53 percent of the contract foundry market, including 
the most technologically advanced chips.\12\
---------------------------------------------------------------------------
    \12\ White House (2021), op. cit., pp. 34-35.
---------------------------------------------------------------------------
3) Supply Chains Have Shifting Geographies
    The geographic footprint of most supply chains evolves quite 
significantly over time. The apparel industry, which epitomized the 
fragmented and globally dispersed production networks associated with 
buyer-driven GVCs, became much more consolidated when quotas allowed by 
the Multi-Fiber Arrangement were eliminated by the World Trade 
Organization (WTO) in 1995. Today, just three countries--China, 
Bangladesh and Vietnam--account for nearly half of world apparel 
exports. In other industries, supply chains are more regionally based, 
such as the North American automotive industry, the European aerospace 
sector, and East Asia's ecosystem of consumer electronics suppliers. 
Regional chains are often a by-product of regional trade pacts, such as 
the North American Free Trade Agreement (NAFTA) and the European Union 
(EU).\13\
---------------------------------------------------------------------------
    \13\ Gary Gereffi, Hyun-Chin Lim and Joonkoo Lee, ``Trade policies, 
firm strategies, and adaptive reconfigurations of global value 
chains,'' Journal of International Business Policy (2021), https://
link.springer.com/article/10.1057%2Fs42214-021-00102-z.
---------------------------------------------------------------------------
    Supply chains can also be examined at the national level, but 
measurement and boundaries raise difficult challenges. National 
statistics typically use standard industry classifications. If we take 
the U.S. semiconductor industry, for example, which is analyzed in the 
recent White House supply-chain report, we can define the size of the 
industry using various metrics: annual sales ($208 billion in 2020, 
which is nearly half of the world market); value added ($35 billion in 
2019, 1.4 percent of U.S. manufacturing value added); employment 
(207,400 workers in 2019, 1.6 percent of U.S. manufacturing 
employment); number of firms (733 companies in semiconductor device 
manufacturing and 140 semiconductor equipment manufacturers); and the 
breadth of activities across the country (18 U.S. states have major 
semiconductor manufacturing operations).\14\
---------------------------------------------------------------------------
    \14\ White House (2021), op. cit., p. 24.
---------------------------------------------------------------------------
    However, these industry figures fall far short of indicating the 
true size and scope of the semiconductor supply chain in the United 
States, which would include the multitude of suppliers (domestic and 
international) to U.S. semiconductor firms. In addition, since 
semiconductors are a critical intermediate component used in many 
industries, the semiconductor supply chain would also extend to the 
main sectors that use these chips, which include (based on worldwide 
demand in 2019): mobile phones (26 percent), information and 
communication infrastructure (24 percent); computers (19 percent); 
industrial (12 percent); automotive (10 percent); and consumer 
electronics (10 percent).\15\
---------------------------------------------------------------------------
    \15\ Ibid., pp. 24-25.
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4) Asia Is a Pre-eminent Global Production Hub, and China Is Its 
        Epicenter
    In the last couple of decades, Asia has emerged as a dominant 
production hub for many global supply chains. Asia offers a unique 
combination of low-cost production, economies of scale, and a broad 
array of technologically sophisticated and specialized suppliers that 
serve both global and increasingly Asian consumer markets. The cost 
advantages associated with Asia-based sourcing are attractive not only 
to the lead firms in global supply chains, but also to cost-conscious 
institutional clients like U.S. hospital systems and medical agencies 
that wish to couple just-in-time (JIT) purchasing of medical supplies 
with the JIT low-inventory model favored by industry leaders.
    China has become the world's top exporter ($2.6 trillion in 2020), 
well ahead of the United States and Germany (each around $1.4 
trillion).\16\ However, given rising wages in China and growing 
shortages of factory workers in many parts of the country, other 
relatively low-wage economies within Asia, such as Vietnam, Bangladesh, 
India, Indonesia and the Philippines, are becoming prominent exporters 
from the region. The most technologically advanced Asian economies, 
such as Japan, South Korea, Singapore and Taiwan, provide specialized 
components and equipment, which combine to make Asia a formidable 
global production and export hub.
---------------------------------------------------------------------------
    \16\ World's Top Export Countries, https://
www.worldstopexports.com/worlds-top-export-countries/, accessed on July 
6, 2021.
---------------------------------------------------------------------------
    As an economic power, China is a significant adversary. It has 
supplemented its export-oriented development strategy from the 1990s 
and 2000s with a technology-driven and domestic-economy-oriented 
approach since the early 2010s, as typified by its Made in China 2025 
and indigenous innovation programs. China is also poised to expand its 
regional influence through its massive Belt and Road Initiative that 
will increase its external investments and trade in Central and 
Southern Asia, sub-Saharan Africa, and South America. Although still 
lagging in key technologies like semiconductors, China has placed an 
emphasis on forward-looking industries like electric cars, high-speed 
rail, artificial intelligence, automation, and e-commerce services like 
mobile banking and digital platform-based factory networks.
    There are many valid concerns about China's troubling policies and 
practices involving state control of the economy, intellectual property 
theft, human rights abuses, and political repression at home and 
abroad, among other issues. New U.S. supply chain initiatives are 
needed to meet the technological and economic challenges posed by 
China. However, in pursuing its agenda, the United States would do well 
to align its efforts to address the threats posed by China with U.S. 
strategic partners and allies who share many of our concerns and 
objectives. A rapid decoupling from China poses many practical 
difficulties and it could reduce U.S. leverage in terms of broader 
geopolitical and economic interests.
5) Building Resilient Supply Chains in the United States
    While much work on supply chains tends to highlight the 
international dimension and looks at global industries from the ``top 
down,'' it is equally important to view supply chains from the ``bottom 
up'' by emphasizing their potential contributions to national and local 
growth. A good illustration of this bottom-up approach is the project 
on ``North Carolina in the Global Economy,'' which was launched at Duke 
University to understand how globalization affected seven of the 
state's principal industries: tobacco, textiles and apparel, furniture, 
hog farming, information technology, biotechnology, and banks and 
finance.\17\ Like many U.S. states, North Carolina's key industries 
reflect a mix of resource-based, manufacturing and service sectors, and 
it faces a range of investment, employment, skills training, small 
business development, and innovation challenges. The NC-Global Economy 
website was built using publicly available state-level and national 
economic statistics for a 20-year period (1992-2012), supplemented by 
online data searches at the company and industry levels, to provide a 
longitudinal portrait of how North Carolina's industries and companies 
have fared in an era of globalization, and what policies and strategies 
at the state and local levels might foster resilient growth.
---------------------------------------------------------------------------
    \17\ See the North Carolina in the Global Economy website at http:/
/ncglobaleconomy.com.
---------------------------------------------------------------------------
    Among the insights gleaned from the NC-Global Economy project is 
that traditional industries like textiles and furniture have adapted in 
striking ways to recent political, economic and technological shifts. 
While North Carolina's textile firms accommodated NAFTA by continuing 
to supply apparel customers that moved to Mexico and Central America, 
the industry also embraced technological change via the growth of 
nonwoven and ``technical'' textiles in the state's output and exports. 
These new products shifted the industry's end markets from its 
traditional apparel, home furnishing and automotive customers to 
sectors like aerospace, medical, marine, military and geotextiles.\18\ 
North Carolina's furniture industry also showed resilience in adapting 
to change, as local manufacturers were hit by export slowdowns and 
rapidly rising furniture imports from Asia and Mexico. However, the 
annual High Point, NC furniture market served as a lifeline to keep 
wholesale buyers coming to the state as local manufacturers slowly 
recovered.\19\
---------------------------------------------------------------------------
    \18\ http://www.ncglobaleconomy.com/textiles/overview.shtml
    \19\ Bill Lester and Lukas Brun, ``The economic impact of the High 
Point market,'' Duke Center on Globalization, Governance & 
Competitiveness (CGGC), Durham, N.C., October 2013, available at 
https://gvcc.duke.edu/wp-content/uploads/2013-09-30High PointMarket-
economic-impact-analysis-1.pdf.
---------------------------------------------------------------------------
    A supply-chain methodology can also prove very useful in tracking 
opportunities created by new high-tech sectors in the United States. 
For example, following a study on the U.S. smart grid (the ``energy 
internet'') that assessed the potential of 125 leading smart grid firms 
to create clean energy-related jobs, the Research Triangle Region of 
North Carolina emerged as one of the U.S. ``hot spots'' for future 
growth.\20\ A separate study was commissioned by a local development 
agency to assess how this North Carolina cluster of smart grid firms 
could build on its competencies and expand its opportunities to invent, 
make and sell their products in the U.S. as well as abroad.\21\ A main 
objective of both studies was to ``map'' the smart grid value chain to 
show more clearly the technological synergies linking the national and 
state-level economies.
---------------------------------------------------------------------------
    \20\ Marcy Lowe, Hua Fan and Gary Gereffi, ``U.S. smart grid: 
Finding new ways to cut carbon and create jobs,'' Duke CGGC, Durham, 
N.C., April 19, 2011, available at https://gvcc.duke.edu/wp-content/
uploads/ Lowe_US_Smart_Grid_CGGC_04-19-2011.pdf.
    \21\ Marcy Lowe, Hua Fan and Gary Gereffi, ``Smart grid: Core firms 
in the Research Triangle Region, NC,'' Duke CGGC, Durham, N.C., May 11, 
2011, available at https://gvcc.duke.edu/wp-content/uploads/
Lowe_Research-Triangle-Smart-Grid_CGGC_05-24-2011.pdf.
---------------------------------------------------------------------------
    Value-chain studies have proven particularly useful to show the 
connections between so-called ``clean technologies'' and U.S. jobs. One 
of the initial clients of the Duke GVC Center was the Environmental 
Defense Fund (EDF), which commissioned a series of product-level 
studies to show how the transition to a low-carbon economy positively 
impacted the U.S. manufacturing sector. The initial report focused on 
five carbon-reducing products--LED lighting, high-performance windows, 
auxiliary power units for trucks, concentrated solar power, and a 
``super soil'' system for hog-waste management--and value chain maps 
for each product helped to show how and where manufacturing jobs were 
being produced in the United States.\22\ Subsequently, EDF commissioned 
over a dozen additional product and company case studies to illustrate 
the tangible connections between the green economy and U.S. blue-collar 
jobs.\23\ A similar supply-chain methodology was employed in a new 
study focusing on expanding utility-scale, lithium-ion battery-storage 
capacity in North Carolina as a foundation for all forms of clean 
energy, thus enhancing North Carolina's potential to be a national 
leader in clean energy.\24\
---------------------------------------------------------------------------
    \22\ Gary Gereffi, Kristen Dubay and Marcy Lowe, ``Manufacturing 
climate solutions: Carbon-reducing technologies and U.S. jobs,'' Duke 
CGGC, Durham, N.C., November 2008, available at https://gvcc.duke.edu/
wp-content/uploads/greeneconomy_Full_report.pdf.
    \23\ https://gvcc.duke.edu/search-our-work/
?fwp_cggc_search=environmental%20defense%20fund.
    \24\ Lukas Brun and Gary Gereffi, ``Battery storage: North 
Carolina's footprint in the global value chain,'' report commissioned 
by Audubon North Carolina, February 1, 2021, available at https://
mercury.postlight.com/amp?url=https://nc.audubon.org/press-release/
report-finds-north-carolina-well-positioned-battery-storage-growth.
---------------------------------------------------------------------------
    This ``bottom up'' approach to building supply-chain resiliency 
focusing on particular states and products is broadly applicable across 
the entire U.S. economy. Virtually all U.S. states rely on a handful of 
key industries linked to national and global markets that account for 
the bulk of their investment, output and employment. The tools of 
value-chain analysis, as exemplified in the NC-Global Economy and EDF 
projects highlighted above, are suitable for various monitoring, 
planning and innovation objectives that could be spearheaded by the 
Department of Commerce, including:

   tracking how both large and smaller companies in a state's 
        key industries are performing over time, and how the state 
        compares to its main U.S. competitors in relevant industries

   attracting investors to supplement or fill critical supply-
        chain needs, especially as multiple U.S. states seek to lure 
        top firms and talent in similar industries

   supporting university, community college and corporate 
        research and training capabilities

   assisting local workforce development efforts to identify 
        and add critical skills needed by priority sectors

    Similar dynamics are unfolding in major U.S. cities. A number of 
American cities stand out as hubs or centers of excellence in key U.S. 
industries, such as Seattle (aerospace, software and digital economy, 
with Boeing, Microsoft and Amazon), Houston (oil and gas; medical), 
Phoenix (semiconductors), Pittsburgh (steel and biomedical), and Boston 
(high-tech; defense), to name just a few. Cities like these are 
production and innovation nodes in critical U.S. and global supply 
chains. To enhance their resiliency, U.S. supply-chain initiatives 
should strengthen and deepen the supporting activities (infrastructure, 
hardware, software and services) these urban hubs rely on, and 
facilitate their connections to other regions and smaller cities that 
are part of the same value chain.
    As U.S. technology giants like Google, Apple and Amazon make major 
investments in machine learning, artificial intelligence, software 
engineering, and quantum and cloud computing in mid-sized cities like 
those in North Carolina \25\ and elsewhere across the country, it is 
clear that vibrant U.S. supply chains rely on urban knowledge and 
production networks that can create and retain value and spread 
benefits to surrounding communities.
---------------------------------------------------------------------------
    \25\ David Sebastien, ``Apple to build new campus in North 
Carolina: Move would create at least 3,000 jobs in machine learning, 
AI, software engineering and other fields, company says,'' Wall Street 
Journal, April 26, 2021, available at https://www.wsj.com/articles/
apple-to-build-new-campus-in-north-carolina-11619441000; Rick Smith, 
``Google picks Durham for engineering hub, aims to create 1,000 jobs,'' 
March 18, 2021, available at https://www.researchtriangle.org/news/
google-picks-durham-for-engineering-hub-aims-to-create-1000-jobs/.
---------------------------------------------------------------------------
6) The Role of Universities in Supply-Chain Research
    Somewhat surprisingly, perhaps, universities play a very uneven 
role in supply-chain research. U.S. foundations have been an important 
source of financial support, but even in the most positive cases, 
assistance has been temporary. The Sloan Foundation's Industry Studies 
program set up industry-specific centers in 26 U.S. universities, but 
the program was terminated in 2010. A by-product of the Sloan program 
was the formation of the Industry Studies Association in 2009, which 
has annual conferences but offers no funding for industry research or 
university-based industry centers. The Rockefeller Foundation, which 
helped to launch the Global Value Chain Initiative with an 
international group of scholars,\26\ encouraged the formation of the 
Duke GVC Center (previously the Center on Globalization, Governance & 
Competitiveness) in 2005 to provide a university base to facilitate the 
future networking of GVC scholars, but research support was guaranteed 
by neither Rockefeller nor Duke University. Project funding was client 
driven and therefore highly uncertain.
---------------------------------------------------------------------------
    \26\ The GVC Initiative agenda and members are discussed in Gary 
Gereffi and Raphael Kaplinsky (eds.), ``The value of value chains: 
Spreading the gains from globalization,'' special issue of IDS Bulletin 
32(3), July (2001).
---------------------------------------------------------------------------
    This situation reflects the business model of most U.S. research 
universities. Their core mission is to foster high-quality independent 
research by faculty that secure long-term funding (primarily from large 
U.S. government agencies like the National Science Foundation (NSF) or 
National Institutes of Health) and publish in prestigious peer-reviewed 
academic journals. Supply-chain research is not an ideal fit for U.S. 
universities because industry-oriented researchers are both 
interdisciplinary and international, and acquiring industry-specific 
knowledge does not necessarily lend itself to academic publications, 
which tend to privilege theoretical and methodological rigor, and in 
the social sciences this often translates into quantitative (rather 
than case-based) analysis.
    Given the significant real-world impact of good supply-chain 
research, a growing number of universities support programs linked to 
supply chains and economic development (not including supply-chain 
management programs in many business schools). In the United States, 
along with the Duke GVC Center, the Massachusetts Institute of 
Technology's Industrial Performance Center is a highly regarded and 
relatively well-funded unit. Many overseas universities have research 
groups in GVC analysis or related fields like global production 
networks, including the University of Manchester (UK) and Oxford 
Business School (UK), Copenhagen Business School (Denmark), University 
of Padova (Italy), the National University of Singapore, and the 
University of International Business and Economics (Beijing, China).
IV. Implementing Supply-Chain Resiliency: A Few Recommendations
    Based on this overview of various concepts, findings and trends in 
recent supply-chain research, I will highlight several final topics 
that may be relevant in the Department of Commerce's efforts to design 
and implement projects to strengthen supply-chain resiliency.
Supply Chains Are Product-Specific
    Although it is tempting to think of supply chains in broad industry 
categories, such as automotive, aerospace or semiconductors, in fact 
supply chains are often quite product-specific and we overgeneralize at 
our peril. For example, during the COVID-19 pandemic, it was common to 
analyze disruptions in COVID-19-related medical supplies as though they 
fit a standard pattern. Particular concern was given to shortages of 
personal protective equipment (PPE) such as sterile rubber gloves and 
face masks to limit the spread of the novel coronavirus in the general 
population, as well as ventilators used by medical personnel to treat 
seriously ill patients. But recent supply-chain research shows that PPE 
shortages required different solutions, depending on how the supply 
chains were organized:

   Rubber gloves: Production was concentrated in Southeast 
        Asia, and Malaysia is the dominant supplier with two-thirds of 
        global exports. Although some shortages persist, the U.S. 
        resolved its main supply shortfalls via increased imports of 
        sterile gloves from Malaysia and Thailand.\27\
---------------------------------------------------------------------------
    \27\ Gary Gereffi, ``Increasing resilience of medical supply chains 
during the COVID-19 pandemic,'' Industrial Analytics Platform, June 24, 
2021, available at https://iap.unido.org/articles/increasing-
resilience-medical-supply-chains-during-covid-19-pandemic.

   Face masks: China accounted for about 60 percent of U.S. 
        face mask imports prior to the pandemic, but China suspended 
        its exports of face masks worldwide as it dealt with its own 
        outbreak of COVID-19 cases in early 2020. In late March 2020, 
        the U.S. government began to encourage large U.S. face mask 
        producers like 3M and Honeywell along with smaller domestic 
        suppliers to ramp up production, but it took several months 
        before the supply gap was substantially narrowed by late 
        August.\28\
---------------------------------------------------------------------------
    \28\ Gary Gereffi, What does the COVID-19 pandemic teach us about 
global value chains? The case of medical supplies,'' Journal of 
International Business Policy 3(3) (2020): 287-301, available at 
https://link.springer.com/article/10.1057/s42214-020-00062-w.

   Ventilators: The United States confronted acute shortages of 
        ventilators in late March and April, 2020, a life-saving device 
        for many COVID-19 patients treated in the intensive-care units 
        (ICU) of hospitals. Ventilators were much more complex than 
        other PPE items, and the Defense Production Act was invoked to 
        facilitate production partnerships between U.S. auto companies 
        like General Motors and Ford with much smaller medical 
        equipment firms. Although U.S. ventilator output dramatically 
        increased, domestic supply soon exceeded demand. The number of 
        ventilators in the U.S. strategic stockpile surged from 10,000 
        in April to over 95,000 by mid-August 2020, but only a very 
        small number of these machines were actually used to treat 
        COVID-19 patients. With improved hospital care, far fewer 
        patients were sent to ICUs, demand for ventilators plummeted, 
        and the U.S. ventilator shortage became a glut.\29\
---------------------------------------------------------------------------
    \29\ Faiz Siddique, ``The U.S. forced major manufacturers to build 
ventilators. Now they're piling up unused in a strategic reserve,'' 
Washington Post, August 18, 2020.

    Lessons the Department of Commerce can take away from these COVID-
---------------------------------------------------------------------------
19 product case studies include:

  (1)  Related products with different supply-chain structures may 
        require distinct policy solutions (e.g., reliance on trade ties 
        for rubber gloves; use of the Defense Production Act in both 
        face masks and ventilators to increase domestic production; 
        anticipate the risks in overbuilding strategic stockpiles).

  (2)  An up-to-date and regularly revised inventory of the main 
        suppliers (domestic and foreign) in key U.S. supply chains will 
        facilitate a much quicker policy response.

  (3)  Public-private collaboration is required for effective 
        interventions, including cross-industry production 
        partnerships, and appropriate committees and decision-making 
        units should be created based on what we learned from previous 
        experiences.
Beware of Technological Lock-In
    The pace of technological change in global supply chains can be 
startlingly fast. In the semiconductor industry, this is illustrated by 
what is referred to as ``Moore's Law''  the number of 
transistors on a semiconductor doubles every two years; this is 
supplemented by ``Moore's Second Law''  the cost of 
constructing a semiconductor fabrication facility doubles every four 
years.\30\ Because of such rapid change, the potential for 
technological lock-in is particularly high in R&D and design-intensive 
fields, such as aerospace and semiconductors. Since it costs $12-$20 
billion to build a new state-of-the-art chip fabrication facility, 
caution in planning such investments and spreading the risks across 
strategic production partners (both inside the United States and 
abroad) are prudent supply-chain practices.
---------------------------------------------------------------------------
    \30\ White House (2021), op. cit., pp. 34, 42 & 59.
---------------------------------------------------------------------------
    The mobile telecom industry, which is the largest end-market for 
semiconductors, illustrates the rapidly evolving landscape in 
technology-intensive GVCs. The leading smartphone brands in 2019 were: 
Samsung (19.2 percent), Huawei (15.6 percent) and Apple (12.6 percent). 
Previous industry leaders like Nokia (Finland), Motorola (U.S.), 
Ericsson (Sweden), and Blackberry (Canada) have disappeared from the 
market. Current market pacesetters each have a different business 
model:

   Samsung is a highly integrated global producer, but relies 
        on open-source software.

   Apple is a global innovator that relies almost exclusively 
        on proprietary technology.

   Huawei has emerged as a ``national champion'' within China 
        using a mix of open-source and own technology, but it is 
        hindered by the Chinese government's strict controls on 
        domestic Internet access for foreign firms and by U.S.-led 
        sanctions that restrict Huawei's access to buying parts and 
        components from U.S. companies.

   Google is now entering the smartphone GVC primarily on the 
        basis of its software (its Android OS platform) and 
        capitalizing on its many users from other services it owns 
        (such as Gmail, Google Maps, and YouTube), demonstrating the 
        disruptive potential of digital platform pioneers.\31\
---------------------------------------------------------------------------
    \31\ Joonkoo Lee and Gary Gereffi, ``Innovation, upgrading, and 
governance in cross-sectoral global value chains: The case of 
smartphones,'' Industrial and Corporate Change, (2021), available at 
https://doi.org/10.1093/icc/dtaa062.

    Because the path to innovation in the mobile telecom industry 
depends on so many industries--including semiconductors, digital 
services, hardware devices, and telecom providers, among others--the 
result is a ``massively modular system'' that remains vulnerable to 
short-term disruption.\32\ Trying to reshore supply chains in an 
industry such as this with an ecosystem of hundreds of globally 
distributed and specialized firms and numerous critical inputs poses 
significant national security risks and a plethora of practical and 
policy difficulties.
---------------------------------------------------------------------------
    \32\ Eric Thun, Daria Taglioni, Timothy J. Sturgeon and Mark P. 
Dallas, ``Why policy makers should pay attention to the concept of 
massive modularity: The example of the mobile telecom industry,'' Let's 
Talk Development, World Bank blog, June 18, 2021, available at https://
blogs.worldbank.org/development talk/why-policy-makers-should-pay-
attention-concept-massive-modularity-example-mobile.
---------------------------------------------------------------------------
Be Mindful of Unintended Consequences
    Another concern for supply chain resiliency are the unintended 
consequences of policy in a hyper-connected world. This is most clearly 
evident with trade restrictions, such as the recent U.S.-China ``trade 
war'' as well as U.S. tariffs on imported goods from neighboring trade 
partners like Mexico and Canada. Such policies are intended to support 
U.S. firms and save American jobs, but given the dense inter-firm 
networks in global supply chains, restrictions on U.S. imports often 
have a deleterious impact on U.S.-based companies.
    The North American automotive industry provides a striking example. 
U.S. automotive imports from Mexico contain 40 percent U.S. content 
(i.e., parts made by U.S.-based firms that are incorporated in Mexico's 
exports back to the U.S.) and imports from Canada are 25 percent U.S. 
content by value, whereas goods imported from China contain just 4 
percent U.S. content.\33\ Thus, tariffs on imports from Mexico and 
Canada can hurt U.S. suppliers rather than help them.
---------------------------------------------------------------------------
    \33\ Gereffi (2018), op. cit., p. 436.
---------------------------------------------------------------------------
    Trade policies created a different set of unintended consequences 
in the 1980s when the U.S. government imposed voluntary export 
restraints (VERs) on Japanese carmakers to limit the quantity of their 
exports to the American market. Although the VERs were successful in 
limiting Japanese exports, they induced a wave of foreign direct 
investment by Japanese carmakers and parts suppliers in the United 
States to sidestep the VERs. Subsequently, Korean and European 
automakers followed suit, and foreign auto ``transplant'' firms are now 
roughly equivalent to their American competitors in automotive output 
and employment in the U.S. market.\34\
---------------------------------------------------------------------------
    \34\ Gereffi, Lim and Lee (2021), op. cit.; Timothy Sturgeon, 
Johannes Van Biesebroeck and Gary Gereffi, ``Value chains, networks and 
clusters: Reframing the global automotive industry,'' Journal of 
Economic Geography 8(3) (2008: 297-321.
---------------------------------------------------------------------------
Long-Term Funding for Supply-Chain Research
    Last month, the U.S. Senate passed the U.S. Innovation and 
Competition Act by a final vote of 68-32, which strengthened the role 
of the NSF and other leading Federal agencies to coordinate in 
scientific and technological innovation related to key U.S. supply 
chains.\35\ This is a very significant and positive step, especially 
the proposed creation of an NSF technology directorate that could help 
focus technology research in areas of critical national importance. 
However, more specific attention should be devoted to the 
aforementioned challenges confronted by universities in supply-chain 
research.
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    \35\ ``Chair Cantwell statement on Senate passage of the U.S. 
Innovation and Competition Act and NASA authorization,'' June 8, 2021, 
https://www.commerce.senate.gov/2021/6/chair-cantwell-statement-on-
senate-passage-of-the-u-s-innovation-and-competition-act-and-nasa-
authorization.
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    One issue is to supplement the previous temporary support provided 
by U.S. foundations like Alfred P. Sloan and Rockefeller, which 
initiated a process of institution-building involving U.S. 
universities, but it was never designed as a long-term solution to 
enhancing the resilience of American industries by overcoming short-
term disruptions or promoting broad-based and sustainable economic 
growth. For more decentralized U.S. supply-chain projects, like North 
Carolina in the Global Economy, a state-level focus did not guarantee 
local funding. The North Carolina Department of Commerce provided no 
financial support for this Duke GVC Center initiative, despite 
utilizing many of the materials from the NC-Global Economy website for 
internal and overseas presentations and brochures.
    Additional project-based funding by NGOs such as Environmental 
Defense Fund and Oxfam America has certainly boosted the knowledge 
capacities of university-based research centers and independent 
scholars, but several related difficulties remain. These include:

   providing incentives for universities to build and sustain 
        industry-oriented research communities over time;

   facilitating the ongoing data-collection efforts needed to 
        allow supply-chain datasets to meet the criteria of top-level 
        peer-reviewed scientific journals as well as policy relevance; 
        and

   building inter-university, cross-regional and international 
        research networks that allow for robust efforts to develop 
        analytical frameworks, generate testable propositions, and 
        collaborate with policymakers and practitioners.

    In conclusion, given the Department of Commerce's central role in 
ensuring the resiliency of critical U.S. supply chains, my testimony 
has sought to highlight the connections between firm strategies, GVC 
structures, and diverse government policy objectives. The opportunity 
to revitalize American industries from the ``bottom up'' seems 
particularly timely. Broad-based economic growth is often 
decentralized, and thus we need comprehensive frameworks to promote and 
evaluate how U.S. companies, states and communities compete across 
different places and within global industries. Tools like value-chain 
mapping and using new technologies to build resiliency within local 
clusters or hubs hopefully can assist this essential mission.

    The Chairman. Thank you, Dr. Gereffi. We will now turn to 
our next witness, Dr. James Lewis. Thank you so much for being 
here.

    STATEMENT OF JAMES A. LEWIS, SENIOR VICE PRESIDENT AND 
DIRECTOR, STRATEGIC TECHNOLOGIES PROGRAM, CENTER FOR STRATEGIC 
                   AND INTERNATIONAL STUDIES

    Mr. Lewis. Chair Cantwell, Ranking Member Wicker, thank you 
for the opportunity to testify. The U.S. benefited for decades 
from a global supply chain that provided lower cost and greater 
efficiency. But that era is over. First, the pandemic created 
an understandable demand for greater resilience.
    Second, predatory China will use any means to displace 
competitors in its quest for global primacy. We are in a 
conflict with China, and as in past conflicts, industrial 
strategy, industrial policy is essential. We do not need to 
abandon a global supply chain, but just shrink China's role in 
it. This is why the United States Innovation and Competition 
Act is so important. Congress has already strengthened 
restrictions on tech transfer to China with the Foreign 
Investment Risk Review Modernization Act and the Export Control 
Reform Act. Now it must build technological resilience. 
Building resilience means taking into account what the global 
supply chain will look like in the future, the leading role of 
the market and the private sector in innovation, and the need 
to build trust into the supply chain for technology.
    And of course, the bill touches on that when it discusses 
5G and open radio access networks. It must focus on 
semiconductors, emerging technologies, and reinforcing our 
national innovation system, which is the strongest in the 
world. USICA can do this if it is implemented effectively. 
Congress can start by fully funding the CHIPS Act and by 
authorizing the supply chain resilience programs already found 
in the text of the USICA. Fully funding the CHIPS Act will 
create jobs and is essential for resilience. Increased funding 
for research and STEM education is also essential to provide 
the inputs needed for tech leadership. Congress and the White 
House will guide policy, but implementation falls on the 
agencies.
    The Commerce Department plays a key role, but it faces 
challenges. Commerce needs to predict, not react. It needs 
better analytical capabilities, clarity and roles and 
responsibilities, a high tech focus and close engagement with 
senior levels of the private sector to better anticipate tech 
trends. One advantage we have over China is that we have 
allies. A supply chain with allies increases resilience by 
diversifying sources. We benefit economically and strategically 
from an allied approach. This is in USICA and in other bills, 
but it is crucial for moving ahead.
    The U.S. must, as it has done in the past, strengthen 
strategic industries. USICA identifies 10 advanced technology 
areas. This is where implementation should focus, right. The 
U.S. has used industrial policy in every major conflict of the 
last century. It is one reason for our success in these 
conflicts. This is why USICA is so important. I thank the 
committee for the opportunity to testify and I look forward to 
your questions. Thank you.
    [The prepared statement of Mr. Lewis follows:]

    Prepared Statement of James A. Lewis, Senior Vice President and 
  Director, Strategic Technologies Program, Center for Strategic and 
                         International Studies
    Chair Cantwell, Ranking Member Wicker, and distinguished Members of 
the Committee, thank you for the opportunity to testify.
    The United States is creating the policies and tools needed to 
defend ourselves against a hostile, authoritarian China. To do this, 
the U.S. will need new technological and industrial strategies that 
will allow it to maintain its national security and economic strength. 
We are in some ways at the start of the undertaking. Congress and the 
new Administration, with the United States Innovation and Competition 
Act (USICA), and the Administration's Executive Order 14017 and 100 Day 
Review, have taken important steps in this direction. Much of the 
burden now falls on agencies like the National Science Foundation 
(NSF), the National Aeronautics and Space Administration (NASA), and 
the Departments of Commerce and Energy.
    For more than two decades, the U.S. depended on a global supply 
chain that provided lower cost and greater efficiency. Two things broke 
that global supply chain. The first is the rise of a predatory China 
that will use any means to displace competitors in its quest for global 
primacy. The second is the COVID-19 pandemic, which produced an 
understandable desire in many nations to reduce their dependence on 
foreign suppliers and instead rely on national capabilities. Many 
countries became uncomfortable when they realized that critical medical 
supplies were only available from sources like China. They want to move 
some critical production back onto their territories. Now the U.S. and 
the EU are taking a harder look at reshoring. In a way, this mimics 
China. Chinese policy has always pursued indigenous capabilities to 
reduce reliance on foreign suppliers. This supply chain nationalism is 
reinforced by growing and powerful competition for technological 
leadership and by events like the semiconductor shortage.
    There is a degree of wishful thinking in some Western countries 
about this contest, that hope that there can be normal commercial 
relations with China despite stark political differences and predatory 
behavior. Even if one is willing to put aside any qualms about doing 
business with regimes that routinely violate the rights of their 
citizens, the governments of China and Russia have decided that the 
U.S. goal of building a world made up of market democracies is a threat 
to their survival. They have further decided that the U.S. is in 
irreversible decline and now is their moment to push for a world that 
they can dominate. The end of the Cold War in 1989 and the few decades 
of American primacy, now ended, are best seen as an interregnum in a 
longer conflict between democracy and authoritarianism. We are in many 
ways behind in this contest, but this can be remedied.
    This is where the USICA plays a vital role. Past industrial 
strategies built munitions or heavy industry, but are now outdated. We 
need a new style of industrial policy that takes into account 
globalization, the leading role of the market and private sector in 
innovation, and the need to ensure resilience in emerging technologies.
    A high-tech industrial strategy fundamentally has two complementary 
parts. The first is restrictions on technology transfers to opponents. 
Congress has strengthened protective measures for competition with 
China with the Foreign Investment Risk Review Modernization Act and the 
Export Control Reform Act. These are important components of a tech 
strategy.
    The second part is to build and accelerate technological 
resilience. The high-tech industries we have today are built on a 
foundation of Federal funding, but in the intervening thirty years, 
there have been significant changes in our economy and innovation 
system. An industrial strategy today needs to take into account these 
changes and be guided by three dominant factors: the global supply 
chain for innovation and technology, the importance of Federal funding, 
and the central role of markets and the private sector in tech 
competition.
Previous Efforts at Strategic Industrial Policy
    Historical precedent can be an ambiguous guide for policymaking. 
Many people talk of a new Cold War between China and the U.S. But the 
globalization of supply, China's dynamic, quasi-market economy, and the 
reluctance of some key allies to abandon the Chinese market make for a 
very different world than the bipolar landscape of the Cold War. The 
1930s and the rise of authoritarian states bent on confronting 
democracies is a better precedent than the Cold War, but it too falls 
short. This new contest with China will last longer and the emphasis is 
on tech leadership and controlling a global narrative of economic 
success more than on displaying military power. These past experiences 
do not provide a perfect roadmap for action, but we can still draw 
important lessons from them.
    In the 1950s, the Eisenhower Administration expanded the technology 
base created for the World War II with massive Federal funding and the 
establishment of an institutional framework with entities like NASA and 
the National Science Foundation. In the late 1970s, the Department of 
Defense (DoD) focused research on technologies that would offset the 
Soviet numerical advantage in munitions weaponry. These investments in 
precision munitions, stealth, sensors, and communications created a 
``Revolution in Military Affairs.'' The Eisenhower Administration's 
support for R&D to expand STEM education and workforce were 
foundational for America's tech success in the last sixty years and 
provides a useful precedent we should copy. Technology gave America 
unquestioned military superiority for decades, but this unquestioned 
superiority has ended as other advanced states challenge American 
technological leadership. USICA begins the work to restore it.
    America has cut defense spending after every war. In the 1990s, we 
assumed conflict with peer competitors was a thing of the past. This 
ultimately proved to be wrong, but made it seem safe to make 
significant cuts in Federal R&D spending after the Cold War. Congress 
increased spending on life sciences, but trimmed ``hard'' sciences like 
physics, math, and materials. Government funding is essential for basic 
research in these areas--research that by itself has no immediate 
commercial value but creates the basis for commercially valuable 
innovation. Americans did not stop innovating after these cuts--if 
anything, innovation increased with the introduction of digital 
technologies--but it was private sector innovation aimed at commercial 
markets.
    USICA, when it is funded, will begin to remedy these mistakes. It 
is a good start for repeating earlier successes in using technology to 
advance national security and build economic strength. But today's 
policy needs to acknowledge that there are crucial differences in how 
America creates new technologies nowadays. America's national 
innovation base has changed dramatically. Twentieth century American 
innovation was national, but today's innovation base is international, 
with strong research and commercial links between the United States, 
Europe, and Asia. Efforts at ``reshoring'' will not change this. While 
these connections can create security risk when it comes to technology 
transfer to hostile states, they also provide benefits that outweigh 
risk. A country that cuts itself off from this international innovation 
system will fall behind. These changes make it necessary to find ways 
to take advantage of a multinational commercial innovation base that 
leads R&D for new technologies, including 5G, artificial intelligence, 
biotechnology, quantum computing and alternative power sources.
The Role for the U.S. Department of Commerce
    The deep interconnectedness between the U.S. and the Chinese 
economy forged over forty years created both opportunity and risk. We 
do not need to abandon a global supply chain but to shrink China's role 
in it. Complete bifurcation is unnecessary as there are some 
technologies that can be safely transferred to China while others must 
be restricted. The Commerce Department could make this distinction as 
part of its export control process. It is in the national interests to 
allow our companies to take advantage of the Chinese market in ways 
that minimize risk for as long as possible. The United States has made 
good progress in restricting China's ability to acquire American 
technology--a key part of China's modernization plans--with Congress's 
passage of the Foreign Investment Risk Review Modernization Act of 2018 
and the Export Control Reform Act (although it has had implementation 
problems).
    These two Acts, however, are defensive. Denying China access to 
technology is not enough. We know from the American experience in the 
conflicts of the twentieth century that the U.S. must also strengthen 
its own technological base in this new and long-term competition with a 
hostile and authoritarian China. This is where the USICA is vital to 
protecting American security. However, the industrial policy models of 
the twentieth century are no longer effective. Nor do we wish to copy 
China's state-directed economy. Finding a new model of Federal 
intervention to bolster our technological base in the competition with 
China will be difficult.
    Implementation points to the critical role of the Department of 
Commerce. If there is a precedent here it is the difficulties in 
implementing the Export Control Reform Act. For years, Commerce defined 
itself as an export promotion agency and this still has a powerful 
influence over its culture. The export controls Commerce is charged 
with administering are still largely based on the Cold War technology 
framework enshrined in the Wassenaar Arrangement. Sometimes agencies 
can modernize themselves, other times it takes Congressional direction 
and leadership. Thinking about what a twenty-first century Commerce 
Department should look like may be a good task for the committees of 
jurisdiction in their oversight function.
    These difficulties may be less of an obstacle than they may appear, 
because in fact, the decisions and strategies needed to implement USICA 
will be made in the White House, at the NEC and NSC, and by Congress. 
Commerce will implement these policies and how it does so will be 
crucial in determining their success. In this, we can suggest two 
principles to guide Commerce: first to focus on emerging and 
foundational technologies, and second to build a symbiotic relationship 
with America's fast moving, risk-taking, entrepreneurial business 
culture.
    Commerce should focus its efforts on key technologies and design 
policies that as much as possible reinforce the private sector. The 
comparatively smaller size of Federal investment versus private sector 
investment alone makes this a good choice. We are in a competition 
between economic models, between China's increasingly state-centric 
economy and our market driven model. A key task for policy is to 
identify where Federal intervention is necessary, and USICA's 
identification of ten key technologies categories is where the U.S. 
should focus its activities.
    USICA gives Commerce the authority to establish a supply chain 
resiliency program, to encourage cooperation between the Department and 
the private sector to identify supply chain problems and develop 
solutions. Supply chain issues that arose from the global COVID-19 
pandemic are one reason for these provisions. Hence, the supply chain 
program should initially prioritize semiconductor supply chain issues, 
and only cover other supply chain issues in the future.
    The most immediate of these areas involves semiconductors. Federal 
support is necessary to achieve two goals: to move more production 
capability back to the United States and, to a lesser extent, to 
increase productivity capability (less because private sector 
investment will do this). We do not want to duplicate China's error of 
investing billions in inefficient or outmoded semiconductor production. 
We do want to invest in location subsidies, in research, and in 
opposing anti-competitive behavior.
Semiconductors
    Semiconductors are the foundational technology of the twenty-first 
century. The United States needs to remain strong in this industry, but 
in the face of global competitors that make heavy use of subsidies, it 
will need government action and funding to maintain its position. The 
United States still has the largest share of the global semiconductor 
market. It leads in chip design and it has roughly half of the global 
market for semiconductor manufacturing equipment, but it lags in chip 
fabrication. This lag is the source of supply chain risk.
    A 2019 OECD study found that of the dozen or so countries with 
significant semiconductor industries, only the United States did not 
use subsidies. We may not like it, it may not be fair, but subsidies 
are part of the market and the failure to provide location incentives 
is one primary reason why the U.S. share of semiconductor fabricating 
facilities has fallen by two thirds and chip fabrication moved 
offshore.
    The semiconductor industry has a globally distributed supply chain. 
This is the most economically efficient, but it now creates security 
risks. Our goal should not be to abandon the global supply chain but to 
reduce China's role in it. This will not be easy, but complete 
bifurcation is unnecessary. We want to avoid ending up in a position 
where China is the sole supplier for any segment of the chip supply 
chain, because they will take advantage of this to harm us. That does 
not mean that companies and facilities outside of China that provide 
key parts of the chip supply chain--in Israel, Ireland, and others--
should be replaced. We benefit economically and strategically from 
maintaining a global supply chain in which China's role has been 
decreased. China exploits us. We should in turn exploit the Chinese 
market as long as possible and as long as our technology transfer 
controls are working. This means selective decoupling and allowing some 
economic interactions to continue.
    One open question is Taiwan. The Chinese government's ultimate 
intent is to absorb Taiwan as it absorbed Hong Kong, but Taiwan will be 
more difficult to absorb and China may never succeed. But the intention 
creates risk. We depend on Taiwan for advanced fabrication of chips. 
This dependency requires that we ensure Taiwan's autonomy from China, 
but also that we ensure resilience by getting key Asian firms to locate 
some of their facilities in the United States. This can be part of a 
larger effort to build resiliency and security by strengthening all 
segments of the U.S. chip industry, through investments in R&D, 
workforce, and subsidies, including support for other parts of the 
semiconductor supply chain, such as advanced packaging.
    The Administration's 100 Day Supply Chain Review offered seven 
recommendations to strengthen the U.S. chip industry. These include a 
call to fully fund the Creating Helpful Incentives to Produce 
Semiconductors (CHIPS) for America Act (which has been languishing in 
Congress for a year), measures to strengthen the entire chip supply 
chain, build the STEM workforce, use export controls to protect 
technology, and work with allies to harmonize policies on R&D and 
China--key allies like Japan are ready to do this. The recommendations 
in the 100 Day Review, particularly if combined with Congressional 
guidance and action on funding, will keep the United States strong in 
this core technology.
    There are reasonable concerns with any effort to strengthen the 
chip industry. The first is that our efforts may create overcapacity. 
The chief cause of the chip shortage was a miscalculation by companies, 
in particular, car companies. They, like many others, failed to plan 
for the surge of pent-up demand as the pandemic waned and cancelled 
chip orders. In response, chip makers shifted from producing for cars 
to producing for items suddenly in demand during the pandemic, those 
that supported streaming, gaming, computing and phones. This 
miscalculation was reinforced by supply chain disruptions from weather 
and fire. Just-in-time supply left car makers with no reserves, and one 
question for reliance is whether and how to incentivize companies to 
move away from just-in-time supply. The 100 Day Review's recommendation 
for better information flows can reduce the risk of future 
miscalculation, as more information on the market can guide Federal and 
private investment in production capacity. Overproduction in chips is 
not a long-term problem, as demand for semiconductors will continue to 
grow and absorb increased capacity.
    A related concern is ``investment in what.'' The digital economy is 
being reshaped by cloud computing, artificial intelligence, and 5G 
networks. Digital technologies are being reshaped and USICA recognizes 
changes in telecom technology that work in America's favor. 5G and open 
access technologies like O-RAN depend on chips and software, both areas 
of American strength (especially when compared to China). Telecom and 
chips are dynamic industries driven by demand for better performance. 
The pace of change is rapid, and this could complicate plans for 
Federal intervention. The semiconductor industry itself is broken into 
highly specialized segments and is geographically distributed. Deciding 
which sectors would benefit from Federal support, and determining what 
kind of support, is an immediate task for policy. USICA, and with it 
the CHIPS for America Act and the USA Telecom Act, do a good job of 
recognizing that there is more to the industry than fabrication 
facilities. The issue is how best to intervene in this complex 
industry. An earlier success, SEMATECH, a non-profit, public private 
research consortium, provides useful precedents, the most important of 
which is to not try to have the Federal government direct research or 
insist on specific technologies and to ensure that the private sector 
has ``skin in the game.''
Role of the Government
    The question of the role government is a long-standing debate in 
industrial policy, which we can simplify as a debate between those who 
argue that governments should supply the foundation for innovation 
through R&D funding, increased STEM education, and balanced regulation, 
and those who would prefer a more directive approach. The well-known 
case of Solyndra became the poster child for why the government should 
refrain from selecting a specific technology company to support, and 
instead emphasize market competition to identify the most successful 
paths forward.
    Few government agencies can act like venture capital firms, 
something that proves to be very hard to do. Venture capital firms have 
a higher tolerance for risk and ring specialized expertise to identify 
opportunities, including using geographic proximity to markets to gain 
a deeper knowledge of the business. There is a mismatch between 
bureaucracy and innovation. There are a few examples of success for the 
Federal government, such as In-Q-Tel and the Defense Innovation Unit 
(DIU), and it would help build resilience if these and similar efforts 
were better funded and, in DIU's case, given increased and more 
flexible authorities to invest.
    These difficulties should not distract us from the importance of 
the Federal government playing an essential role in creating new 
technology. That role has changed given the immense expansion of 
commercial innovation. The center of gravity for innovation and tech 
investment has moved away from government. A dynamic private sector 
innovation ecosystem is focused on commercial markets, but with the 
right authorities, funding, and mechanisms, the government can take 
advantage of this to improve resiliency. This will require some effort 
because the cultures are vastly different. Private sector investments 
dominate R&D budgets for new technologies, such as 5G, artificial 
intelligence, biotechnology, quantum computing and alternative power 
sources. The new innovation ecosystem is shaped by market signals on 
investment risk and returns more than policy.
    Commerce and other agencies need to predict, not react. For 
example, media reporting recently highlighted problems with the supply 
of lumber. This is perhaps a good example of why media reporting is not 
always a useful guide for policy. The shortage was so short lived that 
the efforts to remedy it barely begun before it was over. It needs 
better analytical capabilities, clarity in roles and responsibilities, 
and close engagement with the private sector at senior levels to 
anticipate market and tech trends. Its industrial analysis and support 
function (a legacy from World War II) atrophied over the past decades 
and now needs to be rebuilt to focus on high-tech. A focus on emerging 
technologies can help avoid wasteful spending of time and money.
Cost
    There are concerns over the cost of these initiatives, but critics 
of the price tag should consider two factors. First, China has been 
willing to spend for sustained periods of time to gain technological 
advantage. In some areas, China is keeping pace with the U.S. and even 
outspending it in some cases. In semiconductors, for example, it has 
pledged more than $50 billion in five years from national funds and an 
equivalent amount from local governments. Given how much larger U.S. 
national income is compared to China, this should not be the case. We 
should not expect to outcompete China without increased Federal 
spending. Second, this spending is an investment, a down payment on 
America's technological future. Money appropriated now will create jobs 
and income, more than repaying the cost. Both security and economics 
call for the full appropriations to support the objectives laid out in 
USICA. Putting aside the collateral benefits to wealth creation and 
economic growth from USICA (and these could be substantial), it is 
better to overspend and stay ahead of China than to under-spend and 
fall behind.
A Global Approach
    One advantage we have over China is that we have allies. A supply 
chain that involves allies increases resilience by diversifying 
sources. We benefit economically and strategically from an allied 
approach. It may seem counterintuitive, but international cooperation 
makes America more competitive.
    Artificial intelligence (AI) exemplifies how international today's 
innovation base is. The technologies behind AI are not easily 
controlled. China has significant strength in this, but AI depends on a 
globally distributed R&D and innovation chain, with key nodes not only 
in the U.S. and China, but in Canada, the UK, Israel, Germany, and a 
few others. These countries share a growing distrust of China's 
intentions and policies that the U.S., by working with them, can 
capitalize upon to build security and growth. Focused Federal 
investments and multinational partnership structures, and revised 
authorities can provide the U.S. real advantage in the competition with 
China.
    The United States has used industrial policy in every major 
conflict since 1860. Industrial policy is part of the reason for its 
success in these conflicts. The U.S. must, as it has done the past, 
strengthen strategic industries. This is why USICA and its 
implementation are so important. Industrial policy was the key to 
helping the U.S. win those conflicts, and the technology base built in 
World War Two--and expanded tremendously for the Cold War--still 
provides foundational benefits to our economy from investments made 
decades ago.
    We and our allies are again confronted by authoritarian states. The 
terms of conflict with these hostile powers will be different, relying 
less on military force and more on economic and political influence. 
One key area for competition will be in the fields of technology and 
business. These provide the countries that lead in them with power and 
authority in the international environment. A new industrial policy is 
necessary again for the United States, but we will need to adjust to 
this new form of conflict and to the changes in research and industry 
that have taken place over the last thirty years. That means a new, 
high-tech industrial policy cannot focus on building weapons and it 
cannot be over-managed by Washington.
    China has many weaknesses that its propaganda seeks to obscure. It 
faces immense problems, but under its current leadership, it intends to 
displace the United States. Building globally dominant high-tech 
industries is a part of this strategy. The U.S. must respond to China's 
hostility, but we can no longer rely on market forces alone to advance 
the national interest. Defensive actions alone will not suffice. These 
themes all point to the need for a renewed industrial strategy, but it 
cannot simply duplicate previous policies because we are now in a world 
where the private sector leads. This means the task for USICA 
implementation is to find where government intervention can best 
support a multinational commercial innovation base. Finding the right 
balance of the role of government will be difficult, but USICA, 
Executive Order 14017 and the 100 Day Review means that we are off to a 
good start.
    I thank the Committee for the opportunity to testify.

    The Chairman. Thank you, Dr. Lewis. Thank you so much. We 
are now going to go virtually to Mr. Richard Aboulafia. Not 
sure where--what part of the world you are in, Mr. Aboulafia, 
but welcome here into our committee conference hearing room.

STATEMENT OF RICHARD ABOULAFIA, VICE PRESIDENT, ANALYSIS, TEAL 
                          GROUP CORP.

    Mr. Aboulafia. Sure, Madam Chair Cantwell, and thanks to 
you and to the Ranking Member Wicker, and of course, members of 
the committee. I bring you greetings from an island off of 
Stockholm. It is rather a long ways away, but deeply honored to 
be here speaking with you today about the aerospace supply 
chain.
    A few things to emphasize about the character of that 
supply chain, some recent challenges it has faced in the wake 
of the COVID-19 pandemic, and the associated aviation market 
downturn, and a few things that the committee might want to 
consider as it deliberates the status of our industry and our 
supply chain. Basically, there are three things that I would 
emphasize about the aviation industry supply chain.
    First of all, value. The overwhelming bulk of the value add 
in the aviation business happens at the supply chain. It is not 
at all a dig at the many great prime contractors out there, but 
an aircraft is effectively the sum of its parts, and up to 85 
percent or more of the value of the plane comes from the 
suppliers. Typically the prime, somewhere between 15, 20, 25 
percent at most, with the rest coming from its supply chain 
companies. Having said that, it is also vulnerable. This is an 
industry--well, we have very high barriers to entry and very 
low levels of substitution.
    So as a consequence, if there is a relatively small, what 
seems like an easily replaceable part that simply isn't 
available, the aircraft can't be built pure and simple. We saw 
this last year with, of course, the logistical challenges 
associated with the COVID-19 pandemic. And Lockheed Martin had 
planned on building about 140 F-35 Joint Strike Fighters for a 
variety of logistical reasons. Almost all of them in the supply 
chain, they were only able to deliver 123. So in terms of 
vulnerability, well, that is where you faced problems, I am 
afraid.
    And then finally, innovation. And thank you, Madam Chair 
Cantwell, for highlighting this, really the overwhelming bulk 
of technological progress of fuel savings, of emissions 
reduction, of passenger comfort, really anything you associate 
with aviation. On the other side of the house, a lot of the 
combat effectiveness that we associate with the country's 
fantastic combat aircraft come from the supply chain, not the 
prime. So it is very important that the companies in the supply 
chain have a steady stream of research and development 
resources in order to bring these new technologies to market.
    Now, the unfortunate reality, of course, is that we faced 
the most devastating pandemic in industry history last year 
because of COVID-19. You know, looking back over the many 
decades of the aviation industry, typically in a really bad 
year, you would lose maybe 3 percent of traffic year over year 
after for example, 9/11 or the 2008 recession or Gulf War I or 
any of those, maybe 2 or 3 percent. Last year we lost 66 
percent of traffic globally. That is cataclysmic, especially 
for companies that are heavily dependent upon the aftermarket 
on equipment utilization.
    So the financial challenges associated with this 
unprecedented falloff in business were very challenging for the 
supply chain. Now, I am very happy to say that for a variety of 
reasons, almost all companies have come through it. But I am 
very concerned about their ability to access capital in order 
to hire people and of course facilitate for the upturn that 
inevitably follows a downturn. It may sound counterintuitive, 
but in a lot of ways some of the greatest challenges supplier 
companies will face is in the recovery having come through the 
downturn.
    And especially this is true for the labor side of things. 
And that is why I would commend the Government especially for 
its several rounds of Paycheck Protection Program legislation, 
because I think this has absolutely been vital in retaining 
skilled workers and keeping them from going elsewhere or simply 
just being offline for whatever reason.
    It has been absolutely fantastic for the industry, and I 
deeply hope it continues. Other things that the committee may 
want to discuss, I believe the time might be right to consider 
basically the sustainable aviation industry R&D program. The 
Government has historically been very good at basic R&D, but 
when it comes to applied R&D, less so. And I think there are a 
number of promising technologies, particularly in sustainable 
aviation fuels and other sustainable initiatives that I think 
could be accelerated, and with perhaps a bit of Government 
assistance, play a meaningful role in companies' ability to 
maintain their competitiveness.
    And then finally, I think another thing to discuss might be 
the issue with China, because China is the biggest single 
export market for commercial aviation companies and there is a 
great deal of uncertainty, both about our trade relations with 
China and with the rules on shipments of technology and 
componentry due to the creation of the military end user list 
by the U.S. Government.
    There are so many complications involved here, but there is 
a great deal at stake for the future growth of the industry. 
Thank you so much for your time.
    [The prepared statement of Mr. Aboulafia follows:]

  Prepared Statement of Richard Aboulafia, Vice President, Analysis, 
                            Teal Group Corp.
    Madam Chair Cantwell, Ranking Member Wicker, and Members of the 
Committee, thank you for asking for me to testify before your committee 
today. I am privileged to provide you with an overview of the aviation 
industry supplier base.
    I am Vice President of Analysis at Teal Group, a leading aerospace 
market analysis consultancy based in Fairfax, VA. I manage consulting 
projects in the commercial and military aircraft field and analyze 
broader defense and aerospace trends. I have advised numerous aerospace 
companies, including most prime and many second-and third-tier 
contractors in the U.S., Europe, and Asia. I also advise numerous 
financial institutions on aerospace market conditions and industry 
dynamics. I have been in the industry since 1988. All my public 
writings and comments on the industry can be found at 
www.richardaboulafia.com.
    Today, I would like to discuss three things with the Committee: (1) 
the structure and characteristics of the aviation industry supply 
chain; (2) the market, and other challenges to suppliers; (3) questions 
that should be asked by the Committee, along with my recommendations 
for future action. I am also happy to answer any questions you might 
have.
1. Industry Structure And Characteristics
The Supply Chain's Importance
    The supply chain is the heart of the aviation industry, because of 
three factors: Value, Innovation, and Vulnerability.
    First, the components, structures, systems, and technologies 
provided by the aviation supply chain represent the strong majority of 
the Value of any given aircraft. When Boeing sells a jetliner, or 
Lockheed Martin sells a fighter jet, suppliers, collectively, realize 
more revenue than the primes (Boeing and Lockheed Martin) do. There are 
almost no exceptions to this pattern, whether it is a transport, 
helicopter, business jet, or any other type of aircraft.
    For a typical Boeing jetliner, 80 percent of the value gets added 
at the supplier level. Of course, employment, tax revenue, and other 
key metrics mirror this reality: the supply chain is of greater 
importance to the economy compared with the primes for many reasons.
    Second, it is important to note that much (and often most) of the 
Innovation that takes place in aviation happens at the supplier level, 
and not at the prime level. Boeing's 737 jetliner, its F-15 fighter, 
Lockheed Martin's F-16 fighter, and many other platforms have been in 
production for around half a century. But the current models have very 
little in common, aside from exterior shapes, with the original 
production versions. The rejuvenated jetliners use much less fuel and 
produce much fewer emissions. The rejuvenated combat aircraft are 
vastly more effective.
    The successful transformation of these aircraft is because of the 
tremendous innovation that has taken place at the supplier level. 
Suppliers have created new and improved engines, avionics, systems, 
electronic warfare suites, materials, and more, which have been applied 
to these aircraft. Therefore, a steady flow of research and development 
(R&D) funding, for and by suppliers, is essential for the industry's 
future growth, industry competitiveness, and for the overall good of 
the aviation transportation system.
    Third, as with most complex manufactured products, an aircraft 
production system is only as strong as its weakest link. That is, if a 
supplier company fails, somebody needs to step in to buy it, or to give 
it the capital or other resources needed to stay in business. 
Otherwise, the aircraft in question is not built.
    The health of the supply chain, therefore, is critical to the 
aircraft industry. Given the enormous stresses experienced by the 
supply chain over the past two years, company failure, or inadequate 
resources for supplier capacity expansion and technology development, 
are some of the biggest risks faced by the industry. The supply chain, 
crucial to industry success, is also its greatest Vulnerability.
High Barriers to Entry and High Levels of Concentration
    The aviation industry has very high entry barriers. Since World War 
2, only one country (Brazil), and one company (Embraer) has 
successfully entered the jetliner industry. Very few companies--around 
five--have successfully entered the smaller jet industry. Worldwide, 
more companies have exited the jet industry than have entered it.
    Entry barriers at the supplier level are also quite high. Most 
suppliers have been in business for 50 or 60 years, and while small, 
niche companies have been created, they are the exception. Very often, 
they are simply purchased by the larger, established suppliers.
    There has also been a great degree of concentration in the 
industry. The aviation supply chain saw a series of mega-mergers over 
the past few decades. As a result, some supplier companies, such as 
Raytheon Technologies, General Electric, or Safran, are about as large, 
or larger, than some of the biggest aircraft primes.
    Having said that, there are still a large number of suppliers at 
the Tier 2 or Tier 3 level that are small, and relatively fragile. 
While there's little risk from emerging competition (due to the high 
entry barriers), these smaller companies still face serious challenges 
in accessing capital and improving their products and processes.
Impact of Globalization
    The supply chain, like the rest of aviation and aerospace, is a 
highly globalized industry. Components built by U.S. suppliers find 
applications on platforms throughout the world. In fact, one key U.S. 
supplier component, Pratt & Whitney's Geared TurboFan engine, has 
become quite successful purely on the basis of powering jets built by 
foreign aircraft companies.\1\
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    \1\ https://www.forbes.com/sites/richardaboulafia/2017/07/30/a-
stunning-u-s-industrial-success-shows-problems-with-trumps-made-in-
america-push/?sh=3c9149997c0c
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    However, it isn't always an equal playing field in the world. 
Suppliers from allied countries, such as the U.K., France, or Italy can 
readily find applications on U.S. aircraft, even military ones. But 
U.S. suppliers have a much harder time being sourced on European 
military aircraft.
    Some of this problem results from U.S. International Traffic in 
Arms Regulations (ITAR) regulations. Aircraft designed with U.S. 
components are perceived to be problematic in international 
competitions, where U.S. Government decisions can prevent the sale of 
any aircraft that has U.S. components on board. Similarly, technology 
transfer restrictions have also resulted in U.S. suppliers being 
disadvantaged on combat aircraft built in countries without their own 
supplier companies.
    South Korea's KF-21 is a good example of that. U.S. Government 
reluctance to transfer data pertaining to U.S. technologies and 
systems, and to provide export licenses for these systems has resulted 
in significant competition losses. European companies, for example, 
have been tapped to provide this new fighter's radar, and other 
systems, largely because the U.S. did not want to provide the necessary 
data and licenses.
    Also, government-funded R&D programs seldom cross borders (although 
companies do successfully cross borders with their own privately-funded 
R&D). When governments support their industry with commercial or 
military R&D development programs, the beneficiaries are almost always 
exclusively domestic firms. That is true in the U.S., and in other 
major aviation producer countries.
    Some countries that only have an aviation supplier industry (as 
opposed to an in-country prime contractor) are more willing to make 
these programs accessible, since their own industry depends on global 
trade. The Netherlands is a good example of that. But most large 
aviation powers, such as France or Japan, have their own prime 
contractors, and do not make their much larger government R&D programs 
accessible to companies domiciled in other countries.
    One unique characteristic of the aviation supplier industry is that 
globalization has not seen the rush to low-cost sourcing seen in many 
other industries. Rather, the overwhelming majority of foreign 
suppliers providing components for U.S. aircraft are from high skill, 
high wage countries. Japan, France, Canada, the U.K., and Mexico are 
the top sources for these components, but almost all of the components 
and structures shipped from Mexico are actually sourced from transplant 
factories owned by U.S., Canadian, or French supplier companies.
    China, notably, is not a significant source of aircraft components, 
even from transplant factories. In fact, at the peak level of U.S.-
China aerospace trade, the trade balance between the two countries was 
17-1 in the U.S.'s favor.\2\
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    \2\ https://dataweb.usitc.gov/
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2. The Market and other Challenges
An Unprecedented Downturn
    The entire aviation manufacturing industry has been impacted by the 
worst air transport downturn in history. The Covid-19 pandemic, and the 
associated lockdowns and travel restrictions, have resulted in numbers 
heretofore unseen in the aviation industry. Historically, in a bad year 
for the market, air travel typically falls by 2-3 percent year-over-
year; in 2020 it fell by 66 percent. Only massive government 
intervention, in the U.S. and other countries, has staved off mass 
airline bankruptcies.
    As of this writing, however, the situation is improving. The over-
all economic picture is far better than feared. Domestic travel 
markets, particularly in the U.S. and China, have come back strongly. 
The most recent traffic numbers show U.S. domestic flights up 3 percent 
relative to the same period in 2019, the first time these numbers have 
turned positive since the pandemic began. Even European flights, which 
were down 62 percent in May (relative also to 2019) have started to 
make a strong recovery, with the most recent numbers down just 34 
percent.\3\
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    \3\ Bank of America equities report, ``Commercial Aerospace 
Tracker,'' July 13, 2021
---------------------------------------------------------------------------
    In fact, we now expect a return to the 2019 revenue passenger 
kilometer (RPK) travel peak in late 2022. And meanwhile, jetliner 
financing is inexpensive and readily available, and fuel is getting 
expensive again--the perfect formula for renewed jetliner orders 
(particularly single aisles).
    The only area of serious concern, outside of Covid-19 itself, is 
China, the biggest single export market (and tied with the U.S. for 
biggest single market). At the peak level of deliveries to China, 2018, 
the country took 23 percent of all jetliner deliveries worldwide. This 
has fallen precipitously, for both market reasons and due to 
geopolitical factors. This trade is under threat, due to slowing in-
country growth rates, China's reluctance to recertify Boeing's 737MAX, 
and the U.S. Government's decision to put Western components for 
China's ambitious national aircraft programs on a possibly restrictive 
export list.
    However, for the supplier base, the Covid-19 downturn came after 
another traumatic event: the grounding and production halt of Boeing's 
737MAX. This is the second largest volume program in the world, and 
easily the largest in the U.S. Some supplier companies have a very high 
level of exposure. For fuselage provider Spirit AeroSystems, and many 
of its suppliers, this level of 737MAX dependence is in the 50 percent 
range.
    The impact of the Covid-19 downturn on the civil aviation market 
can be seen in the chart below. The 2020 line (red) illustrates the 
market outlook as of right before the pandemic (with a MAX-related 
downturn in 2019-2020). The green line shows current projections, but 
also what happened to the market in 2020. Deliveries of commercial 
jetliners fell by 50 percent relative to 2019, and again, 2019 was 
already a weak year due to the 737MAX shutdown.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The above chart also illustrates the relative sizes of the civil 
and military segments of the aviation industry. The civil side is 
simply much larger, if not always as profitable, compared with the 
military side of the business. Thus, while military revenue has helped 
stabilize the supply chain, it simply cannot compare to the volumes 
seen in the commercial sector.
    For aviation suppliers with a heavy exposure to the aftermarket, or 
maintenance, repair, and overhaul (MRO) part of the industry, the 
unprecedented falloff in utilization has resulted in a revenue decline 
even worse than that seen with new-build aircraft. Even for supplier 
companies that don't rely on the aftermarket for the majority of their 
business, this decline has been painful, since aftermarket work tends 
to be more profitable than new-build production.
Boeing's market position
    Another challenge faced by the supply chain concerns Boeing's 
market position. Despite the industry's globalization, U.S. supplier 
companies, in aggregate, are more exposed to Boeing relative to its 
rival, Airbus. Right now, however, Boeing seems prepared to cede market 
share to Airbus. This may change as the market recovers, and Boeing is 
clearly under a great deal of financial pressure as a consequence of 
both the 737MAX shutdown and the industry downturn, but right now the 
outlook for the company's future product development efforts is a 
serious concern for the industry.\4\
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    \4\ See, for example, https://aviationweek.com/aerospace/program-
management/opinion-will-boeing-become-next-mcdonnell-douglas
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    The European company's A321neo is a very strong performer in the 
mid-market segment. Boeing, by contrast, has cancelled plans for its 
own new mid-market jetliner. It hasn't launched a completely new jet in 
17 years. It continues to cut its engineering team. As the chart below 
indicates, it has slashed R&D, with a further 27 percent cut last year 
alone.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Assuming Boeing does nothing new, and the duopoly goes from a 50 
percent-50 percent market share balance to a 60 percent-40 percent one 
in Airbus's favor (this is our projection), then on balance, U.S. 
aviation supplier companies will face a similar decline. The companies 
with substantial Airbus exposure will be immune from this, but again, 
many U.S. suppliers are heavily reliant on Boeing.
    Boeing has also been quite aggressive with its supply chain in 
terms of contract terms. Boeing programs such as Partnering For Success 
(PFS) were designed to pressure suppliers on prices, intellectual 
property, aftermarket access, and other terms. It isn't clear whether 
Boeing will begin to take a softer approach, now that much of its 
supply chain faces very different circumstances (relative to the good 
years before the MAX shutdown, when the supply chain was healthy enough 
to withstand these contractual changes and pressures).
    The extent to which U.S. industry relies on Boeing can be seen in 
the following chart, which shows U.S. aviation industry output in both 
absolute and relative (to the rest of the world) terms. As a percentage 
of world deliveries, U.S. output has been fairly stable at just over 50 
percent for several decades. However, in 2019 and 2020, this shifted 
below 50 percent. Obviously, the serious decline in 2020 (in absolute 
terms) was due to the pandemic. But the decline as a percentage in 2019 
and 2020 was purely due to the 737MAX production halt.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Consequences
    Despite the severity of the aviation market downturn, the aviation 
supply chain has generally weathered the storm rather well. Several 
smaller companies have gone bankrupt, but these represent well under 1 
percent of supplier capacity. For almost all companies, relative health 
has depended upon portfolio: those with the most defense work have done 
best. Those with the most exposure to twin aisle jets (the single most 
impacted part of the aviation business) or to the 737MAX, have 
generally been hit hardest. But again, there have been very few 
outright bankruptcies.
    However, there are many concerns for the future of the aviation 
supply chain, for two reasons:
    First, it is important to consider the reasons that almost all 
aviation suppliers have come through the crisis intact. Government 
support is one of the biggest reasons, particularly with paycheck 
protection programs. Similarly, defense spending, while not as large as 
commercial market numbers, is relatively strong, particularly compared 
with the last commercial jetliner market downturn (in 2002-2003). The 
Department of Defense's accelerated payments program, aimed at 
stabilizing the aerospace industrial base, has been very helpful.
    Supplier companies have also taken almost every possible defensive 
action. They have sold assets, fired or furloughed workers, burned down 
work-in-progress, and conserved cash any way they can. These were tough 
calls, particularly with headcount reduction; but, when topline revenue 
falls drastically, the only way to avert financial disaster is to cut 
variable costs, which, for the most part, means cutting payroll.
    Also, financing, so far, has been available to suppliers. Banks and 
other lenders have been patient, and have provided new financing. 
Interest rates are low, which helps with debt servicing.
    Yet all of these measures have run their course. Debt has been 
increased, capacity and workforce cuts have been made, non-core 
businesses have been shed, and the Pentagon has done all it can. 
Defense budget growth has halted in real terms, and accelerated 
payments, inevitable, have run their course.
    Second, it is important to consider the challenges ahead. When 
jetliner production rates rise again, many supplier companies may have 
a difficult time raising the capital needed to make capacity 
investments. Labor costs increases and other inflationary pressures 
could exacerbate these capacity expansion challenges.
    In short, these survival tactics have resulted in a rather brittle 
supplier base. These companies have shed assets and taken on a great 
deal of debt. Inevitably, R&D funding for new technologies has been 
slashed too, endangering future competitiveness.
    Finally, given the concerning development of Covid-19 variants, 
such as the Delta variant, there are valid reasons for concern 
regarding the recovery's trajectory. If anything were to disrupt the 
market recovery, such as another round of pandemic-induced lockdowns, 
the resulting production cuts would endanger the health of a very 
fragile supply chain. Concerns about its health would range from short-
term financial viability worries, to long-term R&D funding questions.
3. Questions and Recommendations
Questions
    In my opinion, the Committee might want to ask the following ten 
questions about the health of U.S. aviation supplier industry:

   1.  Is the market crisis over? Or, will another round of paycheck 
        protection aid be required by the industry as a consequence of 
        either a resurgent pandemic or an economic downturn, possibly 
        one induced by the end of government aid programs?

   2.  Will financial weakness in the supply chain impact the 
        production ramp-up that will hopefully be associated with a 
        market recovery?

   3.  Human capital is a major possible bottleneck; can suppliers 
        bring back skilled employees after deep cutbacks?

   4.  In addition to labor, what other inflationary pressures (energy, 
        materials) do suppliers face? Do their contracts allow for 
        pass-throughs of these inflated costs? How badly did prices 
        fall for jetliners, and are suppliers further subject to 
        declining revenue here as well?

   5.  Will private equity and other financing sources be available to 
        help suppliers with capital (or to buy them) in the next few 
        years?

   6.  Are U.S. suppliers at risk of acquisition by non-allied 
        countries?

   7.  Are current ITAR reforms sufficient to enhance the 
        competitiveness of U.S. suppliers on the military export 
        market?

   8.  What is the status of U.S. components on the Military End User 
        (MEU) list? The Trump Administration put many of the 
        constituent companies of China's COMAC (their aspiring state-
        owned jetliner company) on a list that may, or may not, 
        prohibit component exports. Since China's jetliners will be 
        much more difficult (and perhaps impossible) to develop without 
        these inputs,\5\ this was a very aggressive move, and the Biden 
        Administration has continued this ambiguous policy. Is this 
        part of an effort to negotiate a grand trade bargain (perhaps 
        one including Boeing jet sales) to China?
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    \5\ https://foreignpolicy.com/2021/02/16/china-aviation-industry-
washington-trump-biden/

   9.  Will U.S. allies stay on the same page regarding China? The 
        Biden Administration has made working with allies on China a 
        priority. Calling a ceasefire on the WTO complaint against 
        Airbus is part of that, with the objective of working with the 
        Airbus countries on a united front against China's efforts to 
        distort the jetliner market. Will those European countries say 
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        with the U.S. in this united front?

  10.  Will Boeing launch a new aircraft to effectively compete with 
        Airbus in the mid-sized jetliner market?
Recommendations
    I would offer the following seven recommendations to the Committee 
for actions that would be useful in securing the future of the U.S. 
aviation industry supplier base:

  1.  Initiate a government R&D ``Sustainable Aviation'' or ``U.S. 
        Clean Skies'' program for aviation suppliers. Europe has moved 
        aggressively to establish Zero Emissions targets for aviation, 
        and is funding a wide variety of technologies under ``Clean 
        Skies'' and other programs. The U.S. should consider the same 
        for its supplier companies, particularly since the majority of 
        EU country-funded research is not accessible to them.

     The emphasis might be on sustainable aviation fuel (SAF) and other 
        related technologies. This initiative would echo similar work 
        begun in France, Germany, and the European Union, the latter 
        with its ReFuelEU legislation to boost SAF. SAF and other 
        research programs might be coupled with airline usage mandates 
        designed to increase the guaranteed market for the new 
        technologies.

     This clean skies initiative would also serve to employ engineers 
        and technical workers at suppliers, who might otherwise be at 
        risk of headcount reductions due to company-funded R&D cuts.

  2.  Move a greater share of government R&D dollars from basic to 
        applied research. The composition of R&D is a serious issue 
        because the U.S. Government is good at funding basic research 
        but not as good at applied research. It would be good to 
        consider a migration of Federal R&D dollars toward applied 
        level projects to help out with U.S. competitiveness. This 
        would also help to get technologies to market faster, and of 
        course with supplier workforce issues. This migration would 
        involve working with supplier companies to identify what is in 
        the pipeline now, what the prospects are for acceleration, and 
        how government money can help.

  3.  Clarify the China MEU list. For many suppliers, there is 
        considerable uncertainty about this list: are component 
        shipments for China's indigenous jetliner programs prohibited 
        or not? If this uncertainty isn't a deliberate effort aimed at 
        crafting a trade agreement with China, the terms and conditions 
        of the MEU list should be clarified, so U.S. suppliers can 
        again sell into this important export market without fear of 
        legal ramifications at home.

  4.  Work to enhance coordination with Europe on China aviation 
        policy. China is able to demand technology transfer from U.S. 
        supplier companies, in large part, because it plays Europe and 
        the U.S. off against each other for jetliner orders from Airbus 
        and Boeing. If both sides agreed that jetliner orders would not 
        come with pre-conditions like these (that is, if China adhered 
        to the terms outlined in the WTO's Agreement on Trade in Civil 
        Aircraft \6\), this would not be a problem. Eliminating 
        technology transfer risk would help supplier companies sell 
        into the crucial China market without fear of creating long-
        term competitors.
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    \6\ https://www.wto.org/english/tratop_e/civair_e/civair_e.htm

  5.  Continue to work on labor-centric assistance packages. Paycheck 
        protection programs have been remarkably successful in helping 
        the supply chain maintain its workforce during the downturn, 
        and this will be crucial in maintaining the increased pace of 
        output we will hopefully see as the market recovers. But if 
        another round of PPP is needed, it would be better to have the 
        terms and conditions lined up in advance. Also, U.S. companies 
        continue to face a demographic ``bathtub'': there is a gap 
        between many older, more experienced workers, and the younger 
        next-generation, due to low levels of employee intake during 
        the 1990s and early 2000s. There may be ways for the government 
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        to help with mentoring and training programs.

  6.  Direct the Department of Defense to provide greater clarity on 
        its spare parts order patterns and inventory levels. Several 
        suppliers report that they benefitted from a significant run-up 
        in components orders at several times over the last year, but 
        then, suddenly, orders fell to nothing. It's possible that DoD 
        was increasing its orders as a way of helping supply chain 
        companies during the crisis, but, inevitably, this resulted in 
        filled warehouses, so orders have fallen off. Either way, 
        guidance for industry on these patterns would be very helpful.

  7.  Accelerate and improve ITAR reform. It might be best to go back 
        to the commitment made in the Export Control Reform (ECR) 
        during the Obama Administration to review the Munitions List on 
        the ITAR to see what might be added or removed. This would 
        involve looking carefully at what technologies are now more 
        widely available from competitors, in which case our controls 
        were simply closing the market to U.S. industry, not keeping 
        them from potential adversaries. Also, this means looking at 
        what new and emerging technologies might have significant 
        military applications and should be controlled, preferably in 
        concert with our allies.

    Again, thank you very much for asking me to provide testimony to 
the Committee. I will now be happy to answer any questions.

    The Chairman. Thank you, Mr. Aboulafia. I just want to 
point out that Senator Wicker and I worked very hard on those 
COVID-19 packages as it related to aviation. And then most 
recently, Senator Moran and I worked on a package that was just 
focused on aviation supply chain manufacturers. And that 
program just became, I think, operational or available for the 
actual applications last month.
    So I hope that many of the supply chain maintenance will 
take advantage of that. We definitely are hearing the impacts 
of both COVID-19 and now shortages of a workforce just at the 
time we need to pick back up. We will now turn to Mr. Lex 
Taylor. Thank you so much. Senator Wicker gave you a robust 
introduction. Thank you so much for being here. We look forward 
to your comments.

STATEMENT OF WILLIAM A. (LEX) TAYLOR III, CHAIRMAN OF THE BOARD 
       AND CHIEF EXECUTIVE OFFICER, THE TAYLOR GROUP INC.

    Mr. Taylor. Thank you, Chair Cantwell and Ranking Member 
Wicker for, as well as the rest of the Committee here, and 
virtually thank you for allowing me to be here. I appreciate 
the opportunity to tell you a little bit about our company. I 
feel like I am preaching to the choir a little bit. We all have 
the same goals in mind. But I hope I can tell you a little bit 
about our company, how it is affecting us at this point in 
time. And I think you can translate it to many, many companies 
across this Nation.
    The Taylor Group is a manufacturer of heavy industrial lift 
trucks, primarily for material handling industry. And we also 
build power generator sets for residential and commercial 
applications. And we are a remanufacturer of material handling 
equipment for the U.S. military. The business began as Taylor 
Machine Works in 1927 and still operates as a family privately 
owned business. We are proud to wave that flag in Lewisville, 
Mississippi.
    Our products are manufactured in America and exported 
around the world. In total, we have 1,200 employees with an 
average annual sales of a little over $550 million. Our 
products operate every day, in every prime industry, steel or 
metals, wood, concrete, intermodal transportation, just to name 
a few. Approximately 430 vendors support our thousands of parts 
and components that go into building our products. These 
businesses are based all over the world and are critical to our 
ability to produce products and support our customers.
    Some of these suppliers are also our customers. The supply 
chain is very interwoven and the companies within it depend on 
each other to keep the industry and thus the wider economy 
going. I appreciate the committee holding this hearing to 
discuss the challenges facing our supply chain, why this 
interruption happened, and solutions to right the ship. America 
was clearly headed for further economic growth at the beginning 
of 2020, but then the unthinkable happened.
    The virus, the COVID-19 virus, was the primary culprit to 
shut this industry down, shut this supply chain down, and it is 
where we are today. So where are we? Yes, the supply chain is a 
disaster. It is in disarray. That is why we are here. Delays in 
deliveries have forced manufacturers like Taylor to resort to 
unorthodox and expedited methods of getting critical supplies. 
This situation is causing inflation to run rampant throughout 
the supply chain. So far, we have kept our lines running, but 
are facing 30 to 75 percent price increases from our vendors 
and transportation companies.
    Three examples of this are microchips, of course, steel, 
and container costs, just to name a few. Our products operate 
via some form of computer interface. So the chip shortage is 
extremely concerning. In addition to the availability of the 
right inventory items such as chips keeping our product lines 
running, it depends on receiving inventory on time. Steel is a 
major component of our products, both in its structure and the 
components that are made of steel that go into our products.
    We are facing price increases weekly, and in some cases, 
every 24 hours. These average--and then the average cost of 
containers have gone from $4,000 a container to $18,000 as I 
speak today due to this low supply and high demand. Major 
shortages of key workers are also contributing to the supply 
chain crisis. Too large national trucking companies that 
support us have reported to us that they are trying to fill 
over 2,000 driver applications today. They claim that the 
Government employment subsidy is particularly detrimental to 
getting prospects to come back to work.
    And then therefore, with all this said, our company has, in 
order to protect its financial liquidity and viability, we have 
had to institute price increases. And this is happening all 
over the country. As I said, inflation is rampant. The worst 
part is we have orders, but we don't have confidence in our 
supply chains to meet the demand.
    We still have 40 employees now on layoff still from the 
COVID year. This means 40 families in need with no pay or 
benefits. We want to hire those workers back and hire even 
more. But we don't dare make such a large investment when we 
cannot commit to fulfilling customer orders on time now. The 
same story is playing out in thousands of manufacturers across 
America. For Taylor, our purchasing, engineering, and 
manufacturing teams are doing a Herculean job to keep our lines 
rolling, satisfy our customers, and keep our people employed, 
with a goal to get those on layoff back. This cannot be 
sustained, however, much longer.
    Our vendors tell us they do not see an end to this supply 
problem until the end of 2022 at the earliest. I suspect there 
are thousands, hundreds of thousands of other family businesses 
facing similar issues as us. We wake up every day, working all 
day to maintain our production lines, maintain our employment, 
and keeping our customers happy.
    My request to this committee is not to overreact with 
solutions that may cause unintended consequences. Rather, I 
encourage you to support a free market system and allow it to 
do what it does best and find solutions that are practical and 
driven by the private sector. Chair Cantwell, thank you again, 
Ranking Member Wicker, and the committee for allowing me to 
speak to you today and I look forward to any questions.
    [The prepared statement of Mr. Taylor follows:]

   Prepared Statement of William A. (Lex) Taylor III, Chairman/CEO, 
                         The Taylor Group Inc.
    Chair Cantwell, Ranking Member Wicker, and Members of the 
Committee: Thank you for the opportunity to appear before the committee 
today. And let me thank you all for your commitment of service to this 
great nation. My name is Lex Taylor and I serve as Chairman of the 
Board and Chief Executive Officer of The Taylor Group. My hope is to 
share about the challenges facing my company and, to some extent, all 
of our fellow manufacturers, due to the supply chain interruptions. My 
comments are my own and will focus primarily on my company.
    By way of brief introduction, The Taylor Group is a holding company 
with ownership of several entities--three of which are Taylor Machine 
Works (a manufacturer of heavy industrial lift trucks), Taylor Power 
Systems (a manufacturer of stand-by and prime power generator sets for 
residential and commercial applications), and Taylor Defense (a 
remanufacturer of material handling equipment for the U.S. military). 
The business began as Taylor Machine Works in 1927 and today still 
operates as a privately owned family business based in Louisville, 
Mississippi. Our products are manufactured in America and are exported 
around the world. In total, we have 1,200 employees in our entire 
system, which also includes service, financial, and retail businesses. 
We are considered a small mid-cap firm with average annual sales of 
over $550 million. Our products operate in every prime industry, 
including metals, concrete, intermodal, and wood to name a few. Our 
machines are operating all over the world moving goods and services 
daily.
    With thousands of parts and components that go into building our 
products, we are supported by approximately 430 vendors. Of these we 
consider 121 to be Tier 1 suppliers. These supply chain businesses are 
based all over the world and are critical for our ability to produce 
products and support our customers. In fact, some of these suppliers 
are also our customers. The supply chain is very interwoven and the 
companies within it depend on each other to keep industry and thus the 
wider economy going.
    A key part of this chain is transportation. Transportation in all 
facets--including road, rail, water, and air--is an integral part of 
the supply chain formula. And the transportation companies in our 
supply chain are also customers of Taylor. As an example, we have 
transmissions, counterweights, axles, and diesel engines coming to us 
from offshore sources. These major components come containerized to 
both East and West Coast ports of entry. Our units are the predominant 
mode of container handling in those ports once they are off-loaded. Not 
to belabor a point, but our small business is just one of thousands of 
businesses in this story, and the slightest interruption in supply is a 
detriment to the continuous flow of goods and services across this 
Nation and the world.
    I appreciate the committee holding this hearing to discuss the 
challenges facing our supply chains, why this interruption happened, 
and solutions to right the ship. There is no question that this Nation 
was on track and heading for further economic growth at the beginning 
of 2020. But then, the unthinkable happened--a pandemic that brought 
tragedy to the world and caused a dramatic economic slowdown. If we can 
all agree on one thing, it is that the COVID-19 virus was the single 
culprit that triggered the supply chain debacle we are experiencing 
today.
    There has been, and will be, much testimony as to how uncertainty 
and government intervention to control the spread of the virus led to 
exponential drops in consumer demand and the cascade of events that led 
to the almost complete shutdown of the economy for the better half of 
2020. With the help of the Association of Equipment Manufacturers and, 
to a lesser extent, the National Association of Manufacturers, an 
effort was pushed forward by our company and other manufacturers to 
urge the Treasury and the Federal Reserve to underwrite a national 
manufacturing ``floorplan'' program. Our proposed program would have 
allowed manufacturers to continue to build their products and stock the 
equipment for future sale during the dark and uncertain days of 2020. 
Much like the successful Payroll Protection Program the Congress 
instituted at the Small Business Administration, the goal of our 
initiative was to keep people employed and secure the supply chain to 
be ready when the pandemic ended. A notable difference was that our 
proposal would have required companies receiving Federal support to pay 
the money back. This effort was unsuccessful because of the political 
wrangling and failure of the government to understand the big-picture 
consequences of letting supply chains falter.
    So here we are. The supply chain is a disaster. Some of that is due 
to the shortage of generic, programmable, or hard-coded microchips. Our 
products, like so many others, operate via some form of computer 
interface, so the chip shortage is extremely concerning. In addition to 
the availability of the right inventory items such as chips, keeping 
our production lines running depends on receiving inventory on time. 
Delays in deliveries have forced manufacturers like Taylor to resort to 
unorthodox and expedited methods of getting critical supplies. This 
situation is causing inflation to run rampant throughout the supply 
chain. So far, we have kept our lines running but are facing 30 percent 
to 75 percent price increases either from our vendors or the 
transportation companies, or a combination of both.
    Steel is a major component of our products, both in the structure 
of our machines and the components within our machines. We are facing 
price increases weekly and, in some cases, every 24 hours due to lack 
of availability. So much of our supply, such as engines, transmissions, 
and sub-assemblies, come from overseas and container shortages have 
become a detriment to supply--particularly with the average cost per 
container currently at $18,000, up from $4,000 only 6 to 12 months ago. 
In order to protect financial liquidity, we have had to institute price 
increases, and this is happening all over our country. As I said, 
inflation is rampant.
    Major shortages in key workers are also contributing to the supply 
chain crisis. Two large national trucking companies we use are trying 
to fill over 2,000 driver positions to meet demand, but can't find 
them. Their claim is that the government unemployment subsidy is 
particularly detrimental to getting prospects to come to work.
    We have over 40 employees still laid-off from COVID that we want to 
bring back but cannot because, while we have received customer orders 
that would justify their employment, a lack of confidence in supply is 
preventing it. This is 40 families that are in need with no pay or 
benefits. We want to hire those workers back, and hire even more, but 
we do not dare make such a large investment at a time in which we 
cannot commit to fulfilling current customer orders on time. Keep in 
mind, this same story is playing out in tens of thousands of 
manufacturers across America.
    Let me conclude by saying that, as for Taylor, our purchasing, 
engineering, and manufacturing teams are doing a herculean job to keep 
our lines rolling, satisfying our customers, and keeping our people 
employed with a goal to get those on lay-off back on board. Engineers 
are finding alternative component solutions to replace the components 
that are in short supply. Purchasing is finding alternative delivery 
solutions to ensure the lines are supplied--utilizing hot shot delivery 
services, air transport instead of ships, and even sending a vehicle to 
pick up a part in a distributor or retail store. Manufacturing is 
alternating personnel and reorganizing the process flow--trying to hang 
on to employees instead of laying them off. This cannot be sustained 
for much longer.
    Our long-term investments in research and development and workforce 
training have allowed us to remain as nimble as possible during these 
challenging times. Working with partner organizations, such as our 
community colleges, has helped bring expertise and resources to address 
some of these problems. But state and local programs alone are unlikely 
to deliver a solution to such a complex problem. Our vendors tell us 
they do not see an end to this supply problem until the end of 2022 at 
the earliest. Like all manufacturing employers, we will do our best to 
maintain steady employment until that time. My request is that this 
committee not act to overcorrect with solutions that may cause 
unintended consequences. Rather, I encourage you to support the free-
market system and allow it to do what it does best and find solutions 
that are practical and driven by the private sector.
    Again, thank you for allowing me to introduce my company and 
provide insight about the challenging issues. The good news is that 
demand is strong, which translates into jobs and economic growth. The 
bad news is that nothing was done during the pandemic year to avoid the 
destruction of the supply chain, and thus this economic engine is 
faltering.
    Chair Cantwell, Ranking Member Wicker, and Members of the 
Committee, thank you again for the opportunity today, and I look 
forward to your questions.

    The Chairman. Thank you, Mr. Taylor. We will look forward 
to getting some more specifics on that business and 
opportunities during the Q&A. Thank you for being here. Dr. 
Gil, thank you so much. Look forward to your testimony.

STATEMENT OF DR. DARIO GIL, SENIOR VICE PRESIDENT AND DIRECTOR, 
                          IBM RESEARCH

    Mr. Gil. Chair Cantwell, Ranking Member Wicker, members of 
the Committee, thank you for the opportunity to testify on the 
critical need to bolster our semiconductor supply chain. I am 
Dario Gil, the Senior Vice President of IBM and Director of IBM 
Research. I am responsible for billions of dollars of R&D 
annually to develop cutting edge technologies, from advanced 
semiconductors to artificial intelligence to quantum computing. 
I am also a member of the National Science Board. 
Semiconductors are the beating heart of modern electronics and 
really power every sector of our economy and facet of our 
lives.
    The Chairman. Mr. Gil, I think people want you to pull that 
microphone a little closer to you or turn it on.
    Mr. Gil. The mic is not working, unfortunately. OK.
    The Chairman. That is better.
    Mr. Gil. Let me see if I can do this. Is this--hopefully it 
is better.
    The Chairman. Yes, thank you so much.
    Mr. Gil. OK. Semiconductors are really the beating heart of 
modern electronics and power every sector of our economy and 
facet of our lives. For example, our smartphones use 
semiconductors under 10 nanometers. In May, IBM unveiled the 
world's first two nanometer chip, which actually I have brought 
with me today. And what it could do is it could quadruple 
battery life for our smartphones and really slash their carbon 
footprint and consumption or use of our data centers, and 
really shows the power of R&D. But for over a year, we have 
experienced the consequences of semiconductor supply chain 
disruptions. Failing to produce chips in the U.S. hinders our 
ability to develop future emerging technologies. And the facts 
are simple. We only manufacture 12 percent of the world's 
capacity.
    Global leaders churn out advanced semiconductors at 7 
nanometers and 5 nanometers, yet we manufacture nothing under 
10 nanometers. For the U.S. Government to bolster the 
semiconductor supply chain, it needs to do three things: 
invest, create effective partnerships, and focus on results 
that benefit all Americans. We need sustained investments in 
domestic manufacturing and R&D for advanced chips. The winning 
recipe is clear, to have products to manufacture, you need to 
innovate new technologies, then manufacture, innovate then 
manufacture.
    While foreign Governments invest in advanced semiconductor 
R&D and manufacturing capabilities, we are lagging. Federal 
research and development represents a smaller percentage of GDP 
today than in 1964. The president's 100 day supply chain review 
and bipartisan consensus in Congress demonstrate a will to 
invest in addressing supply chain challenges, including 
boosting leadership in advanced R&D. The Senate has provided a 
strong catalyst for investment by overwhelmingly voting in 
support of USICA and the CHIPS Act. Now, let's talk about 
partnerships.
    Semiconductor innovation is fueled by partnerships. IBM's 
two nanometer chip breakthrough was built on decades of 
collaborative R&D with partners in New York. Bolstering 
American semiconductor capacity requires a scalable partnership 
model. The National Semiconductor Technology Center, or NSTC, 
is a major first step, and IBM encourages the Senate to fully 
fund and empower it. We cannot afford to waste time building 
semiconductor innovation capabilities from scratch. The NSTC 
could deliver results in months if we leverage existing 
expertise and billions of dollars in semiconductor 
infrastructure.
    The Albany Research Center, home to many companies and 
university partners, is already working on advanced logic 
pathfinding a new semiconductor materials. It offers an ideal 
environment from which to build and scale NSTC. As a proud 
member of this ecosystem, IBM is prepared to take a leadership 
role to make the NSTC success. The NSTC should be an industry 
led public private consortium that bridges gaps between 
industry, academia, and Government in advanced semiconductor 
R&D, prototyping, packaging, and manufacturing.
    It should enable American innovators, big and small, to 
quickly move semiconductor designs to any U.S. foundry. But we 
need more than physical assets and manufacturing plants. We 
need to invest in the American worker through education and 
training programs to create good paying jobs and opportunities 
for decades. This moment demands great urgency and results that 
generate dividends for all Americans.
    As I have outlined, the U.S. needs to address semiconductor 
supply chain disruptions by investing, creating effective 
partnerships, and ensuring outcomes that benefit Americans 
today for generations to come. Thank you. I look forward to 
your questions.
    [The prepared statement of Mr. Gil follows:]

    Prepared Statement of Dr. Dario Gil, Senior Vice President and 
                         Director, IBM Research
Introduction
    Good morning Chair Cantwell, Ranking Member Wicker, and 
distinguished Committee members. I thank you for this opportunity to 
address the Committee on the critical need to bolster the semiconductor 
supply chain in the United States today and for generations to come. My 
name is Dario Gil, and I am a Senior Vice President of IBM and Director 
of IBM Research, the research and innovation engine of IBM. In addition 
to my leadership role at IBM, I am a member of the National Science 
Board of the National Science Foundation and the Board of Governors of 
the New York Academy of Sciences, and serve as co-chair of the MIT-IBM 
Watson Artificial Intelligence (AI) Lab.
    IBM pioneers cutting-edge computing technologies. In May, we 
unveiled the world's first 2 nanometer chip, which could quadruple cell 
phone battery life, cut the carbon footprint of data centers, and 
drastically speed up a laptop's functions. We are also a leader in 
quantum computing and were the first company in the world to build a 
programmable quantum computer and make its computing power available 
through the cloud.
    IBM Research is a leading-edge corporate research lab with 3,000 
scientists and engineers working to build next-generation technologies 
that will underpin United States leadership in hybrid cloud, AI, 
cybersecurity, quantum computing, and accelerate the process of 
scientific discovery. We are committed to pushing the boundaries of 
technological and scientific discovery to positively shape our world.
    Today, I would like to talk about three key actions the United 
States government should make to address the supply chain manufacturing 
challenge in the semiconductor industry and to avert a crisis--invest, 
create effective partnerships, and ensure outcomes that benefit 
Americans today and in the future.
Invest in the Semiconductor Supply Chain
    First, let me speak about the need to invest in restoring the 
semiconductor supply chain. At the heart of the current supply chain 
challenges we face, which every American can now see and feel, is a 
tiny and often invisible ingredient that is crucial to safeguarding 
economic growth, national security, and our continued ability to 
achieve technological and scientific advances. Semiconductors. 
Semiconductors are the beating heart of modern electronics--they power 
every sector of our economy and every facet of our lives. This phone, 
every American's phone, could not function without them.
    Semiconductor advances will be essential to unlocking fresh 
advances in technologies such as AI, 5G, and hybrid cloud. The set of 
manufacturing processes used in different generations of chips are 
referred to as technology nodes. A smaller technology node results in a 
faster and more efficient chip.
    At IBM, we define advanced semiconductors as those below 10 
nanometers. While the global leaders churn out advanced nodes at 5 and 
7 nanometers, the United States does not manufacture any advanced nodes 
under 10 nanometers.\1\ Some say we should not care about manufacturing 
advanced nodes. But we had better. This phone runs on them, and iPhones 
have used 5 and 7 nanometer chips since 2019.\2\ And that's just 
phones--picture a world where laptops and other advanced machines did 
not work--or do not work that quickly or well. This could be our 
reality if the United States does not take action to address the 
current semiconductor shortage and ensure it does not happen again.
---------------------------------------------------------------------------
    \1\ ``2021 Factbook,'' Semiconductor Industry Association. https://
www.semiconductors.org/wp-content/uploads/2021/05/2021-SIA-Factbook-
FINAL1.pdf.
    \2\ ``Apple iPhone 12 Will Be Powered by The A14 Bionic 5nm Chip, 
Already Seen In The New iPad Air?'' News 18, October 13, 2020. https://
www.news18.com/news/tech/ahead-of-iphone-12-launch-apple-execs-shed-
light-on-a14-bionic-design-performance-2958803.html.
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    The facts are simple: although the United States maintains 47 
percent of the global market for semiconductors and electronics, we 
only manufacture 12 percent of the world's capacity.\3\ When it comes 
to the production of ultra-advanced nodes at 7 nanometers and below, 
just two countries--Taiwan and South Korea--dominate 100 percent of 
global production.
---------------------------------------------------------------------------
    \3\ ``Global Wafer Capacity, 2021-2025,'' IC Insights. https://
www.icinsights.com/data/reports/5/9/brochure.pdf?parm=1625240565.
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    While the governments of other countries have invested in research 
and development and manufacturing incentives to boost advanced 
semiconductor nodes and manufacturing capabilities, the United States 
has not kept pace. In the last 30 years, total Federal investment in 
research and development has never represented more than 1.2 percent of 
our GDP, and Federal research and development constitutes a smaller 
percentage of GDP today than it did in 1964.\4\ A 2019 report from the 
Organization for Economic Cooperation and Development (OECD) found that 
all countries with significant chip industries except the United States 
employ government incentives.\5\ Analysts have concluded that our 
failure to incentivize the semiconductor industry has helped push chip 
manufacturing abroad.
---------------------------------------------------------------------------
    \4\ ``How Much is Enough?,'' Center for Strategic and International 
Studies, April 21, 2021. https://www.csis.org/analysis/how-much-enough.
    \5\ ``Let the chips fall where they may: A story of subsidies and 
semiconductors,'' The Organization for Economic Cooperation & 
Development, December 4, 2019. https://www.oecd.org/trade/let-the-
chips-fall-where-they-may/.
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    These stark facts raise three key issues, which collectively inject 
an unacceptable degree of uncertainty and risk into our economy, 
national security, and innovation ecosystem.
    First, a dearth of domestic semiconductor manufacturing capacity at 
all nodes crimps our access to basic ingredients that power even the 
most elementary devices, such as garage door openers. As a result, 
nearly all industries in the United States are vulnerable to global 
semiconductor supply chain disruptions. In 2021, semiconductor 
shortages idled auto production in multiple states.\6\ And a lack of 
point-of-sale machines means that restaurants are struggling to make up 
business lost to the pandemic.\7\ Projections show that by year's end, 
the shortage will impact 169 industries, and shrink 2021 GDP growth by 
half a percentage point.\8\ This threatens both our post-pandemic 
recovery, and our long-term uninterrupted access to the building blocks 
of critical technologies.
---------------------------------------------------------------------------
    \6\ ``Ford to Idle or Curb Output at More Plants Because of Chip 
Shortage,'' The Wall Street Journal, June 30, 2021. https://
www.wsj.com/articles/ford-to-close-or-curb-output-at-some-plants-
because-of-chip-shortage-11625068975.
    \7\ ``No Chips, No Tips: How the computer Chip Shortage threatens 
Thousands of Restaurant Service Jobs,'' The Washington Post, June 11, 
2021. https://www.washingtonpost.com/business/2021/06/11/restaurant-
workers-computer-chip-shortage/.
    \8\ ``The Semiconductor Shortage of 2021,'' Goldman Sachs, March 
17, 2021. https://www
.goldmansachs.com/insights/pages/the-semiconductor-shortage-of-
2021.html.
---------------------------------------------------------------------------
    Second, the lack of domestic semiconductor manufacturing capacity, 
especially for advanced nodes under 10 nanometers, also saps our 
ability to work with allies to promote United States-designed and 
manufactured chips in global markets. America could be exporting 
advanced semiconductors under 10 nanometers to supercharge our 
technological and scientific leadership abroad. But, in lacking 
production capacity for advanced chips, we are foreclosing on the 
prospect that emerging technologies will be pioneered and manufactured 
in the United States. We must reverse this trend.
    Third, the lack of investment in research, development and 
prototyping undermines our efforts to retain strong American leadership 
in this strategic gateway technology. Using history as a guide, the 
United States should recall that we have not always lacked domestic 
manufacturing capacity: as recently as 1990, we manufactured 37 percent 
of global semiconductor capacity.\9\ We can produce a significant 
percentage of chips in the United States again. The United States 
government has played a significant role in supporting manufacturing 
and research in key areas, and it needs to step up once again to secure 
onshore semiconductor production and secure supply chains.
---------------------------------------------------------------------------
    \9\ ``Turning the Tide for Semiconductor Manufacturing in the US,'' 
Semiconductor Industry Association. https://www.semiconductors.org/
turning-the-tide-for-semiconductor-manufacturing-in-the-u-s/.
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    Thankfully, the President's 100-Day Supply Chain Review, and a 
bipartisan consensus in Congress, demonstrate a will to address both 
short and long-term supply chain manufacturing challenges through 
investment. And, they recognize that while new manufacturing in the 
United States is important to improving the resilience of our supply 
chains, we must also invest to maintain leadership in advanced research 
and development. Crucially, the United States Senate has provided a 
strong catalyst for investment by overwhelmingly voting to support 
USICA and the CHIPS Act.
Forge Partnerships
    I have spoken about the need for investment, and now let me turn to 
the need for partnerships. At IBM, we have a strong track record of 
semiconductor innovation. These innovations are the product of decades 
of research and development carried out by IBM in New York State. These 
innovations stem from partnerships--where IBM scientists work in close 
collaboration with public and private sector partners to push the 
boundaries of logic scaling and advanced semiconductor capabilities.
    As a nation, we must build on this collaboration and take full 
advantage of existing semiconductor ecosystems. IBM strongly supports 
the recommendation contained within the President's 100-Day Supply 
Chain review aimed at strengthening our semiconductor manufacturing 
ecosystem by promoting collaboration.\10\ At IBM we understand the 
power of collaboration and have expertise in creating successful 
partnerships that cut across domains. In addition to our semiconductor 
innovation ecosystem--which led to the 2 nanometer chip--during the 
pandemic we worked with the Federal Government, industry, and academia 
to create the COVID-19 High Performance Computing Consortium--which 
provides access to the world's most powerful supercomputing resources 
to support COVID-19 research. The consortium was launched and scaled 
with unprecedented speed when competitors all came to the table to 
mobilize for a greater purpose.
---------------------------------------------------------------------------
    \10\ ``Building Resilient Supply Chains, Revitalizing American 
Manufacturing, and Fostering Broad-Based Growth,'' The White House, 
June 2021. https://www.whitehouse.gov/wp-content/uploads/2021/06/100-
day-supply-chain-review-report.pdf.
---------------------------------------------------------------------------
    Today, we find ourselves at another inflection point. And again, 
IBM is committed to working across industry, government, and academia, 
this time to leverage the initial down payment provided by the CHIPS 
Act to boost short and long-term semiconductor supply chain resiliency.
    A major first step to building American capacity would be to 
establish the National Semiconductor Technology Center (NSTC), as 
included in the 2021 NDAA and the CHIPS Act within USICA. IBM believes 
the NSTC could be a lynchpin for addressing supply-chain disruptions if 
it leverages proven ecosystems in the following ways:

        First, the NSTC should be established immediately and then move 
        fast.\11\ The short-term semiconductor shortage, paired with 
        the specter of long-term global competition for supply, means 
        there is no time to waste building out United States 
        semiconductor innovation capability. The shortest and most 
        efficient path to deliver results is to leverage our strengths, 
        building on billions of dollars in previous and existing 
        semiconductor infrastructure investments, while at the same 
        time working to forge new industry-led innovation pipelines.
---------------------------------------------------------------------------
    \11\ Ibid.

        Second, the NSTC should leverage existing, proven ecosystems 
        for semiconductor research and development with strong track 
        records of leading-edge innovation. For example, the NSTC could 
        be built around the existing multi-company semiconductor 
        ecosystem infrastructure in Albany, NY, which is already home 
        to advanced photo-lithography capability including EUV (Extreme 
        Ultra-Violet Lithography), advanced logic pathfinding, AI 
        hardware research, and the development of new semiconductor 
        materials. By leveraging proven ecosystems such as the Albany 
        Research Center, the NSTC could be operational in as little as 
        6-12 months as opposed to years. While IBM is prepared to lead 
        such a consortium, we recognize that success requires 
        maximizing participation of all partners.
Deliver Sustained Outcomes
    Investment and partnerships are critical to supply chain 
resiliency, and now I would like to turn my attention to how we 
leverage them to deliver outcomes. The President's 100-Day Supply chain 
review makes note of the extremely complex nature of semiconductor 
supply chains, and the need for public and private interests to work 
together to bolster multiple segments of this supply chain. While the 
United States leads the world in semiconductor research, design and 
tooling, there is no integrated, collaborative mechanism between 
industry, academia, and government in advanced development, prototyping 
and packaging, and advanced manufacturing capabilities. This creates 
substantial supply chain vulnerabilities.
    A well-structured and governed public-private NSTC could address 
this shortfall. It could also serve as an important link between 
academic research, government R&D labs and programs, company specific 
R&D, and product manufacturing. This is what is needed to get this 
right and to ensure we reap the benefits and protections of our 
investments long into the future.
    The NSTC should be built as an industry-led, agile public-private 
consortium with widespread industry participation, including small, 
medium, and large companies, entrepreneurs, and VC's. Having access to 
NSTC capabilities and expertise can help lower the barriers to entry to 
the capital-intensive semiconductor industry. Rather than creating 
another government program office to operate the NSTC, it should use an 
industry-led consortium model proven in the semiconductor industry and 
other industry sectors. An agile model would allow the NSTC to have an 
operating team up and running in months, not years.
    Also, leadership, accountability and a strong technical agenda are 
critical for consortium success. Oversight of funding from Federal and 
state governments as well as the member contributions is critical. A 
Board of Directors with an Executive Committee consisting of key 
industry and government stakeholders would provide this function and 
determine technical directions and program management with input from a 
technical advisory committee and consortium members.
    The NSTC should take a manufacturing-agnostic approach to be an 
accelerator in moving designs to multiple fabrication plants in the 
United States. Such an approach would help spur new capacity and job 
creation in America, enabling American innovators, big and small, to 
move semiconductor designs to any manufacturing plant. And it would 
provide needed flexibility in the United States manufacturing supply 
chain to support both government and commercial needs.
    Finally, I would like to explain why STEM education and developing 
a semiconductor workforce is critical to ensuring that Americans of all 
backgrounds can participate and benefit from the investments and 
partnerships we forge. A robust semiconductor ecosystem requires far 
more than just the physical assets of research and development labs and 
manufacturing plants. Ultimately, semiconductor ecosystems are driven 
by the diverse and constantly evolving talents of American workers. 
Investments to bolster semiconductor supply chains by supporting 
ecosystems requires a skilled workforce fluent in semiconductor 
research and development, manufacturing, and advanced packaging. As a 
result, workforce development, education, and tight integration with 
universities, community colleges and other training programs are 
critical components of the NSTC. Investments in a semiconductor 
workforce will alleviate supply constraints and enable the creation of 
semiconductor know-how necessary for future technology developments in 
hybrid cloud, and AI.
    A May 2021 study commissioned by the Semiconductor Industry 
Association found that, from 2021-2026, $50 billion in CHIPS Act 
funding would result in the creation of 185,000 temporary jobs annually 
and add $24.6 billion annually to the United States economy as new 
semiconductor manufacturing facilities come online. Beyond 2026, the 
study found that CHIPS Act investment would add 280,000 permanent jobs 
to the United States economy.\12\
---------------------------------------------------------------------------
    \12\ ``Robust Federal Incentives for Domestic Chip Manufacturing 
Would Create an Average of Nearly 200,000 American Jobs Annually as 
Fabs are Built, Add Nearly $25 Billion Annually to U.S. Economy'' 
Semiconductor Industry Association, May 19, 2021. https://
www.semiconductors.org/robust-federal-incentives-for-domestic-chip-
manufacturing-would-create-an-average-of-nearly-200000-american-jobs-
annually-as-fabs-are-built-add-nearly-25-billion-annually-to-u-s-
economy/.
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    We should meet this demand for talent by harnessing CHIPS Act 
funding as a force for inclusive job creation that spurs long-term 
innovation. The NSTC should lead workforce programs to help train 
workers for jobs in the industry across the United States.
    In addition, to maintain our global competitiveness, we must also 
dramatically increase the number of individuals from underrepresented 
communities in STEM fields, as noted in the National Science Board's 
Vision 2030 report.\13\ IBM has committed to investing $100 million in 
technology, assets, resources, and skills development through 
partnerships with historically black colleges and universities through 
the IBM Skills Academy Academic Initiative. But, while the private 
sector devotes significant funding to STEM education, we need to do 
more to collaboratively addresses urgent areas of need, share 
resources, and bring the combined weight of the government and industry 
together to ensure increased diversity in STEM fields.
---------------------------------------------------------------------------
    \13\ ``National Science Board Vision 2030,'' National Science 
Board, May 2020. https://www.nsf.gov/nsb/publications/2020/
nsb202015.pdf.
---------------------------------------------------------------------------
    For a start, we should reform the Higher Education Act (HEA). For 
example, Congress could loosen Federal work study restrictions to 
accommodate off-campus work experience in the private sector; expand 
Pell Grants to cover skills education for part-time students and mid-
career professionals; and make career-oriented education beyond 
bachelor's and other traditional education degrees eligible for Federal 
student loans.
    Also, IBM supports an Executive Order that expands the Department 
of Labor's Employment and Training Administration apprenticeship 
efforts to provide good paying sector-based pathways to jobs in the 
semiconductor industry. This expansion can be built on the successful 
work started in 2019 to update the traditional apprenticeship model 
with paid, hands-on learning for the digital era in careers in coding, 
design, and cybersecurity. This program was particularly attractive to 
mid-career workers who want to build new skills or break into new 
industries without incurring student debt or taking time off from work. 
The program grew twice as fast as expected, and as a founding member of 
the GTA apprenticeship coalition, we are proud to share our 
apprenticeship framework with some of America's top employers.
    Meanwhile, in 2020, IBM joined with other employers, education 
institutions--including community colleges--and education service 
organizations to demonstrate an education and employment record 
exchange. Improving the technical infrastructure to better support the 
exchange of education and skills-based credentials would significantly 
ease the management and exchange of these certifications, empower 
learners with trusted skills-based information, and align their skills 
to in-demand jobs. The Department of Commerce played a critical role in 
the 2020 demonstration and should convene stakeholders to resolve 
governance issues in the electronic exchange of credentials between 
educators, and employers.\14\
---------------------------------------------------------------------------
    \14\ ``American Workforce Policy Board (9/23): IBM Pilot Video,'' 
United States Department of Commerce, September 23, 2020. https://
www.youtube.com/watch?v=w9y0J0DmPvE.
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    Lastly, and importantly, in addition to workforce training, IBM 
also understands that strong semiconductor ecosystems must also include 
support for medium and small sized enterprises that contribute to 
supply chain resiliency. The Albany Research Center is a model for how 
a multitude of partners can drive semiconductor research and 
innovation--and jobs.
Conclusion
    My testimony today focused on the risks posed to the United States 
by current supply chain disruptions, and the urgent steps we must take 
to develop a semiconductor ecosystem that supports economic and job 
growth, and our national security. We have an unprecedented opportunity 
before us--to unlock fresh advances in technologies and ensure United 
States leadership. Semiconductor supply chain shortages present a 
danger with potentially dire consequences for our economy, jobs, and 
national security. But through investment, partnerships, and 
maintaining a focus on long-term outcomes, we can succeed in meeting 
these challenges. Thank you.

    The Chairman. Thank you, Dr. Gil. Thank you so much for 
that testimony. Thank you for covering a broad view of the 
various sectors that we are going to talk about here. Mr. 
Miller, thank you so much for joining us. We look forward to 
your testimony.

       STATEMENT OF JOHN S. MILLER, SENIOR VICE PRESIDENT

                 OF POLICY AND GENERAL COUNSEL,

         INFORMATION TECHNOLOGY INDUSTRY COUNCIL (ITI)

    Mr. Miller. Chair Cantwell, Ranking Member Wicker, and 
distinguished members of the Committee, on behalf of the 
Information Technology Industry Council, or ITI, thank you for 
the opportunity to testify today on implementing supply chain 
resiliency.
    As the current co-chair of the Information and 
Communications Technology Supply Chain Risk Management, or ICT 
SCRM Task Force, the United States preeminent supply chain 
public-private partnership, I welcome the committee's interest 
on this important topic. ITI represents 80 of the world's 
leading ICT companies. The global ICT industry respects the 
U.S. Government's obligation to address the resiliency of 
global supply chains, including the semiconductor and broader 
ICT supply chains.
    We believe that Government and industry must work together, 
along with international partners and allies, to achieve the 
trusted, secure, and resilient global supply chains needed to 
protect National Security and which are an indispensable 
building block for competitiveness, innovation, and economic 
growth. ITI welcomes the broad, holistic, and strategic 
approach reflected in the America's supply chains Executive 
Order and related 100 day report, which is also echoed in the 
Senate's United States Innovation and Competition Act or USICA.
    While my written testimony commends numerous promising 
supply chain programs and initiatives contained in that bill, I 
would like to take this opportunity to especially thank the 
committee for authorizing emergency appropriations for the 
CHIPS Act and ORAN funding for establishing a supply chain 
resiliency program housed in the Department of Commerce and for 
providing increased investments in the Manufacturing USA and 
Manufacturing Extension Partnership programs. We look forward 
to working with Congress to get these important strategic 
programs fully funded and over the finish line.
    ITI has consistently urged the U.S. Government to pursue 
this type of broad strategic approach to supply chain 
policymaking, which includes promoting a thoughtful, 
harmonized, risk based, evidence driven approach to facilitate 
transparency and predictability, designing measures to advance 
and protect U.S. National Security objectives without putting 
American competitiveness at risk, and prioritizing close 
Government industry collaboration to most effectively leverage 
resources and expertise.
    Of course, crafting sound policy measures to address the 
global supply chain resiliency challenges that were laid bare 
by the COVID-19 pandemic does not guarantee the successful 
execution of those policies by the Commerce Department or other 
Federal agencies. So this hearing poses a key question, how can 
we most effectively implement recent Congressional and 
Administration policies to improve supply chain resiliency? I 
offer four recommendations in this regard.
    First, Commerce should develop and execute a strategic, 
coordinated plan for implementing its numerous supply chain 
obligations. Given the sheer volume of supply chain taskings 
laid at Commerce's doorstep by successive Administrations, as 
well as the new responsibilities contemplated by USICA, a 
coordinated and strategic approach within Commerce is necessary 
to effectively implement supply chain resiliency. One key 
feature of such an approach is to identify and empower one 
entity within Commerce to lead and coordinate this work. 
Another is to prioritize close coordination with industry, 
including by leveraging existing partnerships, information 
sharing programs, and innovation ecosystems.
    The ICT SCRM Task Force, which is currently working with 
the Commerce Department and our sponsor, the Cybersecurity and 
Infrastructure Security Agency, on implementation of the 
Americas Supply Chains Executive Order, provides an excellent 
model of public-private collaboration that Commerce can draw 
inspiration from and coordinate with as it launches the new 
supply chain disruptions task force.
    Second, Congress should ensure that Commerce has adequate 
resources to effectively implement supply chain resiliency 
policy, not only by fully funding the CHIPS Act, but by making 
sure the Department is adequately resourced in terms of both 
funding and staff. Commerce can also help itself in this regard 
by focusing the scope of the prior Administration's Executive 
Order on securing the ICTS supply chain and related rulemaking 
to ensure that covered transactions are too prioritized and 
targeted to discrete National Security risks.
    Doing so would allow U.S. companies to conduct global 
business with certainty, improve U.S. competitiveness, and help 
Commerce more effectively deploy its resources. Third, Congress 
should ensure robust liability protections to promote and 
incentivize the sharing of supply chain risk information. We 
appreciate this committee's extended protected critical 
infrastructure information program liability protections as 
part of the USICA Supply Chain Resiliency Program to spur much 
needed sharing of supply chain risk information.
    However, after months of careful study, the ICT SCRM Task 
Force developed a legislative proposal to amend the 
Cybersecurity Information Sharing Act of 2015 that would 
provide stronger liability protections for such sharing, a 
preferred approach for the reasons stated in my written 
testimony. Finally, Commerce and other U.S. Government 
stakeholders should deepen engagement with international 
partners on supply chain resiliency.
    ITI welcomed the recent establishment of the U.S., EU Trade 
and Technology Council as providing just this sort of 
opportunity to strengthen cooperation between allies on this 
and other critical issues. Thank you for the opportunity to 
testify today. I look forward to your questions.
    [The prepared statement of Mr. Miller follows:]

 Prepared Statement of John S. Miller, Senior Vice President of Policy 
   and General Counsel, Information Technology Industry Council (ITI)
    Chair Cantwell, Ranking Member Wicker, and Distinguished Members of 
the Committee on Commerce, Science and Transportation, thank you for 
the opportunity to testify today. I am John Miller, Senior Vice 
President of Policy and General Counsel at the Information Technology 
Industry Council (ITI).\1\ I have deep experience working on public-
private supply chain policy initiatives in the United States, including 
serving as the current Co-chair of the Cyber and Infrastructure 
Security Agency (CISA)-sponsored Information and Communications 
Technology Supply Chain Risk Management Task Force (ICT SCRM Task 
Force)\2\ as well as Vice Chair of the of the Information Technology 
Sector Coordinating Council (ITSCC).\3\ I am honored to testify before 
your Committee today on the important topic of Implementing Supply 
Chain Resiliency. The global information and communications technology 
(ICT) industry respects and takes seriously the U.S. government's (USG) 
obligation to address the resiliency of global supply chains, including 
the ICT supply chain. We believe the USG and industry must work 
together, along with partners and allies, to achieve the trusted, 
secure, reliable, and resilient global supply chains that are a 
necessary priority for protecting national security and are also an 
indispensable building block for supporting competitiveness, 
innovation, and economic growth. We welcome the Committee's interest 
and engagement on this subject.
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    \1\ The Information Technology Industry Council (ITI) is the 
premier global advocate for technology, representing the world's most 
innovative companies. Founded in 1916, ITI is an international trade 
association with a team of professionals on four continents. We promote 
public policies and industry standards that advance competition and 
innovation worldwide. Our diverse membership and expert staff provide 
policymakers the broadest perspective and thought leadership from 
technology, hardware, software, services, manufacturing, and related 
industries. Visit https://www.itic.org/ to learn more.
    \2\ The ICT Supply Chain Risk Management (SCRM) Task Force--
sponsored by CISA's National Risk Management Center (NRMC)--is the 
United States' preeminent public-private supply chain risk management 
partnership, established in response to these realities and entrusted 
with the critical mission of identifying and developing consensus 
strategies that enhance ICT supply chain security. The Information 
Technology Sector Coordinating Council and Communications Sector 
Coordinating Council are co-chartering entities of the Task Force along 
with NRMC. Visit https://www.cisa.gov/ict-scrm-task-force to learn 
more.
    \3\ The Information Technology Sector Coordinating Council (IT SCC) 
serves as the principal entity for coordinating with the government on 
a wide range of critical infrastructure protection, cybersecurity and 
supply chain risk management activities and issues. The IT SCC brings 
together companies, associations, and other key IT sector participants, 
to work collaboratively with the Department of Homeland Security, 
government agencies, and other industry partners. Through this 
collaboration, the IT SCC works to facilitate a secure, resilient, and 
protected global information infrastructure. Visit https://www.it-
scc.org to learn more.
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    ITI represents 80 of the world's leading ICT companies.\4\ Most of 
ITI's members service the global market via complex supply chains in 
which technology is developed, made, and assembled in multiple 
countries, and service customers across all levels of government and 
the full range of global industry sectors, such as financial services, 
healthcare, and energy. Thus we acutely understand the importance of 
ensuring the resiliency of global ICT supply chains as not only a 
global business imperative for companies and customers alike, but as 
critical to our collective national and economic security. As a result, 
our members have devoted significant resources, including expertise, 
initiative, and investment in cybersecurity and supply chain risk 
management efforts to create a more secure and resilient Internet 
ecosystem, inclusive of ICT supply chains.
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    \4\ See ITI membership list at: https://www.itic.org/about/
membership/iti-members
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    Last month, ITI welcomed the Senate's passage of the U.S. 
Innovation and Competition Act (USICA) as critical to helping the 
United States remain competitive on the international stage by 
prioritizing and expanding essential investments in research, 
development, and technological advancement. USICA takes important steps 
to expand U.S. innovation leadership, including key measures to help 
build a strong ecosystem for developing advanced technologies and 
creating new jobs in communities across the country. ITI was 
particularly pleased that the bill provides robust funding for the 
CHIPS for America Act (CHIPS) to boost U.S. investments in the 
semiconductor ecosystem--including promoting a strong, skilled 
workforce for advanced manufacturing, strengthening the semiconductor 
supply chain, and increasing U.S. manufacturing capacity--all of which 
are essential for U.S. economic and national security.
    We were similarly pleased to commend the White House's publication 
of the final report stemming from the 100-Day Reviews under Executive 
Order 14017 on America's Supply Chains (ASC EO) just a couple of days 
after USICA's passage, which signaled the Biden Administration's 
commitment to building trusted, secure, and resilient supply chains and 
echoed some of USICA's key proposals. Importantly, the administration 
outlined a clear vision to strengthen U.S. semiconductor leadership, 
including efforts to address research and development, increase 
manufacturing, and build a skilled workforce, a forward-looking and 
complementary approach to enhance economic competitiveness and bolster 
national security. Together, these mutually reinforcing steps taken by 
the administration and Congress hold the promise of making the U.S.--
and ultimately global--supply chains stronger and more resilient, 
advancing U.S. competitiveness, and harnessing U.S. innovation.
    Of course, acknowledging the pressing global supply chain 
resiliency challenges laid bare by the COVID-19 pandemic and crafting 
sound policies to address them does not necessarily guarantee the 
successful execution of those policies. So the key question--as the 
subject of this hearing foreshadows--is how can we most effectively 
implement recent Congressional and administration policies to improve 
supply chain resiliency?
    I will focus my written testimony on four areas bearing on this 
question: (1) the importance of a strategic, holistic and coordinated 
approach to addressing supply chain resiliency including the need to 
prioritize public-private collaboration; (2) a discussion of the Biden 
Administration's emerging approach to supply chain resiliency and the 
relevant provisions of USICA; (3) the U.S. Department of Commerce's 
(Commerce) increasingly important role in supply chain resiliency and 
security, and its recent track record of implementing supply chain 
policy initiatives, including various taskings from the prior 
administration; and (4) recommendations for how Commerce and the USG 
more broadly can most effectively implement supply chain resiliency 
going forward.
1. A Strategic, Holistic and Coordinated Approach is Foundational to 
        Implementing Supply Chain Resiliency
    While supply chain resiliency is not a new topic, particularly for 
large technology companies managing sophisticated global supply chains, 
the heightened U.S. policymaker focus on supply chain resiliency and 
security over the past few years is unprecedented, as evidenced by the 
more than 30 active Federal supply chain security and resiliency 
measures inventoried by the ICT SCRM Task Force since late 2018. The 
palpable impacts of the COVID-19 pandemic on global supply chain 
resiliency further intensified the focus on this issue. The increased 
policy attention on supply chain issues prompted ITI earlier this year 
to prominently feature recommendations regarding supply chain security 
and resiliency in our Policy Memo for the Biden-Harris Administration 
and 117th Congress \5\ and issue a set of Supply Chain Security 
Principles \6\ intended to lay out strategic considerations to guide 
U.S. policymakers tackling these issues in 2021 and beyond.
---------------------------------------------------------------------------
    \5\ See ITI's Policy Memo for the Biden-Harris Administration and 
117th Congress: Advancing Innovation to Make the U.S. More Globally 
Competitive at https://www.itic.org/documents/general/
ITI_CompetitivenessMemo_Final.pdf.
    \6\ See ITI's Supply Chain Security: Principles for Strategic 
Review at https://www.itic.org/policy/
ITI_SupplyChain_Principles2021.pdf.
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    Although supply chain security and resiliency are not one and the 
same, they are closely related insofar as national security (including 
cybersecurity), trustworthiness, availability and competitiveness are 
all facets of the broader term resiliency, and ITI's recommendations 
are applicable across both concepts.
    Our recommendations noted the change in administrations and a new 
Congress offered the opportunity for a strategic review of U.S. supply 
chain security and resiliency policy to develop a more coherent, 
streamlined, and effective long-term approach, consistent with the 
holistic assessment of the ICT and other industrial base supply chains 
called for by the ASC EO.
    Key pillars of ITI's recommendations in this regard have 
consistently included the following:

    Pursuing a holistic, streamlined, coherent, and strategic approach 
to supply chain resiliency and security policy. The Federal 
government's ability to provide consistent regulatory approaches and 
supply chain security guidelines is critical to securing the U.S. 
innovation economy and ensuring supply chain resiliency. ITI shares the 
concerns of members of this Committee regarding threats to global ICT 
supply chains, which implicate cybersecurity, national security, 
economic security, and U.S. competitiveness. However, these legitimate 
concerns have too often manifested in uncoordinated, inconsistent 
approaches across various departments and agencies. We have encouraged 
the establishment of a lead agency on supply chain risk management to 
manage a coordinated and effective approach to varied and disparate 
activities occurring at all levels of government.
    Promoting a thoughtful, harmonized, risk-based, evidence-driven 
approach to supply chain resiliency policy to facilitate transparency 
and predictability. The approach to supply chain security over the last 
several years has primarily focused on country-of-origin, particularly 
China, which has led to an over-reliance on this attribute and short-
circuited more fulsome risk analysis. While country-of-origin is one 
risk factor bearing on supply chain security as well as resiliency, it 
should not be the sole and dispositive factor animating U.S. supply 
chain policy, or in determining trustworthiness. It is noteworthy that 
the ICT SCRM Task Force working group on Threat Assessment catalogued a 
total of 188 supplier-related threats, with country of origin being 
just one. A successful supply chain resiliency strategy must widen the 
aperture to consider a full array of relevant threats and 
considerations, not only to address identifiable, material, concrete 
national security risks directly tied to actionable threats articulated 
in USG intelligence or vulnerability assessments, but also to consider 
other facets of resiliency including supply chain resiliency 
investments, U.S. competitiveness, availability and domestic 
manufacturing capacity, and workforce development.
    Designing measures to advance and protect U.S. national security 
objectives without putting American competitiveness at risk. Lack of 
clarity in scope and process in any rulemaking, legislation, or other 
policy mechanism makes for an uncertain business environment and 
threatens the ability of companies to compete with foreign companies 
not subject to U.S. or similar foreign requirements. Overbroad policy 
approaches or approaches that duplicate or conflict with existing 
mechanisms, such as those embodied in the prior administration's 
Executive Order on Securing the Information and Communications 
Technology Supply Chain (ICTS EO), stifle U.S. innovation, 
technological leadership, and competitiveness. Members of this 
Committee should seize the opportunity to advance supply chain security 
policy approaches that are not only compatible with but drive global 
policymaking norms.
    Collaborating closely with industry including leveraging industry 
resources and expertise. ITI's members understand we cannot tackle 
current and future supply chain challenges on our own, and that 
industry and government share responsibility to facilitate the global 
competitiveness of the U.S. technology sector and other critical 
sectors. Public-private partnerships and other multi-stakeholder 
approaches are essential to addressing supply chain resiliency and 
security. Government and industry often have access to unique 
information sets--only when this information is shared can all relevant 
stakeholders see the complete picture. These partnerships are essential 
to (1) identify potential threats; (2) understand how and whether the 
risk can be managed; and (3) determine what actions should be taken to 
address risks without yielding unintended consequences.
    ITI has consistently encouraged U.S. policymakers to leverage the 
existing ICT SCRM Task Force as a focal point for public-private 
collaboration on supply chain security. The Task Force has brought 
together subject matter experts from the private sector and from across 
the USG, including multiple Commerce stakeholders, and has produced 
several actionable tools and other work products that can be used by 
industry and government to address supply chain security challenges, 
including related to information-sharing, threat modeling, procurement, 
vendor attestation and small and medium-sized businesses' unique needs. 
The administration should look to this established public-private 
mechanism for creative, actionable solutions, and should prioritize 
implementing and operationalizing Task Force products across the USG 
and incentivizing their promotion and uptake across the critical 
infrastructure community. I have been honored to serve as a co-chair of 
the Task Force on behalf of the IT sector since its inception, so I 
speak from personal experience in pointing out that the Task Force has 
focused on many of the same issues prioritized in USICA, and in 
recommending the Task Force as a good model for Commerce to emulate as 
it seeks to implement new programs such as the nascent Supply Chain 
Disruptions Task Force.
    ITI has also advocated for inclusion of other key tenets in any 
strategic approach to supply chain resiliency, including viewing supply 
chain risk management through the lens of trustworthiness and 
prioritizing bi-directional sharing of supply chain risk information.
2. The Emerging U.S. Policy Approach to Supply Chain Resiliency as 
        Reflected in USICA/EFA and the 100-Day Report
    ITI is pleased that both the Biden Administration and Congress have 
taken on board many of our policy recommendations in charting a 
broader, more holistic, and strategic approach to improving supply 
chain security and resiliency, as illustrated by both the Building 
Resilient Supply Chains, Revitalizing American Manufacturing, and 
Fostering Broad-Based Growth: 100-Day Reviews Under Executive Order 
14017 (100-day Report) under the ASC EO and the supply chain provisions 
in USICA.
    ASC EO and the 100-Day Report. The ASC EO embraces the type of 
broader, holistic approach we have been advocating for the past few 
years, which balances important national security considerations with 
other considerations such as U.S. competitiveness. ITI particularly 
welcomed the 100-Day Report's conclusions and recommendations on 
semiconductors, which tracked closely with several of ITI's 
recommendations offered in response to Commerce's RFI on the 100-day 
semiconductor review. We welcome the Biden Administration's commitment 
to building trusted, secure, and resilient supply chains, and we 
support its plan to realize that goal. Importantly, the administration 
outlined a clear vision to strengthen U.S. semiconductor leadership, 
including efforts to address research and development, increase 
manufacturing, and build a skilled workforce.
    Support for CHIPS Funding. The 100-Day Review calls for $50 billion 
to fund the CHIPS and outlines additional steps to increase the 
domestic semiconductor manufacturing capacity and strengthen the U.S. 
technology workforce through STEM and training for semiconductor 
manufacturing. It also encourages enhanced cooperation with global 
partners and allies to ensure the stability of the global semiconductor 
supply chain. This forward-looking incentive will enhance economic 
competitiveness and bolster national security.
    Request for a Supply Chain Resiliency Fund. We support the 
recommendation stemming from the 100-day Report which calls on Congress 
to fund the Supply Chain Resiliency Program proposed under the Endless 
Frontiers Act (EFA), a part of USICA. This program, which requires 
close collaboration with the private sector, would help to formalize 
the ongoing activities taking place under the ASC EO, which are 
imperative to strengthening supply chain resiliency. While we 
appreciate the effort to provide needed liability protections to spur 
the sharing of supply chain risk information (SCRI) as part of the 
program, we also believe these protections could be further 
strengthened, as further articulated below.
    Supply Chain Disruptions Task Force. We welcome the 
administration's plan to work with industry to develop a coordinated, 
streamlined, and holistic long-term approach to address semiconductor 
supply chain issues in a coordinated and holistic manner. The ICT SCRM 
Task Force provides a preeminent model in this regard, and we recommend 
synchronizing the efforts of this newly proposed Task Force with it to 
avoid duplication and leverage potential synergies that may result.
    Collaboration on the Year-Long ICT Assessment. As the 
administration undertakes the longer-term assessment of the ICT 
industrial base, we continue to encourage close collaboration with the 
private sector to understand how it views the ICT supply chain, what it 
views as critical, where it sees gaps, and how government can best 
provide support. The ICT SCRM Task Force has been pleased to assist in 
the early stages of this assessment, as further explained below.
    USICA/EFA Supply Chain Provisions. As stated previously, ITI 
commended the Senate's passage of USICA as providing a much-needed 
prioritization and expansion of critical investments in research, 
development, and technological advancement, including in the critical 
areas of semiconductor manufacturing, and addressing supply chain 
resiliency more broadly. A few key provisions include:

    Emergency Appropriations for CHIPS and ORAN Funding. The emergency 
appropriations to fund provisions within CHIPS and the Utilizing 
Strategic Allied Telecommunications Act are imperative to maintaining a 
competitive edge in two technology areas key to U.S. leadership. As 
such, we are very supportive of the emergency appropriations, which 
provide an additional $52 billion to fund the semiconductor programs 
outlined in the FY2021 NDAA, and $1.5 billion to fund the Public 
Wireless Supply Chain Innovation Fund, which will help to support R&D 
for open architecture, software-based networks--technologies which the 
United States could leverage to address challenges related to vendor 
diversity that have emerged in recent years.
    Commerce Supply Chain Resiliency Program. We welcome the proposal 
to develop a Supply Chain Resiliency Program housed in the Department 
of Commerce. As has been reiterated throughout the testimony thus far, 
there is a need for a more streamlined, coordinated approach to supply 
chain activities and this program would ideally help to achieve that 
objective. That being said, some of the activities listed under the 
purview of the Supply Chain Resiliency Program are already being 
undertaken pursuant to the ASC EO, though we appreciate that this 
program would formalize the review process called for there on a 
perpetual basis. We are further supportive that the program explicitly 
includes participation of the private sector in identifying and 
mitigating supply chain gaps. We also appreciate of the inclusion of 
liability protections to spur voluntary sharing of SCRI similar to 
those provided through DHS' Protected Critical Infrastructure Program 
(PCII), though as explicated below we believe those protections could 
be further strengthened. To effectively implement this program 
alongside all the other programs the Commerce Department is currently 
tasked with implementing, it needs to be appropriately resourced.
    Investments in Manufacturing USA and Manufacturing Extension 
Partnership. We appreciate that the EFA would seek to quadruple the 
Manufacturing Extension Partnership program, including adding a 
specific track for cybersecurity and workforce development. This 
program has been helpful to manufacturers seeking to grow and we 
believe sustained funding will continue to help improve supply chain 
resiliency and U.S. competitiveness. Similarly, we appreciate that 
additional funding is provided for the Manufacturing USA program, aimed 
at supporting U.S. leadership in advanced manufacturing through this 
robust public-private partnership mechanism, another area that will be 
key to supporting supply chain resiliency.
    Regional Technology Hubs. Although not strictly a supply chain 
provision, we welcome funding for the regional technology hubs, which 
will help increase the geographic diversity of supply chains across the 
U.S. Such hubs will support innovation, especially among smaller 
players across the United States, and spur additional workforce 
development and commercialization activities.
3. Commerce's Increasingly Important Supply Chain Policy Role and 
        Implementation Track Record to Date
    Commerce, as the Federal steward of U.S. economic growth, 
competitiveness, job creation, and opportunity, is a key USG partner to 
ITI, the tech sector, and industry writ large. Commerce thus must play 
a central role in helping to make the ICT and other critical supply 
chains more resilient and secure. However, it cannot and should not be 
expected to do so alone or in an uncoordinated or ad hoc manner; rather 
it should continue to leverage its historical role as a convener and 
partner to industry and should also work closely with interagency 
partners to solidify the emerging U.S. policy approach to supply chain 
resiliency, as explained in the previous section.
    However, it is important to view the new responsibilities the White 
House and Senate have proposed adding to Commerce's plate in the 
context of what has already been a significantly expanded role for 
Commerce in supply chain security and resiliency during the previous 
administration.
    Commerce's Implementation Track Record for Supply Chain Policies 
and Programs Launched During the Prior Administration. Commerce is 
currently implementing several supply chain policy activities, rules, 
programs, and initiatives, including many launched during the last 
administration. The most significant of these include the following:

    ICTS EO Interim Final Rule (IFR) and Licensing Process. Commerce 
bears primary responsibility for implementing the previous 
administration's ICTS EO, including taskings to finalize an IFR 
impacting a wide array of commercial ICTS transactions and to establish 
a new licensing or pre-clearance process applicable to a similarly 
large number of transactions. At present, the IFR provides the U.S. 
Secretary of Commerce (Secretary) with broad authority to review 
practically every single ICTS transaction with any nexus to an 
identified ``foreign adversary,'' and casts a cloud of uncertainty over 
all other ICTS transactions given the list of named foreign adversaries 
could change at any time. When combined with the Secretary's additional 
power to block and unwind deals and the absence of an established, 
effective voluntary pre-clearance/licensing process (which Commerce has 
been delayed in developing or implementing), the fact that the broad 
IFR is ``live'' creates immense uncertainty in the business community 
that will result in an unnecessary, chilling effect on innovation and 
commerce. Commerce's responsibility for implementing these broad 
authorities under the ICTS EO alone raises significant questions 
regarding whether it has the resources or capacity to implement several 
new contemplated supply chain resiliency programs on top of this broad 
multilayered rule. The implementation status of the IFR and the 
licensing program are uncertain at this time.
    Establishing a Process to Review Transactions Including Those 
Involving Chinese Apps. Although technically part and parcel of the 
ICTS IFR, as we understand it Commerce had separately been working on 
developing a meaningful transaction review process that would have also 
subsumed multiple other prior administration EOs directed at Chinese 
apps. While some of those EOs have been withdrawn by the Biden 
administration (see below), there remains a need for Commerce to 
develop a meaningful process for reviewing ICTS transactions. The 
implementation status of Commerce's transaction review process is 
uncertain at this time.
    IAAS EO. The Commerce Department is currently tasked with 
implementing portions of the previous administration's Executive Order 
on Taking Additional Steps to Address the National Emergency with 
Respect to Significant Malicious Cyber-Enabled Activities (IaaS EO), 
including promulgating regulations for identity verification of foreign 
account holders and regulations that enables the Secretary, in 
conjunction with other agencies, to require IaaS providers to take 
``special measures'' blocking them from doing business in certain 
foreign jurisdictions or with foreign persons identified to be engaged 
in patterns of conduct allowing for the use of IaaS products in 
malicious cyber-enabled activities. The two sets of regulations 
required to be promulgated by Commerce pursuant to the IaaS EO, whose 
authorities overlap in some respects with the ICTS EO, are not due 
until next week, while implementation of a third section of the EO is 
delayed.
    NDAA 2021 Provisions. Commerce is responsible for establishing the 
CHIPS grant program pursuant to section 9902 of the 2021 NDAA and the 
National Semiconductor Technology Center (NSTC) pursuant to section 
9906, as well as for conducting a ``Study on Status of Microelectronics 
Technologies in the United States'' pursuant to section 9904. As stated 
elsewhere in my testimony, ITI encourages full funding of the CHIPS 
grant program and additionally suggests that efficient implementation 
of the NSTC by Commerce can leverage existing, proven industry 
ecosystems for semiconductor R&D where there are strong track records 
of innovation. The implementation status of the CHIPS grant program is 
pending funding via the emergency appropriations in USICA.
    Additionally, although not directly related to supply chain 
resiliency, it is notable that, over the past few years, Commerce 
(specifically BIS) has been tasked with significantly expanding the 
export controls system to emerging and foundational technologies via 
implementation of ECRA, and BIS has also been called upon to make 
numerous additions to the Entity List. All this increased activity, 
while certainly justifiable for national security reasons, has also had 
an undeniable impact on the ability of Commerce/BIS to devote resources 
to the implementation of supply chain resiliency initiatives.
    The unclear, and in many instances delayed, implementation status 
of numerous of the above-listed items helps to underscore the volume of 
supply chain resiliency and security responsibilities Commerce has 
accumulated and the resulting resource challenges it faces.
    Commerce's Implementation Track Record for Supply Chain Policies 
and Programs Launched During the Current Administration. Commerce has 
more recently been charged with implementing several supply chain 
policy activities, rules, programs, and initiatives by the current 
White House, layered on top of all the activities stemming from the 
previous Administration. The most significant of these include the 
following:
    ASC EO. The ASC EO gave Commerce two significant taskings: first, 
to conduct a 100-day review of the critical semiconductor supply chain 
and submit a report to the White House; and second, to lead a year-long 
comprehensive review (with DHS) and submit a report on supply chains 
for critical sectors and subsectors of the ICT industrial base, 
including the industrial base for the development of ICT software, 
data, and associated services.'' Because the ICT SCRM Task Force was 
asked by DHS and Commerce to help in the initial scoping of this 
review, I am confident in stating based on the work thus far that 
Commerce and DHS/CISA will both be required to expend significant 
additional resources to complete the ASC EO tasking over the next 
several months. I commend Commerce for its work in completing the 100-
day review and for its initial outreach and partnership with the ICT 
SCRM Task Force on scoping the initial work for the year-long 
assessment and report.
    EO on Protecting Americans Sensitive Data from Foreign Adversaries. 
This EO withdrew multiple EOs issued under the prior Administration 
banning transactions with certain Chinese apps in favor of a more 
process driven approach aligned with the regulatory regime required by 
the ICTS EO. It calls on Commerce to issue reports and evaluate on a 
continuing basis transactions involving connected software applications 
that may pose an undue risk of sabotage or subversion of the design, 
integrity, manufacturing, production, distribution, installation, 
operation, or maintenance of ICT or services in the United States 
(amongst other things). The implementation status of this EO and how it 
practically relates to the implementation of several of the above 
articulated taskings is unclear.
    Executive Order on Improving the Nation's Cybersecurity (Cyber EO). 
Commerce, particularly through the National Institute of Standards and 
Technology (NIST) and NTIA, also has a primary role in implementing 
section 4 of the new Cyber EO pertaining to strengthening the software 
supply chain. NIST has been tasked with identifying standards and best 
practices for the software supply chain, defining critical software, 
recommending minimum standards for source code testing, and initiating 
pilot programs related to IoT devices and software development 
practices. NTIA has been tasked with publishing minimum elements for a 
software bill of materials (SBOM), and it is noteworthy that NTIA has 
previously devoted a significant amount of resources over the past two 
years to running a multistakeholder process to conduct foundational 
work on SBOM.
    It bears emphasizing that Commerce was responsible for all the 
above taskings even before the implementation of any potential USICA/
EFA mandates or funding programs, should the bill pass the House and be 
signed into law. There are significant, legitimate questions that 
should be asked including: How do the above Commerce taskings relating 
to supply chain resiliency and security fit together? Does Commerce 
have sufficient resources and expertise to implement all these tasking 
simultaneously? And which bureau, office or other entity within 
Commerce is best equipped to lead and drive a coherent and coordinated 
approach to implementing supply chain resiliency across Commerce's many 
taskings?
4. Recommendations for Effective Implementation of Supply Chain
    Resiliency Policy
    My testimony thus far helps to illustrate the substantial amount of 
progress that has been made by the Biden Administration and Congress to 
identify problems regarding the resiliency of key supply chains and 
craft sound policies to address these issues. However, such progress 
will not necessarily translate into effective implementation of those 
policies by Commerce and other Federal stakeholders, particularly given 
the existing array of taskings Commerce is already implementing. Below 
I offer recommendations intended to help position Commerce and other 
relevant Federal stakeholders for success in implementing the various 
emerging planks of U.S. supply chain resiliency policy, along with 
Commerce's many ongoing holdover responsibilities in this area.
    Commerce should develop and articulate a strategic, coordinated 
plan for implementing its numerous supply chain taskings. As mentioned 
earlier in my testimony, ITI has consistently advocated for a centrally 
coordinated and holistic USG-wide approach to supply chain resiliency 
and security policymaking. Given the volume of supply chain taskings 
that have been layered upon Commerce by successive administrations as 
well as the new responsibilities contemplated by USICA, a coordinated, 
holistic, and strategic approach within Commerce is also clearly 
necessary to effectively implement its numerous supply chain taskings. 
Commerce is the preeminent Federal stakeholder equipped to balance 
important U.S. competitiveness and economic interests with national 
security. Two key features of a strategic approach to achieve this 
balance should include identifying and empowering a specific entity 
within Commerce to lead and coordinate this work and ensuring that 
Commerce does not attempt to do all this work itself. Rather, Commerce 
should prioritize working with industry and other Federal partners to 
create synergies and stretch scarce resources.
    Congress should ensure that Commerce has adequate resources to 
effectively implement supply chain resiliency policy, including fully 
funding CHIPS and providing Incentives to enhance the domestic 
semiconductor ecosystem. ITI encourages the USG to provide meaningful 
incentives to increase domestic semiconductor manufacturing capacity of 
both leading edge and mature node semiconductors and to increase 
semiconductor R&D funding and prototyping. We encourage the U.S. House 
of Representatives to follow the Senate's lead and provide robust 
funding for CHIPS at the $50 billion level included in the 100-Day 
Report and Senate passed USICA, without distorting the incentives or 
the semiconductor market by favoring some sectors or applications over 
others, as a fundamental first step to boost the domestic semiconductor 
supply chain. These efforts should remain open to all multi-national 
chip manufacturers that meet the standards and guidelines set forth in 
CHIPS. Beyond that, it is imperative that Commerce is adequately 
resourced--in terms of both funding and staff--to carry out the full 
slate of supply chain resiliency policy activities identified above.
    Commerce should prioritize close coordination with industry, 
including by leveraging existing partnerships, information sharing 
programs and innovation ecosystems. Policymakers and companies each 
have important and distinct roles to play in implementing supply chain 
resiliency. The USG has information that companies do not have about 
national security threats, whereas companies have information that 
governments do not have about their network operations and how they 
detect, manage, and defend against risks to data, systems, networks, 
and supply chains. Both policymakers and industry should communicate 
regularly and robustly about relevant risks (consistent with 
limitations relating to classified information and business 
confidentiality), including through opportunities for industry input in 
regulatory rulemaking processes, public-private task forces and other 
collaborative mechanisms, and informal relationships between 
policymakers and companies. As I stated earlier, the ICT SCRM Task 
Force provides an excellent model of public-private collaboration on 
supply chain matters that Commerce can draw inspiration from as it 
helps to launch the new Supply Chain Disruptions Task Force, which we 
urge Commerce to synchronize with the ICT SCRM Task Force.
    Congress should ensure adequate liability protections to promote 
and incentivize the sharing of supply chain risk information. We 
appreciate the attention of the Senate Commerce Committee to include 
liability protections as part of USICA's supply chain resiliency fund 
to spur much needed voluntary sharing of SCRI. Increased information-
sharing regarding risks related to suppliers and other aspects of the 
ICT supply chain can help both the government and industry to identify 
and mitigate supply chain risks. Currently, companies face challenges 
in sharing supplier risk information. This includes the legal risk of 
sharing potentially derogatory information about a supplier, the 
administrative barriers for Federal personnel to share detailed, 
actionable information with individuals who do not hold clearances, and 
instances where the Federal Government withholds vulnerability 
disclosures for offensive purposes. The ICT SCRM Task Force has 
developed a legislative proposal that would amend CISA 2015 to provide 
liability protections for companies that share SCRI information in good 
faith. This is a superior approach to the proposed extension of certain 
PCII protections in the Senate-passed USICA for several reasons. Most 
notably the PCII liability protections may not extend to industry-
industry sharing of SCRI (which is much needed for companies to share 
information across their supply chains) and PCII may not preclude all 
regulatory uses of shared SCRI. Further, the PCII sections of USICA 
would not preclude potentially expensive lawsuits (because the 
provisions do not result in an automatic dismissal of lawsuits as does 
CISA 2015). Finally, PCII comes with heavy administrative burdens 
(including that companies need to apply to be part of the PCII program, 
be approved by DHS, and mark all covered materials), whereas CISA 2015 
protections are automatically conferred to all shared information.
    Commerce should focus the scope of the ICTS EO to ensure that 
covered transactions are prioritized and targeted according to discrete 
national security risks. In its current form, the ICTS EO and 
associated rulemakings will not only have potentially devastating 
effects on U.S. competitiveness and innovation, casting a cloud of 
uncertainty over almost all ICTS transactions with foreign entities, 
with limited benefit to ICTS security, but because the current scope of 
the ICTS EO and IFR remain so broad, implementation ``as-is'' will also 
sap a disproportionate amount of Commerce resources. We agree that 
supply chain security is imperative to facilitating trust, but the ICTS 
EO in its current state does not achieve those objectives, in large 
part because it focuses on risks associated with foreign adversaries to 
the exclusion of other risk-based considerations. Therefore, revising 
the EO and the scope of its rulemaking to ensure it is targeted at 
identifying and managing the greatest risks would allow U.S. companies 
to conduct global business with certainty, thus improving 
competitiveness and allowing for continued innovation across borders, 
while also freeing up otherwise limited Commerce resources.
    Commerce and other USG Stakeholders should deepen engagement with 
international partners and pursue a coordinated approach to supply 
chain resiliency. Global ICT SCRM challenges ultimately call for 
globally scalable solutions, and we encourage the USG to collaborate 
with international partners and allies on supply chain resiliency 
issues to further common approaches to technology-related national and 
economic security risks--including through promotion of global, 
consensus-based, industry-led standards. For example, ITI welcomes the 
recent establishment of the U.S.-EU Trade and Technology Council as 
providing an opportunity to strengthen engagement and cooperation 
between the U.S. and EU on semiconductor and other strategic supply 
chains by conducting joint supply chain reviews to identify 
collaborative actions to improve resilience across semiconductor and 
other strategic supply chains.
Conclusion
    Members of the Committee, ITI and our member companies are pleased 
you are examining how best to implement supply chain resiliency.
    The USG has an unprecedented opportunity to lead on supply chain 
resiliency policy, and to do so it must work collectively, via public-
private collaboration and across the Federal government, both 
domestically and on the global stage. Commerce is appropriately at the 
center of this effort, but to succeed in implementing the many critical 
programs, rules and other taskings addressed in my testimony it must 
adopt a holistic, coordinated approach, exhibit strong leadership, 
embrace partnerships across industry and government, and be well-
resourced and committed to the task.
    ITI stands ready to provide you with any additional input and 
assistance in our collaborative efforts to develop policy approaches to 
supply chain resiliency that continue to leverage risk management-based 
solutions and public-private partnerships as the most promising way 
forward for addressing complex and evolving global ICT supply chain 
threats.
    I thank the Chair, Ranking Member, and Members of the Committee for 
inviting me to testify today and for your interest in and examination 
of this important issue. I look forward to your questions.
    Thank you.

    The Chairman. Thank you, Mr. Miller. And again, thank you 
to all the panelists. I feel like discussing this subject is, 
while you all have been studying, a new day for supply chain 
analysis and impact as far as what we should be doing. And you 
all gave us some good ideas on that. Some differences. Dr. 
Lewis, you were unabashed, industrial policy, let's go. 
Definitely more analysis, Dr. Gereffi. And very direct things 
in the last two witnesses about what Commerce should be doing 
specifically.
    So I want to pose my question, I think, Mr. Aboulafia, to 
you and Mr. Taylor and then just see whoever else wants to jump 
in, about this notion that we try to get at with USICA, 
somewhat about the supply chain, but really just about 
innovation. So if you are right, Mr. Aboulafia, which I think 
you are right--if there are 2 million people working in the 
United States in aerospace or the sector of semiconductors, and 
yet the innovation is happening at Mr. Taylor's level or Mr. 
Taylor is seeing the world and knowing what needs to happen, 
how do we really get that input and that strategic involvement? 
How do they get their views on the table, I guess is my point?
    So we now have two proposals, strengthening tech sectors 
and strengthening tech hubs. Say, you have big parent companies 
who are just chasing the market, whether it is Intel chasing 
semiconductor markets or Boeing chasing international aviation 
markets, but yet the supply chain is the nose, the next level 
of innovation has to happen. How is it that we are going to 
drive the resources and innovation down to that level so that 
they can access that? So, Mr. Aboulafia?
    Mr. Aboulafia. Yes, thank you for your question, Madam 
Chair. And it is true, I am afraid the bigger companies at the 
top tend to drive the conversations and tend to have a bit more 
of a direct pipeline to the R&D centers within the Federal 
Government.
    Now, the good news is that thanks to some of the 
megamergers we saw back over the past 15 or 20 years, a lot of 
the supply chain is concentrated in companies such as Raytheon 
Technologies, General Electric, Honeywell, and many others that 
had sort of become their own effective economic and business 
powerhouses. I would like to see greater coordination between 
these first tier contractors. But how do you get the smaller 
companies involved, the ones that are also quite critical to 
both innovation and production?
    And whether that happens through the auspices of trade 
groups such as the Aerospace Industries Association or perhaps 
maybe just standing up other committees and organizations 
within, say, NASA's Commercial Aerospace Directorate, I think 
it is absolutely essential. And I think there is greater 
recognition in the Government of the importance of these 
supplier companies. You know, one of the great saving aspects 
of this crisis has been the accelerated payment program by DOD, 
which is basically called for faster transfer of dollars from 
the primes to the suppliers.
    So I think that kind of greater awareness of the importance 
of the supply chain. But it is a very good question under what 
auspices that happened and how that happens. But I think it is 
essential.
    The Chairman. Dr. Lewis, you called for a greater role for 
Commerce to play, as you said, a more predictive role. What do 
you think we should do here if the supply chain is identifying 
the innovation, but they are like Mr. Taylor, they are running 
their business every day? They know what needs to happen, but 
they are not in control of the supply chain.
    Mr. Lewis. Thank you, Chair Cantwell. I focus on the high 
tech sector and on some of the innovation startups we have now 
spreading around the country. That is a really good sign. It 
used to be Silicon Valley. It is still Silicon Valley, New 
York, and Boston, but you are seeing research hubs spring up 
around the country and that is where the bill could make a 
useful contribution. We have a strong innovation system. It is 
based on research universities, venture capital, and then 
entrepreneurs. So those three elements are what produces 
innovation. They are really good at it. There is one dilemma, 
and this is a hard one. They follow the market.
    So if they think--they all want to be unicorns, the next 
billion dollar company or the next Amazon. In talking to 
friends at the Defense Innovation Unit, which is DOD's effort 
to connect to the startup community, we are doing great on 
software. We are maybe lagging a little behind on hardware. And 
that is I think what one of the bill points out, the bill 
focuses on. So how do we get greater connectivity between the 
national innovation system and the industry? With my colleague 
here, Mr. Taylor, I would agree.
    Let the market do it and then look for the places where the 
market isn't working. The market isn't working in a few places 
and the bill does a good job of fixing that. But we can use 
both Federal and private sector to make this work.
    The Chairman. Mr. Taylor.
    Mr. Taylor. Chair Cantwell, what I can relate it to, we are 
small business and therefore the overhead structure that it 
takes for innovative work, it gets limited. You are focusing 
what you have to do in materials and labor and the supply chain 
to produce the product and get it to the market. So we use the 
research university system, and many small businesses use that 
resource. I am thinking my distinguished panelists from Duke 
University, I am not sure what they have there. Mississippi 
State, which is just 30 minutes from us.
    There are some rules and regulations that that are governed 
by the State of Mississippi, the Institute of Higher Learning, 
IHL, has a mandate that if an entity, say Taylor, wants to 
invest some capital in a research of something for product 
innovation, engaging the university, if faculty are involved, 
immediately, if there is patentability coming from that 
research, because faculty is involved, it stays at the 
university level. You know, I am not sure about that.
    If an industry is willing to make the financial investment 
and lose the patent downside of that. So there are some--there 
are some play in the hand in hand of partnering with the 
university system, but that is something that could be improved 
in Mississippi.
    The Chairman. Thank you. That is why I have held up this 
Rose Holleman model, because they do not--they don't claim 
anything on the patent. And researchers, companies like you 
just go right to them and say, help us solve this problem. And 
if that was more regional in various parts of the country, it 
would just be a ready-made asset. Senator Wicker.
    Senator Wicker. Very good point, Madam Chair and Mr. 
Taylor. I meant at the end of my opening statement, Madam 
Chair, to ask unanimous consent to enter into the record a 
Washington Post story from yesterday entitled, ``Biden Targets 
Shipping Costs As Pandemic Ravages Global Supply Chains.'' I 
ask unanimous consent.
    The Chairman. Without objection.
    [The information referred to follows:]

  Biden targets high shipping costs as pandemic ravages global supply 
                                 chains

     Regulator warns of potential shortages amid ongoing disruption

                           By David J. Lynch

                     July 14, 2021 at 6:00 a.m. EDT

    Shipping a container of hazardous chemicals from Shanghai to 
Chicago used to cost John Logue about $6,600. Now, the Royale Group 
chief executive pays as much as $29,000--and that's if he is lucky 
enough to find space on one of the much-sought-after cargo vessels 
plying the Pacific trade routes.
    Logue's oceangoing headaches are mirrored on land, where Royale 
Group shipping containers routinely get stuck in rail yard logjams that 
lead to costly and unpredictable storage charges.
    Earlier this month, BNSF, one of the Nation's largest railroads, 
increased its fees in Los Angeles and Chicago, adding to Logue's woes.
    The Royale Group's double-barreled freight troubles, which hamper 
both existing operations and Logue's efforts to return manufacturing to 
the United States, illustrate the market power of the handful of 
shipping companies and railroads that bring goods from distant 
factories to American homes.
    ``We're at their mercy,'' Logue said. ``Sometimes, we just throw up 
our hands. . . . It's lunacy.'' On Friday, President Biden called on 
regulators to crack down on consolidation in the shipping and rail 
industries, as part of a broad executive order promoting competition 
throughout the U.S. economy. Freight may seem a prosaic topic for 
presidential attention. But the smooth movement of goods has perhaps 
never been more essential, amid the explosion of e-commerce that 
accompanied the pandemic. Transport bottlenecks in June helped fuel the 
highest inflation in 13 years, rattling Americans with sticker shock on 
goods such as used cars, airfare and bacon. Indeed, some regulators and 
executives warn that abnormally high shipping costs and related supply 
chain disruptions could lead to scattered shortages this year as the 
U.S. economy heals. Imports of products including tires, food and water 
purification chemicals could be affected, according to Carl Bentzel, a 
commissioner of the Federal Maritime Commission.
    ``I am extremely concerned now about the economic impact caused by 
the current situation. This could be the first time the public sees the 
impact of maritime shipping disruption since World War II,'' he said.
Trump is long gone, but trade frictions between the U.S. and Canada 
        remain
    But global cargo carriers and U.S. railroads insist that the 
administration has misdiagnosed the supply ills. The nation's ports, 
terminals, trucking fleets and rail lines are being overwhelmed by a 
pandemic-related import surge, not strangled by monopolies, they said. 
Either way, with industry groups opposing new regulations, an early 
untangling of snarled U.S. supply chains is unlikely.
    The White House officials who drafted Biden's order say high 
freight costs, resulting from a lack of competition, are an economywide 
drag. Nine cargo carriers, organized in three shipping alliances, 
control more than 80 percent of the global market for oceangoing 
vessels. Likewise, there are just seven major railroads, down from 33 
four decades ago, according to the White House.
    ``It's like interest rates or oil,'' said Tim Wu, special assistant 
to the president for technology and competition policy. ``It gets less 
attention, but for consumers and American exporters, the price of 
moving goods is very important.''
    Distinguishing between the effects of industry consolidation and 
the pandemic, however, is difficult. Importers and exporters have 
complained for more than a year about soaring freight charges, amid a 
shortage of shipping containers, truck chassis, drivers and 
dockworkers. Biden's aides acknowledge that the pandemic is responsible 
for much of the disruption. But they say the lack of competition 
enabled cargo carriers and railroads to exploit the pandemic by driving 
prices to historic highs.
    Industry officials and some independent analysts disagree. Drafting 
regulations to address the current situation risks unintended 
consequences once the economy regains its footing, according to Lars 
Jensen, CEO of Vespucci Maritime, in Copenhagen.
    ``The current state of affairs is extreme and is entirely driven by 
the ripple effects of the pandemic. It tells us absolutely nothing 
about the general structure of the industry at all,'' he said.
    Over the past four years, eight of the top 20 shipping lines 
disappeared; nine survivors sought to escape a history of meager 
profits by organizing themselves into three rival alliances. The 
shipping consortia operate akin to airline industry pacts, with 
carriers alternately cooperating and competing. Members of an alliance 
share space among their vessels, even while operating from some of the 
same ports.
    The arrangement has paid off for the major carriers. Maersk 
reported a record $2.7 billion profit for the first three months of 
this year, up from $185 million in the same period last year. As demand 
cratered in the pandemic's early months, the alliances quickly canceled 
more than 400 sailings, according to S&P Global. That avoided ruinous 
losses from a price collapse but led to exporters' complaints of price 
gouging.
    Then demand for cargo space unexpectedly surged, as Americans 
bought laptops, furniture and electronics for the work-from-home era.
    Over the past year, the cost of shipping a container from China to 
a U.S. West Coast port has risen by more than 156 percent, reaching 
historic highs, according to the Freightos index.
    Yet over the long term, there is little sign of soaring prices. 
During the first three years of the alliance era, that cost increased 
by just 14 percent. Prices from China to Europe over the same period 
actually declined slightly, according to Freightos.
    ``Freight costs didn't matter,'' Jensen said. They do now.
A rate rise in the U.S. might trigger big problems in the developing 
        world
    At Royale Group, based in Bear, Del., Logue said he spends twice as 
much time managing his supply chain as he did only a few years ago. On 
Monday, a carrier abruptly canceled a shipment, leaving him scrambling.
    Many of Royale's cargoes involve hazardous chemicals for the 
pharmaceutical, automotive and electronics industries, which require 
special handling. So carriers often opt to avoid the hassle if they can 
transport a routine product instead, Logue said.
    ``The three major alliances have a lot more bargaining power and 
control than they ever have before,'' said Matt Godden, CEO of Seattle-
based Centerline Logistics, which provides refueling services.
    After years of moving production offshore, Logue has been trying to 
bring work back to the United States. Congested ports, crowded rail 
yards and a shortage of truck drivers have him improvising.
    But he blames a host of factors for the current freight 
difficulties, including outdated port infrastructure and technology, 
tariffs, tensions between the United States and China, and the 
pandemic. Lack of competition ``is maybe part of the problem,'' Logue 
said.
    American consumers could feel the impact of stressed supply lines. 
La-Z-Boy this month blamed ``shipping container issues'' for delivery 
delays and shortages of electrical components for some of its more 
expensive and profitable power recliners. Likewise, KushCo Holdings, 
which produces packaging for cannabis products, told investors that 
rising freight costs were a ``drag on'' profits, and Constellation 
Brands said it was having trouble keeping retailers stocked with its 
Ruffino and Kim Crawford wines.
    Clothing manufacturer Levi Strauss is circumventing the worst 
backlogs, including at the ports of Los Angeles and Long Beach, by 
shipping more goods by air and rerouting ocean cargoes to the East 
Coast, Harmit Singh, Levi Strauss's chief financial officer, told 
analysts on a recent earnings call.
    ``A lot of people are talking about not being able to get 
containers, not being able to get onto a ship,'' Singh said. ``[Our] 
team has done an extraordinary job, on getting us guaranteed space--
guaranteed pricing, as well, which is helping us to control our costs. 
So this is a big challenge for the industry.''
    In calling for independent regulators to act, the president may be 
pushing on an open door. Martin Oberman, chairman of the Surface 
Transportation Board, which governs the rail industry, said the 
president's call for pro-competition regulation dovetailed with his 
long-standing concerns.
    ``While consolidation may be beneficial under certain 
circumstances, it has also created the potential for monopolistic 
pricing and reductions in service to captive rail customers,'' Oberman 
said.
    Freight rail rates have risen by about one-third since 2003, though 
the industry notes that they are down by 44 percent since deregulation 
in 1981.
    At the Federal Maritime Commission, which oversees ocean shipping, 
officials have the authority to challenge carrier actions that 
``unreasonably'' raise prices or reduce service. Even before the 
president's order, the agency had begun investigating industry 
practices regarding extra charges for shipping containers that are not 
promptly removed from their facilities, known as detention and 
demurrage fees.
    The White House last week labeled those charges ``exorbitant'' and 
invited regulators to respond. The charges are controversial because 
customers like Logue often are billed thousands of dollars by shipping 
companies or railroads for not claiming their shipments quickly enough, 
even when they are unable to do so because of congestion or a lack of 
trucking services.
    ``You've got to be a real Houdini to get stuff out of one of these 
rail yards,'' he said. The charges can add up. Norfolk Southern Corp. 
billed customers for more than $93 million in demurrage fees in the 
first quarter, up from $61 million in the same period last year, 
according to the STB, which has required railroads to report such data 
since 2018. At Royale Group, Logue said he hopes Biden's initiative 
will help. But the ongoing import tsunami coupled with constricted 
freight channels has him pessimistic.
    ``When you've limited the supply of something, the natural tendency 
is that the price is going to go up,'' he said. ``I don't think it's 
going to come back down.''

    Senator Wicker. And let me just mention, it starts off 
``shipping a container of hazardous chemicals from China to 
Chicago used to cost John Locke about $6,600. Now, the Royal 
Group Chief Executive pays as much as $29,000, and that is if 
he is lucky enough to find space on one of the much sought 
after cargo vessels plying the Pacific trade routes. His 
ongoing headaches are mirrored on land where Royal Group 
shipping containers routinely get stuck in rail yards, logjams, 
and lead to costly and unpredictable storage fees.''
    So thank you for letting me do that. Mr. Taylor, you 
mentioned that you are 30 miles away from Mississippi State 
University, a land grant institution and a leader in research. 
But you are not in a major technology hub. So what unique 
challenges do folks in your position--you have got 1,200 
employees. You would like to hire another 40 back. And you are 
the big employer and economic engine in that area. What 
suggestions do you have to make it easier for small and medium 
sized businesses who are not in these large hubs?
    Mr. Taylor. Yes, those that are not in those corridors like 
we are--we are distanced from the distribution hubs, so that 
distance plays a factor in timing of deliveries. One thing that 
comes to my mind is that from that distance, usually interstate 
highway systems are used, of course, and then State service 
highway systems are used. At least in Mississippi, and I think 
in many rural parts of the nation, this infrastructure bill is 
being discussed and negotiated here in the capital now is 
vitally important. But I would say that if there is anything 
that can be done in that regard is not only refurbish our 
highways, refurbish our bridges to get them to standard, to use 
as many alternatives to source components to us and then ship 
our products out, but also improve.
    We build lifting equipment, and we see the customer base 
wanting bigger equipment because their machine tools, their 
processors are putting out bigger packages for efficiency. 
Well, those bigger packages usually take weight and impact the 
load limits that we currently have in our Nation.
    If the infrastructure system could be passed and it could 
cause an improvement in capacity, not just the service, but the 
capacity of transporting goods and services, rural facilities 
like us could have a better application for delivering high end 
product or getting more component per delivery or truck or per 
rail.
    Senator Wicker. So strengthen our roads as we as we build 
them.
    Mr. Taylor. Strengthen, yes.
    Senator Wicker. Mr. Miller, you mentioned a liability 
concern. We are going to want people to participate in this 
monitoring program. That will be voluntary, won't it? The 
Government is not going to make people do that. What will the 
absence of a liability protection provision have on the 
willingness of companies to participate?
    Mr. Miller. Thank you, Senator Wicker. There are some very 
significant considerations that companies have to consider when 
sharing the type of information we are talking about, supply 
chain risk information. You know, oftentimes that type of 
information is, quite candidly, derogatory information about 
suppliers, you know, somewhere in their supply chain. And there 
are just a whole number of State and other causes of action 
that, you know, expose them to very significant legal risk if 
they were to, you know, say something, you know, about a 
supplier, for instance, that, you know, hey, we--you know, this 
is a bad company, right.
    We don't even have to get into details. Things like 
tortious interference with contract, breach of contract, 
defamation. I mean, these are all very serious, you know, 
business disparagement. There is a number of different really 
significant legal risks and companies want to share this 
information, but there is not a clear pathway to doing it 
without those type of liability protections.
    Senator Wicker. Well, thank you very much and I am going to 
take a little liberty up. Does anybody want to tell us we 
didn't quite get the CHIPS Act right and we need to make an 
amendment or two? If anybody would like to make a suggestion in 
that regard, either now or on the record, that would be helpful 
to us. Anyone? We will take that for the record. And is it--
raise your hands, is it perfect? I think we are on to 
something. I assume, I am supposed to--yes, Dr. Gil?
    Mr. Gil. Yes. Thank you, Senator Wicker. I think it is--.
    Senator Wicker. Reach in for that microphone.
    Mr. Gil. That is right. I am reaching. I do think is an 
excellent piece of legislation. I think the consideration that 
we should have is how do we have a sustained effort throughout 
the decade. Right, the consideration, of course, and the 
priorities to get it passed and implemented and executed 
properly in the next 5 years.
    But the semiconductor industry is notorious for having to 
engage in long term planning and long term execution of 
roadmaps. So I think that, you know, hopefully these bipartisan 
Acts and consensus of getting these done will also be the basis 
and the success that we enable with that to sustain it over 
time.
    Senator Wicker. Thank you. I yield.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thanks. Thanks, Senator Wicker. I am 
next in the order and then I am going to call on someone. I 
will have to leave, as did Chairman Cantwell. Just by way of 
explanation, we are in the middle of a vote right now and there 
are two votes so we will be shuttling back and forth. I want to 
focus on drones which may not seem to be a kind of supply chain 
at first blush, but the presence of drones grows literally 
every day, every year in this country. They have commercial 
applications, recreational uses, and present grave National 
Security threats. And more to the point, for purposes of 
today's hearing, the overwhelming number of drones in the 
United States are made in China.
    Anybody disagree with that proposition? I am going by 
public reports, but you may have better information. Last week 
I had the opportunity to visit Aquiline Drones, which is based 
in Hartford, Connecticut, to tour their Made-in the-USA 
facility. We talked about the need for growth in the domestic 
drone market and in the components and parts that go into 
drones. Aquiline is at the forefront of some of the most 
advanced applications of drone technology. It is not a huge 
company. But to go to your point, Dr. Gil it is one that is 
doing research and investment.
    Senator Scott and I introduced the American Security Drone 
Act, which was incorporated as part of the competition package 
passed by the Senate this past June. And the Act helps protect 
Federal agencies from insecure drones and it spurs domestic 
alternatives, but it is only the beginning in my view of what 
we need to do.
    Let me ask the witnesses here whether you agree with me 
that the prevalence of Chinese drones represents a security 
threat from the standpoint of surveillance potentially within 
the United States, certainly lost opportunity because the 
market is only growing for them here and around the world, and 
what can be done about it? Anyone who would like to take a 
crack at that question?
    Mr. Lewis. I will go first. Thank you, Senator. So I 
actually had DJI come in and, when we could still have 
meetings, and demonstrate their products to me. They are really 
good. I tried to get them to give me one, but they wouldn't do 
it. We are in a situation where DJI, the Chinese company and a 
couple other Chinese companies, dominate the global market. And 
it is a good question to ask how we got there.
    A rule of thumb I use is that if it connects to China in 
any way, it could be a source for intelligence gathering. And 
that is why I think that the legislation to restrict Federal 
agency use of Chinese drones is essential. And we do not want 
to underestimate our opponents' ingenuity in seeking 
intelligence collection. So what do we do about it? And some of 
it is we don't always want to copy the Chinese what we want to 
look at some of the things they have done, which include 
subsidies for research, subsidies for STEM education, and 
really closing their own market, not openly, but closing their 
own market to foreign suppliers.
    China wants to bifurcate. I mean, they are the ones who 
came up with the idea of indigenous economy. So we will need to 
think how we rebuild our drone industry and that will not 
happen automatically. We still do quite well in UAVs, the big 
drones for military purposes. Can we use some of that to 
encourage those companies to go down market? Can we find ways 
to support these innovative startups like you were talking 
about?
    And we will need to do that. I don't think that is part of 
the legislation that I have seen, but it is the model that you 
have used in USICA probably needs to be applied to drones 
because it is a security risk. Thank you.
    Senator Blumenthal. Thank you. Anyone else? My time 
actually has expired. I am going to turn to Senator Fischer, 
but before I do, I just want to second what you just said, Dr. 
Lewis. I think that the prevalence of Chinese drones, because 
they are essentially, even if used by companies here for 
commercial purposes or whatever, they are essentially eyes in 
the sky. And the UAVs, ironically, may be used by the military 
for surveillance but used abroad, whether it is Afghanistan or 
any other countries where we are conducting military 
operations.
    So we may have a bit of a recess before Senator Fischer 
takes over. I understand she may be running a little bit late, 
but I want to thank all of you for being here today, and it has 
been very useful. Thank you. So we are turning now to Senator 
Fischer.

                STATEMENT OF HON. DEB FISCHER, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Fischer. Senator Blumenthal, I am here.
    Senator Blumenthal. The floor is yours.
    Senator Fischer. Thank you, Senator Blumenthal. And thank 
you to our panel today. A harmonized and complementary 
Government role is essential when we look at sound policy that 
strengthens our Nation's supply chain resiliency. And it is 
important that policymakers avoid a top down bureaucratic 
approach on this issue, which may be too heavy handed or slow 
to respond.
    Mr. Miller, you noted in your testimony that the Commerce 
Department should prioritize working with industry and other 
Federal partners to create synergies and stretch scarce 
resources. In what major ways can lawmakers ensure that the 
Government is agile and efficient in this approach?
    Mr. Miller. Thank you, Senator Fischer. You know, there are 
a variety of different ways that lawmakers can do that. And I 
do sincerely believe that, you know, you have laid out several 
ways in the USICA bill. You know, the Manufacturing USA and 
extension partnership programs are certainly one example. You 
know, the formation of the new supply chain disruptions task 
force is another. You know, I will say that the Commerce 
Department, for instance, has been participating in the ICT 
supply chain risk management task force as well.
    And, you know, I think Commerce Department in particular 
does have a long history of successful partnerships with the 
private sector. You know, I am thinking in particular of 
various programs that that NTIA and NIST have run. You know, as 
I did state in my testimony, you know, I do think that the 
Commerce Department should develop a coordinated strategy to 
really, you know, create synergies and maximize these efforts, 
but I do think that there is an opportunity to do that.
    And, you know, Congress, by authorizing these programs, is 
going to be very helpful in that regard. Thanks.
    Senator Fischer. Where would you suggest that Congress look 
for some good examples of programs that might be valuable for 
us to drill down into and see if they would work at a 
Governmental level?
    Mr. Miller. Well, I mean, I you know, I do think that, you 
know, in terms of existing programs, you know, some of what we 
have--some of the suggestions in the 100 day report is one 
place. You know, I do think that, you know, having, you know, 
the White House involved in in really setting the tone there is 
important. And, you know, certainly there is a lot that is 
going to need to be done, I think, in terms of drilling down 
when we look at the supply chain resiliency program and you 
seek--you know, I think some of the other my fellow witnesses 
have said really making sure that we have a sustained effort in 
implementing the CHIPS Act.
    You know, it is a long game, right. I mean, it is not just 
drafting a bill and giving Congress or anyone else a pile of 
money. It is really having a sustained strategy to follow 
through on these programs that hold so much promise that I 
think is important.
    Senator Fischer. Thank you very much. Dr. Gil, in your 
testimony you also touched on the importance of an agile 
approach to address the ongoing semiconductor shortage. Right 
now, timing is the key for the next steps necessary to build 
American semiconductor capabilities and domestic production. 
You highlighted that the National Semiconductor Technology 
Center could be the foundation for addressing supply chain 
disruptions.
    But you also stated that rather than creating another 
Government program office to operate NSTC, it should use an 
industry led consortium model. I appreciate the suggestion on 
this front. Could you please expand on what key elements of the 
model may make it more responsive or agile?
    Mr. Gil. Thank you, Senator. I think a characteristic of 
the model is to build on our strengths that we have as a Nation 
in the entire supply chain of semiconductors. Actually, we have 
wonderful strengths on equipment manufacturers, in the 
electronic design industry and electronic design automation, on 
fabulous companies, as well as fabrication and R&D, and R&D 
strengths, not only in industrial sector, but also with 
universities.
    So I think the most important thing that we have got to get 
right is to bring a broad coalition where we bring the 
strengths in an environment that lifts all those boats. And we 
have precedent for being able to do this successfully in the 
past. There have been moments, in fact, in the very 
semiconductor industry in the 80s when we were confronting 
great challenges and the context of then was in competition 
with Japan at a time, where the creation of Semitech and other 
environments where industry and universities and the Federal 
Government came together resulted in great success.
    So there is precedent for us coming together. And I would 
say that will be the number one priority that we got to do, a 
broad coalition of leaders to make this happen and to build on 
the strengths of previous investments and infrastructure that 
we have had. I think the biggest risk that we would have is to 
sort of ignore those trends and start something brand new. That 
sounds exciting and perhaps sometimes a little bit more 
academic but doesn't lead to the results that we are going to 
want because in the end, we want the manufacturing capacity in 
the United States, and we want the innovation capacity to 
deliver results.
    Senator Fischer. OK. Thank you. I see my time is up and 
Senator Klobuchar is here, so thank you very much. Senator 
Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Oh, thank you very much, Senator 
Fischer. And thank you to the panel. We are proud of the work 
that has been done on this bill, the U.S. Innovation and 
Competition Act. And I guess I will start with you, Mr. Miller. 
Part of this bill, the--something I worked on with Senators 
Wicker, Coons, and Portman creates an Office of Manufacturing 
Industrial Innovation Policy, and it prioritizes across agency 
coordination because we know we have a lot of agencies working 
on manufacturing. Can you speak to the importance of 
interagency coordination when it comes to the supply chain?
    Mr. Miller. Absolutely, Senator Klobuchar, and thank you 
for the question. The importance of industry--of interagency 
coordination really can't be overemphasized in this case. You 
know, there is a couple of different reasons for that. You 
know, number one, there really are quite a number of ongoing 
supply chain related activities across the Federal Government.
    You know, I think it is--you know, even though I focus on 
the ICT supply chain, it is clear, and it has become even more 
clear from the global pandemic that global supply chains and 
the importance of supply chains are really important to all 
U.S. industries. So it is really a situation where if we are 
going to have a coordinated strategy, you know, we need to be 
in sync across agencies and across sectors to really make sure 
that, you know, we have everyone pointed in the right 
direction.
    And that is why the program you referenced is important to 
really prioritize that sort of coordination.
    Senator Klobuchar. Very good. I hear Dr. Gil, you have a 
nanochip with you and I actually recently visited SkyWater in 
Bloomington, Minnesota, a very successful chip producer that 
produces 65 and 90 nanometer chips. In your testimony, you note 
the importance of this. And can you speak about investing in 
U.S. based companies in the production of semiconductors?
    Mr. Gil. Yes, thank you for the question, Senator. You 
know, semiconductors, in the end, is the lifeblood of the 
electronics industry, I know of almost every product that we 
can imagine, right. In fact, I think there has been an 
awakening for all of our fellow citizens to discover just how 
ubiquitous they are and how it can affect the production of 
almost every item that they rely on.
    So I think it is absolutely imperative that we maintain the 
dual mission of innovating to imagine new products of what we 
are going to do with semiconductors, and we are not only 
talking about the traditional electronics, it is going to be 
the world of AI, the world of quantum computing, the world of 
next generation wireless.
    New capabilities in cyber security are going to rely on 
this. And it is a combination of that creativity and 
breakthrough with our ability to manufacture in the United 
States. And that is a dual equation that we absolutely have to 
get right, and it will lift many, many boats across all the 
industries.
    Senator Klobuchar. Very good. Thank you very much. Mr. 
Miller, in your testimony, you note your support for funding 
for Supply Chain Resiliency Program, which would include the 
Commerce Department working with the private sector. Do you 
want to elaborate on that public-private partnership and how 
important that is as we look to the future in doing this right?
    Mr. Miller. Yes, absolutely. You know, I think it has been 
a theme that has already emerged during this hearing about how 
important it is for the Government and the private sector to 
work together on supply chain challenges in particular. You 
know, there are a variety of reasons for that. You know, not 
the least of which is that, you know, we are talking about 
massive, in many cases extended global supply chains where, you 
know, it would be impossible for the Government to have 
visibility into what is happening in those supply chains 
without, you know, constant and continuous coordination and 
communication with industry.
    You know, there is also, you know, limited resources, I 
think, on both sides of the ledger. So to the extent that 
people can combine together forces, that is really great. And 
again, leveraging existing partnerships and innovation 
ecosystems is great.
    Senator Klobuchar. Thank you. And I will get it the rest in 
writing. I just want to ask one last question in my time to Mr. 
Aboulafia. And in your testimony, you talk about the role of 
research and technologies like sustainable aviation fuel can 
play in reaching zero emissions. Can you touch on that for me? 
I am very interested in that.
    Mr. Aboulafia. Yes. Thank you, Senator. I am afraid there 
is not a lot of clarity in terms of the path toward reducing 
emissions beyond traditional development of equipment. But 
sustainable aviation fuels appears to be one of the most likely 
ways. Hydrogen, for example, not so promising despite all the 
talk, but sustainable aviation fuel seems to offer a way 
forward. You know, there is an awful lot of different 
initiatives setting up around the world, and I wouldn't want to 
see U.S. industry hamstrung because of the lack of parallel 
initiatives.
    And it also seems that it is important to get industry on 
the same page because it is absolutely essential to make these 
developments, if you will, technology ecumenical. Basically, we 
should be able to put sustainable aviation fuel in existing 
equipment so make sure we are working with, well, the 25,000 
jets we have out there, rather than trying to invent bespoke 
technologies to work with it.
    And then finally, it might behoove the Committee and others 
in Government to consider mandates as a way of creating a 
guaranteed market for when these products come online, as we 
saw in the car industry. That might be a productive use of 
Government resources.
    Senator Klobuchar. OK, very good. Thank you, everybody.
    The Chairman. Thank you, Senator Klobuchar. Senator Peters.

                STATEMENT OF HON. GARY PETERS, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Peters. Well, thank you, Madam Chair. Dr. Gil, I 
certainly applaud IBM's work to achieve incredible 
breakthroughs with respect to advanced semiconductors. As you 
are well aware of, these are tiny devices just the size of a 
fingernail, basically, that will literally shape the course of 
the 21st century by powering our cutting edge technologies like 
artificial intelligence and supercomputing. However, I think it 
is important for us to remember that the advanced chips are 
just one part of the story.
    There is an entire ecosystem of semiconductor technologies 
that our economy depends on, including what are called so-
called legacy chips. And so I bring this up in relation to the 
auto industry, where the chips shortage right now of these 
legacy chips is forcing production shutdowns. And this has had 
a devastating impact on auto workers in Michigan as well as 
across the country. And I am afraid it could even become worse 
in the coming months. But I also want to be clear, as you know, 
this is not just about automobiles.
    A wide range of industries and devices depend on these 
legacy chips, from farming equipment to medical devices as well 
as military vehicles. Even the CEO of Apple, Tim Cook, said in 
April that a shortage of legacy chips was causing the most 
problems for his company. And that is why I worked with Senator 
Stabenow to include legacy chips in a $52 billion package to 
reshore domestic production of semiconductors, which passed the 
Senate last month through the U.S. Innovation and Competitive 
Competition Act.
    So my question to you, Dr. Gil is, can you elaborate on the 
role that legacy chips play in the broader economy and 
employment in the United States? And could you comment further 
on why swiftly passing this U.S. Innovation and Competition Act 
is absolutely essential to keeping our Nation at the forefront 
of semiconductor manufacturing globally?
    Mr. Gil. You are absolutely right, Senator, on the reliance 
on the importance of many, many generations of what is referred 
to as semiconductor nodes, different technologies that are a 
part of our automobiles and industrial equipment, aerospace and 
defense, et cetera. One observation I will make is undoubtedly 
the case that we have to have a great urgency on being able to 
address the current supply chain shortages, including the 
legacy chips. But I will make the obvious point that those 
legacy chips where the future chips of a decade ago.
    And this industry that this element of planning for solving 
issues of today but planning for tomorrow is vital. And what 
looks like advanced notes right now, 5 years from now, 7 years 
from now, will become what we are referring to today as the 
legacy chips that we are confronting now. The legislation of 
the CHIPS Act does a number of things are really, really 
important of that today and tomorrow. So in the context of the 
National Semiconductor Technology Center, there is a great 
emphasis as well on the assisting with the design and the 
portability of these designs to multiple foundries on 
packaging, and test, et cetera.
    So I think this legislation is actually going to be very, 
very consequential in helping the broader ecosystem be more 
productive in the design and production of chips, including 
their indispensable legacy ones. But I will continue to make 
the point that we need to do both, the today and tomorrow.
    Senator Peters. Well, thank you. And Mr. Miller, I serve as 
Chair of Homeland Security and Governmental Affairs Committee, 
where yesterday we passed the Supply Chain Security Training 
Act. This legislation directs GSA to develop a coordinated 
Federal Government wide training program to prepare personnel 
to identify and mitigate supply chain threats to enhance 
Federal supply chain cybersecurity long term. This bill 
addresses Federal supply security.
    And Mr. Miller, in your testimony, you mentioned, 
``uncoordinated inconsistence'' approaches to supply chain 
resiliency and security policy, including cybersecurity. So my 
question for you, Mr. Miller, how should CISA's mandate be 
improved to ensure that it is indeed the lead agency to 
coordinate efforts on supply chain risk management? And if so, 
how can its resources and authorities be improved to fulfill 
that mandate?
    Mr. Miller. Thank you for the question, Senator Peters. You 
know, I do think that CISA has clearly prioritized supply chain 
security and resiliency I think already over the past couple of 
years. You know, it was a few years ago that the Secretary 
really prioritized supply chain security in particular in, you 
know, kind of, you know, spearheading the formation of the ICTs 
supply chain risk management task force.
    You know, I have been pleased to serve as the co-chair of 
that. I do think the National Risk Management Center also has a 
very clear mandate to focus on supply chain as well. You know, 
in terms of anointing or making sure that that CISA is really 
named, as I think your question implied, as the as the lead 
agency there, I think we would be very supportive of that.
    There are many different dimensions of supply chain, and 
the Commerce Department and others have to have a role in it, 
particularly when we look at through the broader lens of 
resiliency. But when we are looking at security in particular, 
you know, CISA is well positioned to lead there. So any support 
that the Congress is able to provide, I think is well received 
by us.
    Senator Peters. Thank you for that answer. Thank you, Madam 
Chair.
    The Chairman. Thank you. Thank you, Senator Peters. So I 
have a couple of questions. I am not sure we are going to see 
other members here, but I wanted to cover a couple of things. 
Dr. Gereffi, you talked about the research of this particular 
issue, too. And from our witnesses and the questions from our 
colleagues, you can definitely see, everybody is advocating for 
more expertise and definitely a larger role for Commerce. So 
how do we get that expertise given any one of these things? As 
Mr. Aboulafia said, maybe you should have a dedicated supply 
chain focused just on aviation and obviously we are heading 
that way on semiconductors.
    I could make the case we should have had a better analysis 
on aluminum, given where we are with the aluminum sector and 
the shift that is happening. How do we--what do we need to do 
if we are going to say we want a larger Federal role? What is 
it we need to do to have the research about these sectors, 
again, if a lot of the innovation or the awareness about the 
next phase of innovation is at the very base level of the 
supply chain? You have got to turn your mic on. Yes.
    Mr. Gereffi. Senator, thank you, Senator Cantwell. I think 
in the past when we wanted to focus on specific industries, we 
had programs like national industry centers at things like the 
Sloan Foundation supporters I mentioned in my testimony. But I 
think to get the universities involved, we end up having to 
take a more interdisciplinary approach. And so I think one of 
the critical issues is trying to find some of the key industry 
areas that are cutting edge where the universities can 
supplement.
    And that is where I think your National Science Foundation 
Technology Initiative, the Technology Directorate, could be a 
key because NSF does tie into universities in a very direct 
way. And but I think it has to connect also to those industrial 
clusters where the industries are located, in particular parts 
of the country. So a combination of NSF, which is going to tie 
into applied funding, the multidisciplinary that comes from 
industry clusters, and then linking that across different 
industries that are specialized, I think is probably one of the 
key ways to go for universities.
    The Chairman. I see you nodding, Dr. Gil. You agree with 
that?
    Mr. Gil. I very much agree with that. I mean, in the 
context of serving in the National Science Board and the 
evolution that we see and the potential of the technology and 
innovation translation new directorate, by bringing the best of 
the university, what historically would have done in centers, 
by imagining a new catalyst where we can bring universities and 
industry at all scales together through these NSF sponsored 
centers, I think would be a unique model that would allow us to 
address some of these concerns.
    The Chairman. Well, it certainly could be more 
translational, and it certainly could be more informational 
back up the chain. I don't mean to use that word 
intermittently.
    So when you are talking about getting somebody over at 
Commerce to understand what is happening in Mr. Taylor's 
business or what is happening in aviation or what is happening 
in semiconductors, it is not that there aren't people at NIST. 
But when you want to call a shot and say, oh, well, we need a 
specific R&D supply chain effort for aviation or 
semiconductors, you should have somebody farther up at the 
Department of Commerce making that decision.
    Mr. Gereffi. Just one further comment. I think that when we 
look at the existing technology areas in the U.S. that are well 
developed, Seattle with Aerospace or Silicon Valley or Austin 
with IT or Boston 128, in all of those cases, we have well-
established universities that are connected with private 
companies. But one thing that is happening now is we have a 
whole new set of technologies that is transforming the cutting 
edge of research. So artificial intelligence, quantum 
computing, all of the different areas that are coming out of 
the digital revolution.
    So I think that is where we need to bring universities back 
into the equation, because what worked 5, 10, 15 years ago is 
changing very fast now. And so that to me is the real 
challenge. How do we have that discussion between industry and 
universities and Government taking these next generation 
technologies and bringing them into the picture?
    The Chairman. Well, that is where the hub and the center 
come together. And that is--you know, it may be a new fashion, 
but Dr. Lewis, did you have a comment on that?
    Mr. Lewis. Thank you, Chair Cantwell. Commerce used to have 
a technology Administration. Technology used to be one of their 
central missions, and they got rid of it some time ago. So one 
of the things to think about is you were talking about NIST 
isn't a policy agency. They do great work, but they don't do 
policy. So if you are going to rebuild that capability at 
Commerce at the senior level, further up the chain, we might 
want to look at what Commerce has in place. A lot of talent 
there, a lot of strengths, but not focused on the technology 
mission in a way it might have been 10 years ago.
    The Chairman. And thank you, I like that suggestion because 
I do think you have to have--as it is changing so fast you have 
to develop expertise. Mr. Aboulafia, there is, you know, this 
effort on thermoplastic that I have heard about. I have heard 
about it because, you know, obviously in the aviation supply 
chain, getting material for airplanes that have material flaws 
in them requiring you to start over, you know, is a big deal.
    So thermoplastics give you that ability. But the most I 
have heard about this research is that it is over in Europe and 
there are companies like Boeing that are participating. I have 
also heard of it from companies in Spokane who are saying, I am 
doing this, and we need to do more of this. But how do we get 
the focus on the core technologies that need to happen in 
aerospace if these are just voices in the supply chain or for 
example, Europe has had associations just because they are 
Europe or Max Planck Institutes, where everybody always works 
together.
    What is it that we need to do to identify the next 
generation technology that seems to be already there in the 
supply chain, but the supply chain is made up of just small 
individuals trying to compete? What do we need to do?
    Mr. Aboulafia. Well, I suppose that it is encouraging the 
very fact that, Madam Chair, you are hearing about this 
technology indicates that there is some equipment and 
technologies that are coming to public view, to your view. You 
know, when it comes to materials, that is actually a very good 
example of the kind of thing that I think should be accelerated 
because they can be brought to market a bit quicker.
    But that despite the emphasis on creating these materials 
in the supply chain, and it is up to the primes to specify them 
at the end of the day. So bigger companies like Hexcel or 
something like that could create these advanced materials and 
some of the smaller companies. But ultimately it comes down to 
the primes. And this is one point where I guess I will slightly 
reverse myself.
    I think it is up to the primes to identify what 
technologies they are able to bring into next generation 
platforms, be it materials, be at various advanced control 
systems, be it avionics or whatever else. They might be the 
best source to say, well, this is something we would like to 
see on our next generation jetliner or next generation business 
jet or combat aircraft.
    In the case of thermoplastics, you know, there is a lot of 
work going on in the interiors field, so that might be the sort 
of intermediate end user people who create interiors and want 
to bring some new capabilities to market. But in general, these 
are exactly the sort of technologies that I think could migrate 
from basic to a more advanced supply level of R&D. And yes, it 
is sort of noteworthy that a lot of other companies or a lot of 
other countries are engaging in this research. One thing about 
this is that being in the Netherlands and Belgium or other 
places, these are effectively neutral aviation powers.
    It is not--if it is taking place in France or Britain or 
Germany, it is probably not addressable as much to U.S. 
contractors. And I think that's important to remember. And the 
reason, I think for the U.S. to have that greater capability in 
identifying these technologies and well, working with U.S. R&D 
programs and getting them to market.
    The Chairman. Thank you. Senator Scott.

                 STATEMENT OF HON. RICK SCOTT, 
                   U.S. SENATOR FROM FLORIDA

    Senator Scott. Thank you, Chair Cantwell. I want to thank 
everybody for being here today. I have been up here for about 
two and a half years, and I am a business guy, and a lot of 
times what people come up here to do is they always ask, what 
can the Government do to solve a problem?
    Can you all talk about what your industries are doing and 
what you think we could be doing without Government and without 
increasing our debt? And we have almost $30 trillion worth of 
debt now. Could each of you talk about what the private sector 
should be doing and what you are doing?
    Mr. Gil. I will be happy to start. Thank you for the 
question, Senator Scott. So one element, and I will speak for 
IBM, is we have had an unwavering commitment to invest in R&D. 
I am proud to lead the research division, IBM. We have had a 
research division for 76 years. We continue to employ over 
3,000 scientists, work full time to continually to invest and 
create the future of information technology and artificial 
intelligence and quantum computing, semiconductors, et cetera.
    So I think that, you know, the private sector needs to 
continue to have a very, very strong commitment to R&D and 
invest in our workforce so that we can continue to create 
differentiated products. That is one thing I would advocate 
strongly.
    Mr. Taylor. Senator, I would say that one of the things we 
are doing as a small manufacturer is we are building more and 
more relationships with partners. There is just a lot of 
technology that as a small company you can't do yourself. Build 
that relationship. And I am talking about a relationship, not 
finding a vendor, but building a relationship with that vendor 
that seeks a long strategic approach to the innovation or the 
product you want to present to the consumer. And these 
partnerships are very, very important, particularly to small 
manufacturers. But I think any size manufacturer that is where 
the expansion will be.
    Senator Scott. Anybody else?
    Mr. Lewis. Just quickly, Senator, and thank you for the 
question. You know, one thing that the private sector can do, 
and associations like we have here today are helpful on that, 
it needs to send clear messages to Government on what would be 
helpful to do, where there are areas that go outside of the 
purview of the USICA that we need to address, like monetary 
policy, like tax policy. We need to get those signals from the 
private sector on the guidance for Federal policy. And that 
would be an area where I think there's room for improvement.
    Mr. Gereffi. Can I just add one thing, also Senator Scott, 
you know, I think beyond the R&D investments as well, you know, 
one of the things that that the private sector is doing is 
lending, expertise and resources to the Government. You know, 
as I stated earlier, particularly in the supply chain context, 
Government entities don't always have, you know, a lot of 
visibility into what is going on in across these supply chains. 
So partnering with the Government, working, you know, on public 
private-partnerships and task forces and really, you know, 
devoting industry resources to help, you know, advance the 
shared Government industry mission is something that I know 
that the ITIs companies are doing.
    And another is also partnering on, you know, some of the 
workforce development programs and things like that to really 
try to, you know, help rebuild the talent pipeline. That that's 
another thing that our companies are doing.
    Senator Scott. Thank you. Is there anything that any of you 
think we, the Government, should stop doing that would help the 
supply chain? A lot of people come up and say what we should do 
more. I was in business. I got tired of Government. I mean, 
they are always just a pain in the rear. I mean you get fed up 
with it. OK.
    The Chairman. Go ahead, Mr. Aboulafia.
    Mr. Aboulafia. Oh, thank you very much, Madam Chair. 
Senator, if I may know, there is one aspect I think, of the 
Government's approach to the supply chain that could probably 
change a bit. The Pentagon has a rather patchy procurement 
policy when it comes to aftermarket componentry. And given the 
reliance of the supply chain on aftermarket components for a 
lot of their profits, ultimately the kind of lumpy buying 
habits and frankly absence of guidance at times is a bit of an 
issue for the supply chain.
    So perhaps greater guidance from the Pentagon and other 
Government purchasers of componentry about what they are doing 
to fill their warehouses or when they are destocking or what 
their purchasing patterns are going to be in the coming couple 
of years would be extremely helpful, I think, to a lot of the 
supplier companies I would--I speak to. But if I may just 
quickly address your previous question, it is a really 
interesting one about what private the private sector should be 
doing.
    One change I would like to see them make is have less of an 
adversarial approach to their supply chain. Many companies at 
the prime level kind of regard them as something to be, 
frankly, fresh for profit, basically. Got to harmonize margins 
and whatever else.
    I would like to see more of a partnership between the 
primes and the subs. And perhaps this crisis will illustrate 
the rather vulnerable nature of the supply chain and the 
importance of having that partnership and working together in 
tandem to be more resilient.
    Senator Scott. Thanks, everybody. Thank you, Chair 
Cantwell. Thank you. Senator Sullivan.

                STATEMENT OF HON. DAN SULLIVAN, 
                    U.S. SENATOR FROM ALASKA

    Senator Sullivan. Thank you, Madam Chair, and thanks for 
this really important hearing. I want to start with a kind of a 
couple questions I am going to toss out there. Somewhat related 
to Dr. Lewis and Dr. Gil. I was recently in South Korea and 
Taiwan on a bipartisan Senate delegation with Senator Coons and 
Senator Duckworth.
    And I would like to get both of your views on this issue of 
selective decoupling. And I was very surprised and actually 
pleased both in Taiwan and in South Korea meeting with their 
senior Government leaders, but also senior private sector 
executives, how they do see this selective decoupling coming 
and they seem very forward leaning on making the choice about 
being in the United States both foreign direct investment in 
our country, which they are starting to do, and being more 
interested in, you know, if there is a choice, the choice is 
the United States.
    I was very pleased by that.
    And then, Dr. Gil, this obviously relates to semiconductors 
too. In terms of Taiwan and South Korea, both of their big 
semiconductor manufacturing companies are looking at major, 
major investments in our country as well. So maybe, Dr. Lewis, 
if I can start with you and this issue on Taiwan, where it is 
very clear the ultimate goal is for the Chinese Communist Party 
to absorb Taiwan. I don't think that is a good idea, forcefully 
or not, but how do we think about that when we think about 
selective decoupling as well?
    Mr. Lewis. Thank you, Senator. I am very grateful to the 
Chinese Communist Party because they make our task so much 
easier. Every time they open their mouths, countries move in 
our direction.
    Senator Sullivan. That is really happening. I think you are 
right.
    Mr. Lewis. Yes, and so we need to think then how do we 
build a unified approach with our allies and partners like 
Taiwan and South Korea? How do we streamline the path for them 
to work here? You know, it would be great to have TSMC in the 
U.S. Sure, they are a competitor, but I feel confident our 
companies can compete with them.
    Senator Sullivan. Well, they are obviously strongly 
contemplating that, as you know.
    Mr. Lewis. Contemplating and location are not the same. And 
so how can we make it easier for them to get here? Same for 
Samsung. Very strong presence in Texas, but we depend on 
Samsung and TSMC.
    An issue for the Congress and for the Administration is, do 
we feel comfortable with that dependency? Mixed answers there. 
We may not have a choice in some cases. So how do we smooth the 
path to work with them? Also, you were in Asia, but we need to 
think about our European allies. They are a little more 
ambivalent when it comes to cutting off trade with China.
    Senator Sullivan. But that is changing, I get the sense.
    Mr. Lewis. No, I was going to say--.
    Senator Sullivan. The more the Chinese Communist Party 
opens its mouth, the more I think our European allies are 
recognizing what the reality is.
    Mr. Lewis. Let's look at the results of the elections in 
France and Germany, because I think when those are over, it 
might be easier to see new directions in European policy.
    Senator Sullivan. Dr. Gil?
    Mr. Gil. To borrow the microphone. You are absolutely 
right, Senator Sullivan, about the strength of South Korea and 
of Taiwan in terms of production. I refer in my testimony that 
they represent 100 percent of the manufacturing capacity below 
the 10 nanometer node. So I think is our dual policy that would 
be very beneficial to the United States.
    One is absolutely encourage their investments here onshore, 
which, you know, they do have plans to do. But seeing it 
through and the signaling that the CHIPS Act does, it is 
absolutely sending a very clear message about the importance 
and the resurgence of semiconductor industry in the United 
States and the need to invest. And on top of that, also be able 
to foster through the creation of NSTC and manufacturing 
capacity with U.S. manufacturers to complement that. I think 
there will be a wonderful outcome, actually, that this decade 
we have the sum of all of those in the United States.
    Senator Sullivan. Thank you. And Madam Chair. I mentioned 
this to Senator Wicker. It was very interesting. Those 
companies and countries were very closely tracking what was 
going on with our legislation and the CHIPS Act. If I can ask 
just one final question, if that is OK?
    The Chairman. Senator Thune is waiting but go ahead.
    Senator Sullivan. Dr. Lewis, I will just very quickly, and 
it is a long question, so I will try and keep it very short. 
One, asymmetric advantage the Chinese have over us is that we 
have an entire finance class, Wall Street, a lot of our big 
private equity groups that seem very comfortable investing in 
not just China, but Chinese AI, Chinese military, Chinese 
Communist Party related companies, and of course, any Chinese 
financiers who want to relate, who want to invest in something 
related to the Pentagon or something would help us, the Chinese 
Communist Party will crush them.
    How do we think about our own Americans, I get disturbed by 
this to be perfectly honest, who seem very happy, free, open, 
willing to invest in our biggest competitor, sometimes in 
military applications that could someday be used to kill 
Americans? I find this very, very troubling and yet some of our 
biggest finance executives seem to be completely fine with it.
    I am sure they make a lot of money doing it, but it 
certainly isn't a patriotic undertaking, in my view. Any 
thoughts on that?
    Mr. Lewis. Thank you, Senator, and you will be happy to 
know that the Chinese are also closely tracking the progress of 
the bill. I got to be on Chinese television trying to explain 
that when I was called the Endless Frontiers Act. So they were 
very upset by it, which is good, right?
    Senator Sullivan. That is a good sign.
    Mr. Lewis. Yes, this is going to be a hard problem. We are 
at the start of a long process of, if China continues on its 
current path, they will become more and more of an opponent, 
more and more of a place that we will not want to do business 
with and we will not want our allies to do business with as 
well.
    But right now, there are still transactions that are safe 
to make. And so the question for policy is, how do we get 
them--how do we exploit China the way they exploit us? How do 
we find places where it is safe to do business and the places 
where we will need to close off? That space is shrinking--that 
safe space is shrinking. But that is what I would look at is, 
let's see where the Chinese come out in a few years.
    They are probably not so happy either. So but we will have 
to find ways to balance making money in China, which is good, 
versus the National Security risk.
    The Chairman. Thank you. Thank you.
    Senator Sullivan. Thank you, Madam Chair. Senator Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Madam Chair. Mr. Lewis, earlier 
this year, I reintroduced the bipartisan Network Security Trade 
Act to ensure that the security of our communications 
infrastructure is a clear trading objective of the United 
States.
    And let me just say that I believe it is critical that our 
global communications infrastructure is not compromised by 
manufacturers like Huawei Technologies, which is supported by 
the Chinese Communist Party. Can you talk about the importance 
of this legislation so that we can address the barriers to the 
security of our communications networks and supply chains?
    Mr. Lewis. Thank you, Senator. I think the bill is very 
valuable because one thing I hope we have all learned is that 
the use of Chinese technology creates real risk of espionage. 
So the bill makes a valuable contribution. It is not just an 
American problem.
    We have done well in this country and starting to remove, 
from all the big companies, Huawei technology. But now we need 
to think of the other places we connect to as well. So an 
important step is to continue to push on the need for secure 
communications technology. That is why I think the bill is 
invaluable. And I am glad you reintroduced it. Thank you.
    Senator Thune. Thank you. And this is a follow up and this 
is related to the pandemic. But that is obviously has 
accelerated the rise of the digital economy. And with more 
individuals and businesses online, our country has got to make 
smart investments in the technologies that are reshaping the 
way we live.
    What steps do we need to take to ensure our communications 
supply chain can meet the needs of the future when we think 
about new technologies like 5G and A.I.? And is there a role 
for Government to play? And if so, you know, what is it to make 
sure that we lead to technological advancements and stay ahead 
of countries like China?
    Mr. Lewis. Thanks again, Senator. Sure, there is a number 
of areas where we could use a good collective approach with the 
private sector and Government. The first is in standards 
bodies. We all know that. The U.S. is doing better in standards 
than you might think, but the Chinese are not giving up. 
Second, R&D and STEM. The companies tell me they have workforce 
shortages and so we can help with that.
    Spectrum allocation, the U.S. has made good progress in 
moving spectrum to commercially--we are in a new kind of 
National Security contest and the old spectrum allocations 
might need to be reconsidered, but we have done OK at that. 
Finally, a larger business question. Building the 
infrastructure is good.
    Making sure the infrastructure is secure is important. But 
how you use that infrastructure is also crucial. So we need to 
find ways to accelerate innovation in the use of 5G, and dare I 
say it 6G. Thank you.
    Senator Thune. Yes, let's hope so. Mr. Miller, in your 
testimony, you talk about the need for a strategic plan for 
implementing the numerous supply chain initiatives that are 
underway. What risks do we face if we don't have a coordinated 
approach to supply chain resiliency? And are there existing 
public-private initiatives reviewing supply chain risk that 
could serve as a model?
    Mr. Lewis. Thank you, Senator Thune. Yes, I mean, again, I 
think it has been a big theme of the hearing today about the 
need for a coordinated approach. You know, as I as I mentioned 
in my testimony, I think an excellent model is the Cyber 
Security and Infrastructure Security Agency led ICT Supply 
Chain Risk Management Task Force. You know, it is a--one of the 
best features of that task force is that although it is 
sponsored by CISA, it involves about a dozen Federal agencies 
and partners, including the Commerce Department. It includes 
experts and participation from across both the IT and 
communications sectors.
    And it has really involved Government and industry rolling 
up their sleeves and, you know, working on developing real 
proactive solutions that could actually help address some of 
these--the variety of supply chain challenges. You know, and I 
would also say that one of the things that we have been working 
on most recently is, you know, trying to figure out how to make 
sure that the products are getting out into the supply chains 
themselves, into the bloodstream, if you will, and also 
specifically addressing the small and medium sized businesses 
who, you know, quite candidly comprise 90 percent or so of the 
supply chains.
    And really trying to figure out how do we help those 
companies in particular.
    Senator Thune. Thank you. Madam Chair, my time has expired. 
I have a question which I can submit for the record for Mr. 
Aboulafia.
    The Chairman. Go ahead, Senator Thune.
    Senator Thune. OK, well, let me just--you mentioned in your 
testimony, the aviation industry experiencing several recent 
disruptions stemming from the pandemic and geopolitical 
concerns and aircraft groundings. As the pandemic recedes 
across the world, what materials or components do you believe 
represent the biggest constraint on domestic aircraft 
manufacturing in coming years?
    Mr. Aboulafia. Thanks for your question, Senator. I think 
there is a number of areas of concern. Frankly, labor wage 
inflation might be one of the biggest. One of the quirks of the 
commercial industry is that we are effectively deflationary. 
That is to say, pricing for our finished systems have been 
declining in real terms for quite some time now, I am afraid. 
And that actually accelerated. The deflationary trend 
accelerated during the pandemic in an effort to stimulate 
demand.
    So unless contracts for the supply chain allow for the 
appropriate path through mechanisms, I think we are going to be 
stuck between higher materials prices, higher energy prices, 
and most of all, I think higher labor prices.
    But historically, just to get to the heart of your 
question, it is really the castings and forgings that have 
typically produced bottlenecks mostly made from more exotic 
metals and things like that. Some sort of turbine componentry 
and things along those lines.
    Senator Thune. OK, thank you. Well, it seems like--argue 
for our investment in more of those exotic metals in our own 
supply chain? Yes, alright. Thank you, Madam Chair. Thank you 
all.
    The Chairman. Thank you, Senator Thune. I just have one 
last question. You know, we talked about, you know, some of the 
aspects on the adversarial side. What about on the allies side? 
Dr. Gereffi, you have written about this as a way from your 
research to prioritize things. What should we be doing to think 
about building alliances on supply chains? How should we be 
looking at that as a Government? And who in the Government 
should be doing that?
    Mr. Gereffi. A lot of people on the panel have already 
mentioned, for example, in semiconductors, how important the 
alliances are between the U.S. companies, Samsung, TSMC. I 
think getting the international companies investing in the 
U.S., as we now hope to see, is going to be very important. I 
think from the Government's point of view, I think the industry 
associations that are working with Government agencies are 
probably a good place to begin to encourage more of that 
collaboration.
    But so I think there is collaboration among the big 
companies, and then there is also that collaboration between 
lead firms and their first tier smaller suppliers. And perhaps 
that is an area that has been less well developed, that we 
don't really see very far down those supply chains beyond the 
big companies. And that is maybe where these industries can get 
better routed in the U.S. and we could start to have that small 
business or medium-sized business development.
    And that collaboration is probably very important. I think 
it is probably private sector led. Oftentimes there is going to 
be those top companies that are encouraging the small 
companies. But the U.S. Government as well, with its policies, 
can be encouraging the kind of investment at local levels that 
would help that
    The Chairman. Anybody else on the ally front? Yes, Dr. 
Lewis or Mr. Miller.
    Mr. Lewis. Sure. Thank you. I see others want to speak too. 
The Tech and Trade Council was an important step. The Europeans 
really wanted it. It was their idea. And so they are looking 
for ways to partner with us. That is good. They are worried 
about, what they are afraid might be trade nationalism in the 
U.S. So Buy America is something that they react to.
    We should be worried about some of tech governance 
initiatives. I think they say it is not aimed at American 
companies, but some days it sure looks that way. But the I just 
was at a meeting with one of the European Commissioners on this 
and there is a real desire to build partnership. There is not 
as much appreciation in Europe of the risk of China, but it is 
growing, as we heard. And so we are entering a long period of 
dialog that moves us in the right direction. Thank you.
    The Chairman. Mr. Miller.
    Mr. Miller. Thank you. I was--I will echo both the point 
about investment and actually attracting investment from 
partners and allies to the U.S. as one thing for sure, as well 
as the U.S. Trade and Technology Council. You know, one of the 
promising features of that, as Mr. Lewis indicated, is that, 
and I think it has already been announced that one of the 
things they are specifically forming a working group on is 
semiconductor and other strategic supply chains.
    And then just a final note on the international front on 
this topic. You know, for the past two or 3 years now that 
there has been kind of the Prague principles and focus on 5G 
security, which has a significant number of supply chain 
components, and again, brings together several different U.S. 
partners and allies to focus on the security aspects of the 
supply chain issue.
    The Chairman. Thank you. Mr. Taylor.
    Mr. Taylor. Sure. And I think one other item, it sort of 
goes back to what Senator Scott said and even Senator Thune, 
but this investment in international business is coming here 
and establishing a footprint in our own American industries 
also.
    I would ask the Commerce Department to take a strong look 
at revitalizing or re-supporting, whatever the word might be, 
the permitting processes. It is long. It is laborious. It is 
debilitating, and it really hinders greenfield production--a 
greenfield building growth or expansions or just additional 
lines for the processes and antiquated ways that we all have to 
go through for a permit to get that innovation started, get 
that factory started or additions to a factory started. So I 
would ask that that be looked at.
    The Chairman. Thank you. Thank you very much. Well, this 
has been--did you have one last thing you want to say on this 
point, Mr. Gil?
    Mr. Gil. Just 30 seconds that when we grow our investments 
like is being done with this piece of legislation, it really 
serves as a beacon for our allies to desire to partner with us 
much more strongly.
    The Chairman. Thank you. I think that is a good summation 
to USICA and one of the reasons why we did it. This has been a 
great deep dive on the supply chain. Thank you all very much. 
Thank you for your expertise and for your knowledge about this. 
A lot of great information has come out of it. I definitely 
believe, as Mr. Aboulafia says, that we have to look at the 
supply chain in a more collaborative way. When I reflect back 
about what our discussion has been here, I keep thinking, what 
if we would have had a better partnership on that years ago? 
Would we be in the same situation we are in now with the 
semiconductor industry?
    So we are trying to have more illumination about these 
sectors and how important they are not just from their 
technology perspective, but also what they mean for jobs and 
for our economy and certainly for National Security issues.
    So thank you all very much. This hearing record will remain 
open for two weeks until July 29, and any Senator can submit 
questions for the record, if they do so by July 22. And we ask 
you to respond so that we can fill that record by the 29th of 
July. And with that, this concludes our hearing. Thanks. Thanks 
very much again.
    [Whereupon, at 12:30 p.m., the hearing was adjourned.]

                            A P P E N D I X

   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                            Dr. Gary Gereffi
    Supply Chain Research and Mapping. In your testimony, you 
emphasized the need for tools such as value chain mapping and of 
efforts to build regional clusters or hubs, connected to other portions 
of the value chain.

    Question 1. What role should value chain mapping at the Department 
of Commerce play in helping the United States predict and prepare not 
only for supply chain disruptions but also for emerging economic 
opportunities?
    Answer. Value-chain mapping is a practical tool that requires us to 
link several kinds of economic and commercial statistics, including: 
data on international trade (imports and exports); national production 
statistics (output by firms producing goods and services in the U.S. 
market); industry statistics (using standardized and detailed industry 
classification schemes to indicate the economic activities of firms); 
and occupational and employment data (linked to companies and 
industries, located in particular U.S. states and zip codes). Each 
variable (trade, production, industry, occupation, location, etc.) has 
different classification systems used by the U.S. government, and 
harmonized codes used by multilateral agencies, like the United Nations 
Statistics Office or the World Trade Organization (WTO).
    A significant, but manageable, challenge in value-chain mapping is 
technical--i.e., to develop ``correspondence'' indexes (or crosswalks) 
that link industry, occupation and trade classification systems at 
similar levels of detail.\1\ Different parts of the U.S. government, 
such as the Department of Commerce (and the U.S. Census Bureau it 
houses) and the U.S. International Trade Commission (USITC), have data 
collection and analytical units that manage complex national economic 
databases on trade, production and employment, and much of this is 
publicly available (although not easy to manage without the statistical 
skills used in handling large databases).
---------------------------------------------------------------------------
    \1\ See U.S. Census Bureau, ``Guidance for Industry and Occupation 
Data Users,'' available at https://www.census.gov/topics/employment/
industry-occupation/guidance.html.
---------------------------------------------------------------------------
    Another problem for the Department of Commerce (or any other large 
U.S. government agency) is institutional--i.e., which unit in Commerce 
or elsewhere in the government would be best suited to incorporate 
value-chain mapping as part of its core mission? Answering this 
question would require conversations with various government units, 
possibly the International Trade Administration (ITA) and its related 
Bureaus of Industry and Analysis within the Department of Commerce, to 
find an appropriate fit for value-chain research.
    In studies such as the Duke GVC Center project on ``Manufacturing 
Climate Solutions'' that focused on clean technologies and U.S. jobs, 
for each product analyzed (e.g., LED lighting, high-performance energy-
efficient windows, and U.S. concentrating solar power technology), a 
value-chain diagram was created to illustrate the core technology and 
its constituent parts, a geographic map identified the main factories 
in the United States that supplied manufactured inputs for these 
products, and a table estimated the number of U.S. jobs associated with 
current and projected demand for each of these technologies.\2\ The 
value-chain approach thus combines a variety of sources, including 
company websites and annual reports, interviews with company managers 
and industry experts, and other business sources.\3\
---------------------------------------------------------------------------
    \2\ Gary Gereffi, Kristen Dubay, and Marcy Lowe, ``Manufacturing 
climate solutions: Carbon-reducing technologies and U.S. jobs,'' Duke 
CGGC, Durham, N.C., November 2008, available at https://gvcc.duke.edu/
wp-content/uploads/greeneconomy_Full_report.pdf.
    \3\ For discussions and illustrations of the methodology involved 
in value-chain mapping, see Stacey Frederick, ``Global value chain 
mapping,'' in Stefano Ponte, Gary Gereffi, and Gale Raj-Reichert 
(eds.), Handbook on Global Value Chains (Edward Elgar Publishing, 
2019), pp. 29-53; and Gary Gereffi and Karina Fernandez-Stark, ``Global 
value chain analysis: A primer,'' 2nd edition (Duke GVC Center, 2016), 
available at https://gvcc.duke.edu/wp-content/uploads/
Duke_CGGC_Global_Value_Chain_GVC_Analysis_Primer_2nd_Ed_2016.pdf.
---------------------------------------------------------------------------
    There are two related issues in high-quality value-chain studies: 
(1) the need for supply-chain transparency in analyzing the structure 
of U.S. and global industries; and (2) assessing lead-firm strategies 
to identify multiple pathways to innovation and commercial success 
among close competitors in the same industry. In terms of supply-chain 
transparency, many U.S. and other multinational corporations (MNCs) are 
becoming far more open about identifying the names and locations of the 
firms that make up their manufacturing supply chains. For example, Nike 
now publishes an interactive ``manufacturing map'' of where Nike 
products are made (http://manufacturingmap.nikeinc.com/) that includes 
the number of factories, countries and workers involved in making 
finished goods as well as material inputs. Patagonia is also a leader 
in mapping its supply chain footprint,\4\ and most large companies such 
as VF, H&M, Apple, and adidas publish lists of global suppliers. In 
addition, U.S. multinationals are collaborating more explicitly with 
academic researchers by sharing supply-chain data on overseas plants to 
assess whether factory monitoring improves labor conditions and 
economic performance.\5\
---------------------------------------------------------------------------
    \4\ Patagonia, ``Working with Factories,'' https://
www.patagonia.com/our-footprint/working-with-factories.html; Patagonia, 
``Supply Chain Environmental Responsibility Program,'' https://
www.patagonia.com/our-footprint/supply-chain-environmental-
responsibility-program.html.
    \5\ Richard M. Locke, Fei Qin, and Alberto Brause, ``Does 
monitoring improve labor standards? Lessons from Nike,'' Industrial and 
Labor Relations Review (61, 1) (2007): 3-31; Greg Distelhorst, Jens 
Hainmueller, and Richard M. Locke, ``Does lean improve labor standards? 
Management and social performance in the Nike supply chain,'' 
Management Science (63, 3) (2016), https://doi.org/10.1287/
mnsc.2015.2369.
---------------------------------------------------------------------------
    Just as the structure of supply-chains offers insights into the 
overseas performance of U.S. companies, comparisons of the global 
strategies of U.S., Asian and European MNCs competing head-to-head in 
the same industry tell us how and why top companies pursue distinct 
international production and sourcing strategies, and how current 
disruptions are likely to shape their future approaches to investment 
and innovation.\6\
---------------------------------------------------------------------------
    \6\ Pavida Pananond, Gary Gereffi, and Torben Pedersen, ``An 
integrative typology of global strategy and global value chains: The 
management and organization of cross-border activities,'' Global 
Strategy Journal (10, 3) (2020): 421-443; Gary Gereffi, Hyun-Chin Lim, 
and Joonkoo Lee, ``Trade policies, firm strategies, and adaptive 
configurations of global value chains,'' Journal of International 
Business Policy (2021), https://link.springer.com/article/10.1057/
s42214-021-00102-z.
---------------------------------------------------------------------------
    Since good supply-chain research goes beyond a simple integration 
of publicly available statistics, it might be easier to launch a U.S. 
value-chain resiliency initiative as a targeted pilot project with a 
handful of priority U.S. industries or states willing to collaborate 
with the U.S. Department of Commerce or other research entities. 
Initially, a major objective of value-chain analysis at the government 
level would be to prove its usefulness in looking at specific 
industries that are vulnerable to supply-chain disruptions, such as the 
recent White House 100-day supply chain review report on four critical 
U.S. industries. Alternatively, value-chain studies on specific U.S. 
states can benchmark how they are doing in their priority industries 
and spot emerging opportunities, such as the North Carolina in the 
Global Economy project carried out at Duke University. Although many 
value-chain mapping studies can serve as guides, there is a pressing 
need for comprehensive new research given the manifold disruptions of 
the current era.

    Question 2. How can investing in regional technology hubs support 
robust and resilient domestic chains?
    Answer. Regional technology hubs bring together the entire local 
ecosystem needed for successful industrial development: technology and 
innovation opportunities provided by large firms; smaller providers of 
goods and services that occupy lower tiers in the supply chain; the 
educational and training inputs of faculty and graduates of research 
universities as well as community colleges; a local workforce trained 
to meet existing needs and that can expand as investments increase; and 
the regional political and business leadership required to address 
critical gaps or shortages and align stakeholders around a shared 
vision of the future.
    The United States has many highly successful regional technology 
hubs that are specialized in established and emerging industries, such 
as Silicon Valley (information technology (IT)), Seattle (aerospace; 
software), Austin, TX (IT), Boston's Route 128 (IT; defense), 
Pittsburgh (steel; biomedical), and others. However, significant signs 
of robust and resilient domestic supply chains are visible in a new 
generation of cities and regions that are modernizing traditional 
industries or promoting new sectors tied to the emerging digital 
economy. The Research Triangle region of North Carolina enjoys this 
kind of growth pattern, where a traditional industry like textiles for 
apparel or home furnishings has shifted to ``technical textiles'' used 
in the medical, defense and aerospace industries, and new digital-
economy engineering hubs are being created with major investments from 
big companies like Apple, Google, IBM/Red Hat and Amazon to develop 
cloud and quantum computing, driverless vehicles, and big data 
analytics.
    While numerous U.S. states can point to selected examples of 
regional technology hubs, a key goal of value-chain mapping is to 
permit a more rigorous identification of such opportunities by 
analyzing both existing industries and new investment opportunities for 
current firms in the region. The industry profiles of ``bottom up'' 
value chain analysis at the state level can inform prospective 
investors about the firms and economic activities already present in 
the region, as well as ``value chain gaps'' that new investors could 
fill to significantly increase the competitiveness of the region. 
State-level value chain analysis should do global benchmarking to 
identify production stages where global overcapacity or environmental 
constraints exist (e.g., mineral processing) as well as identify 
emerging opportunities and threats (e.g., artificial intelligence, the 
industrial Internet of things, and cyber-security).
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Jacky Rosen to 
                            Dr. Gary Gereffi
    Critical mineral supply chain. Nevada is home to dozens of critical 
mineral resources, including lithium, which is integral for battery 
technology in electric vehicles. In fact, Nevada has the only operating 
lithium mine in North America, as well as several proposed lithium 
projects and battery recycling companies. Despite our state's 
leadership in this space, the United States relies on imports for a 
majority of the critical minerals necessary to our economic advancement 
and national security. In addition, our country has virtually no 
domestic processing capacity, so the lithium and other materials that 
we produce are shipped overseas for processing.

    Question 1. As someone with a background in clean energy supply 
chains, can you discuss the economic benefits and potential job 
opportunities if we were to invest in critical mineral manufacturing 
and processing here in the U.S.? And how can we increase U.S. 
processing capacity for lithium and other critical minerals necessary 
for clean energy, both to bolster the supply chain and enhance our 
national security?
    Answer. Thank you for this excellent question, Senator Rosen. It 
illustrates very well how the supply-chain approach is useful in 
looking at U.S. competitiveness from the bottom up--i.e., by analyzing 
U.S. industries from the perspective of the individual states where 
they are economically most significant.
    Critical minerals supply chains, like other natural resource 
industries, have three main stages: (1) raw-material extraction; (2) 
the processing of natural resources; and (3) the downstream component 
and end-product user industries for these raw materials. The question 
you are posing is where Nevada (and the United States, more generally) 
fit within these three stages of the lithium industry value chain.

  1.  Raw-material extraction--A variety of countries are major global 
        suppliers of critical mineral resources used in the production 
        of advanced-battery technologies:

     Lithium--Australia produces more than half the global 
            total; Chile is second

     Copper--Chile is the world's largest producer; Peru is 
            second

     Nickel--Indonesia, Australia and Canada are among the 
            top producers

     Rare earth elements--China has about 60 percent of 
            world output, followed by the United States (16 percent)\7\
---------------------------------------------------------------------------
    \7\ https://www.statista.com/statistics/270277/mining-of-rare-
earths-by-country/.

  2.  Lithium processing--However, China dominates in the processing of 
        all these raw materials, and in rare earth minerals, China 
        accounted for 80 percent of global imports in 2019.\8\
---------------------------------------------------------------------------
    \8\ https://www.cnbc.com/2021/04/17/the-new-us-plan-to-rival-
chinas-dominance-in-rare-earth-metals.html

  3.  Main U.S. user industries for lithium--Advanced batteries used 
        for electric vehicles are among the most important product 
        markets for processed lithium, but utility-scale lithium-ion 
        batteries are also significant for the clean energy grid in the 
---------------------------------------------------------------------------
        United States.

    In terms of the critical minerals supply chain, a central question 
for the United States is where in the chain it can get the greatest 
payoff from additional investments and new technologies. Currently, 
there is global excess processing capacity for critical minerals in 
general, with both China and India expanding their processing capacity 
significantly since the 2000s. Because the prices for processed 
minerals are quite low and the negative environmental impact of 
refining and smelting activities tends to be very high, most raw 
material exporting countries use China for their processing.
    What does this mean for Nevada, which has a significant share of 
U.S. lithium deposits and mining but no lithium-processing capacity? 
Given U.S. environmental regulations, probably it would only make sense 
to invest in major lithium-processing facilities in Nevada if companies 
could use advanced processing technologies that would sharply reduce 
the environmental impact of lithium processing; this is likely to be 
very costly unless the processing could be carried out on a large-scale 
basis within the U.S. market and beyond. The innovation opportunities 
for U.S. battery production and storage are probably much greater and 
more immediate, but this will also require further investments in 
advanced-battery technologies, as outlined in the White House 100-day 
supply chain review report.

    Domestic solar manufacturing. The solar industry employs 7,000 
workers in Nevada, the most solar jobs per capita in the entire 
country. If we are to address the climate crisis and continue creating 
good-paying jobs in the renewable energy sector, we must have Federal 
policy that promotes the affordable deployment of solar projects. 
Unfortunately, the previous administration imposed costly Section 201 
tariffs on imported solar panels and cells. These misguided tariffs 
have cost us an estimated 62,000 solar jobs across the U.S. and have 
not led to an increase in domestic solar manufacturing, which 
represents less than 10 percent of all solar jobs in the U.S. In fact, 
the United States currently has no meaningful production capacity for 
wafers, cells, solar glass, machine tools, and other system components.
    We need to be investing in domestic solar manufacturing and 
reducing our reliance on imports, especially from countries and regions 
that rely on forced labor.

    Question 2. Dr. Gereffi, how our country can increase our domestic 
renewable energy manufacturing capacity? And how can Congress support 
the solar industry to create manufacturing jobs here at home and bring 
down costs for end-users?
    Answer. Senator Rosen, this is another very important supply-chain 
question focusing on one of Nevada's critical industries, the 
manufacturing of solar panels. There are several supply-chain themes 
that are relevant to your question.

  (1)  The unintended (negative) consequences of U.S. trade 
        restrictions--I provided a few illustrations in my written 
        testimony, but you offer a great example for solar panels where 
        Section 201 import tariffs on solar panels and cells did not 
        increase U.S. domestic manufacturing, and arguably led to U.S. 
        solar job losses of 62,000 jobs.

  (2)  Residential solar versus utility-scale solar--I would 
        distinguish between these two segments of the U.S. renewable 
        energy solar value chain, just as in lithium-ion batteries, 
        there are distinct industry segments for electric vehicles 
        versus utility-scale storage batteries. States like Nevada, 
        Arizona and California are very important for the U.S. 
        ``concentrating solar power'' supply chain, but their value for 
        the U.S. economy is linked to the creation of national power 
        distribution networks that reach the distant populations 
        centers in the United States.\9\ Different technologies are 
        involved in the manufacturing versus the distribution parts of 
        the solar value chain.
---------------------------------------------------------------------------
    \9\ See Chapter 4 in Gereffi, Dubay and Lowe, ``Manufacturing 
climate solutions: Carbon-reducing technologies and U.S. jobs,'' Duke 
CGGC, Durham, N.C., November 2008, available at https://gvcc.duke.edu/
wp-content/uploads/greeneconomy_Full_report.pdf.

  (3)  Where the jobs are: manufacturing versus installation--It sounds 
        like the 7,000 solar workers in Nevada are largely in solar 
        panel manufacturing. However, in most solar markets, the 
        largest number of jobs occur in installation. According to the 
        U.S. National Solar Jobs Census 2020, there were just over 
        30,000 manufacturing jobs in solar but this was dwarfed by the 
        155,000 installation and development jobs in solar.\10\ Thus, 
        domestic solar manufacturing and solar installation both have 
        significant and complementary U.S. job creation potential, but 
        the quantity, benefits and location of jobs will vary according 
        to their position in the solar value chain. Each state should 
        develop its strategy and industry development plan accordingly.
---------------------------------------------------------------------------
    \10\ National Solar Jobs Census 2020, May 2021, p. 8; available at 
https://www.seia.org/sites/default/files/2021-05/National-Solar-Jobs-
Census-2020-FINAL.pdf.
---------------------------------------------------------------------------
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Kyrsten Sinema to 
                            Dr. Gary Gereffi
    Role of Critical Minerals. To produce semiconductors and transmit 
electricity, the United States relies on critical minerals, many of 
which are mined outside of our Nation's borders. This poses a risk 
should our supply of critical minerals be disrupted by natural 
disasters or the actions of hostile actors in other nations.

    Question 1. Please describe the importance of secure and reliable 
supply chains to our Nation's mineral and energy security. Can you 
describe how supply chain vulnerabilities have the potential to impact 
access to affordable energy and economic recovery goals?
    Answer. For many decades, the United States has built its central 
approach to energy and mineral security around securing access to 
petroleum and fossil fuels that were heavily concentrated in regions 
characterized by intense geopolitical conflict (such as the Middle 
East) or political volatility and high inequality (Venezuela, Bolivia, 
Central Africa). The development of shale gas and extensive energy 
reserves within North America has greatly lessened the energy 
dependence of the United States on foreign oil, and the rapid expansion 
and lower costs of clean energy technologies (solar, wind, 
hydroelectric, etc.) has allowed the United States to make a strong 
transition to a clean energy future.
    Supply chain vulnerabilities remain, especially as critical 
minerals and rare earth elements needed for essential intermediates 
like semiconductors and advanced batteries are concentrated in 
geopolitical adversaries like China or Russia. Two ways the United 
States can address these vulnerabilities are to diversify its sources 
of mineral and energy supply to trusted allies and strategic partners, 
and also to support sustainable sources of affordable energy in its 
domestic production as well as its purchasing contracts with 
international energy suppliers and collaborators in sustainable energy 
projects.

    Question 2. How, if at all, do climate considerations factor into 
your analysis of developing a critical materials supply chain?
    Answer. By all indications, climate change is occurring even more 
rapidly than most climate scientists expected. In North America, record 
heat waves, forest fires, and tropical storms are reaching 
unprecedented extremes, and the melting of polar ice and the breakup of 
enormous ice shelves in Greenland portend an even higher than expected 
sea level rise that could flood major coastal cities and agricultural 
deltas in the United States and many low-lying regions around the world 
(from northern Europe to South Asia).
    As analyzed in the White House report on Building Resilient Supply 
Chains (June 2021), climate change underscores the centrality of 
strategic and critical minerals supply chains in two fundamental (and 
potentially cross-cutting) ways: (1) the performance of many 
environmentally friendly ``green'' technologies, such as electric 
vehicles, wind turbines, and advanced batteries to store and distribute 
energy from clean technologies, is more vital than ever to combat 
climate change; and (2) these same technologies are heavy users of 
critical mineral inputs (such as lithium, rare earth elements, and 
others) that are needed to make and operate the clean technologies that 
could help to attenuate the impact of climate change. Thus, making 
critical mineral supply chains more ``resilient'' is imperative in 
addressing this double challenge.

    Pharmaceutical Supply Chain. In your testimony, you discussed how 
COVID-19 illustrated the supply chain vulnerabilities the United States 
faces in regards to medical supplies and pharmaceutical ingredients.

    Question 3. How many pharmaceutical manufacturers do you estimate 
had their international operations curtailed as a result of the COVID-
19 pandemic? What options were then available to American patients to 
obtain their prescriptions? Did prescription drug costs to patients 
increase as a result?
    Answer. I have not seen any information that would allow me to 
estimate how many U.S. pharmaceutical companies had their international 
production operations curtailed due to COVID-19 or how much 
prescription drug prices to patients increased as a result. However, in 
the pharmaceutical industry chapter in the White House report of June 
2021 on Building Resilient Supply Chains, there are concrete 
recommendations to lessen U.S. dependence on foreign nations for the 
supply of key essential medicines--both finished dosage forms (FDFs) 
and active pharmaceutical ingredients (APIs)--by creating investment 
and financial incentives to boost domestic production of selected 
products, and to promote international cooperation with allies and 
strategic partners to diversify U.S. sources of supply for these 
medicines.

    Question 4. What steps could Congress take to encourage 
pharmaceutical companies to return their manufacturing operations to 
America and reduce their international supply chain vulnerabilities?
    Answer. The White House's 100-day supply chain review report listed 
a variety of specific near-term and medium-term incentives to promote 
greater U.S. production and to develop new technologies to reduce costs 
and increase the resilience of U.S. and allied production (pp. 242-
243). However, the report also stressed that intense cost pressures, 
especially on the mature U.S. generic drug market that accounts for 90 
percent of all prescription medications filled but only 20 percent of 
total prescription drug spending in the United States, have not only 
driven pharmaceutical manufacturing overseas in pursuit of lower 
production costs, but also led to an intense concentration of the 
manufacturing and distribution of prescription drugs in the United 
States (pp 213, 226-228). This makes the survival of relatively small 
U.S. drug companies more difficult.

    Question 5. Drug manufacturers were able to adjust to COVID-19 by 
implementing masking and social distancing procedures. What are the 
risks if a manufacturer's operations were halted for several months 
because of a natural disaster or security concerns? How quickly can 
manufacturers obtain additional capacity for their operations?
    Answer. Factory closures or slowdowns because of COVID-19 have been 
happening across a large portion of U.S. industries in the 
manufacturing sector, even when safety measures have been introduced. 
The best way to mitigate this risk or more severe problems due to 
natural disasters is to diversify production by identifying actual or 
potential sources of supply in the event of significant supply-chain 
disruptions.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. John Hickenlooper to 
                            Dr. Gary Gereffi
    Supply Chains & Technology Advancement. Your testimony highlights 
the rapid pace technology advances increases the risk of 
``technological lock-in'' for R&D-intensive sectors of the economy. As 
Chairman of the Subcommittee on Space & Science, I am monitoring how 
semiconductor shortages may impact mission timelines for Federal space 
programs or the commercial space sector.

    Question 1. Could you discuss how technology-intensive sectors, 
such as space, can reduce their supply chain vulnerabilities once 
semiconductor production stabilizes?
    Answer. Unfortunately, I do not have any information about the role 
of semiconductor shortages in relation to Federal space programs or the 
commercial space sector. However, in my written testimony, I note that 
recent research on ``massive modularity'' highlights significant 
vulnerabilities in the distributed international technology systems for 
an ubiquitous high-tech product like smartphones,\11\ and thus 
potential cybersecurity risks and the nationality of lead firms and 
their suppliers can matter a great deal.
---------------------------------------------------------------------------
    \11\ Eric Thun, Daria Taglioni, Timothy J. Sturgeon and Mark P. 
Dallas, ``Why policy makers should pay attention to the concept of 
massive modularity: The example of the mobile telecom industry,'' Let's 
Talk Development, World Bank blog, June 18, 2021, available at https://
blogs.worldbank.org/developmenttalk/why-policy-makers-should-pay-
attention-concept-massive-modularity-example-mobile; and Joonkoo Lee 
and Gary Gereffi, ``Innovation, upgrading, and governance in cross-
sectoral value chains: The case of smartphones,'' Industrial and 
Corporate Change (2021), available at https://academic.oup.com/icc/
article/30/1/215/6215046?guest
AccessKey=e382e42f-4a31-46f7-b144-636c78979d69.

    Supply Chains & Telecommunications Networks. Your testimony 
highlights the telecommunications sector as the largest end-market for 
semiconductors. Mobile networks require many components such as 
semiconductors, antennas, routers, hardware and software components. 
Within USICA, legislation I wrote with Ranking Member Wicker, the 
Telecommunications Supply Chain Diversity Promotion Act, was included 
to establish a testbed at NTIA to evaluate various interoperable 
network architectures and increase vendor diversity within our 
---------------------------------------------------------------------------
telecommunications supply chains.

    Question 2. Could you discuss the importance of vendor diversity as 
a component of supply chain resiliency?
    Answer. Senator Hickenlooper, vendor diversity indeed is a key 
component of supply chain resiliency for several reasons. First, we 
need more detailed and accurate supply-chain maps to indicate which 
companies are supplying components and other inputs at different tiers 
of complex supply chains in advanced-technology industries such as 
semiconductors, aerospace, and pharmaceuticals. We need to know not 
only how many suppliers there are at crucial nodes in U.S. and global 
supply chains, but also their nationalities, their intellectual 
property rights status, and asset ownership, which is not currently 
possible with official economic statistics. For example, on May 7, 
2021, the CEO of Pfizer, Albert Bourla, stated that the company's 
Covid-19 vaccine ``requires 280 different materials and components that 
are sourced from 19 countries around the world.'' \12\ This illustrates 
the magnitude of the problem. Without greater supply-chain 
transparency, the risks of future supply-chain disruptions increase.
---------------------------------------------------------------------------
    \12\ Kevin Breuninger, ``Pfizer CEO opposes U.S. call to wave Covid 
vaccine patents, cites manufacturing and safety issues,'' CNBC News, 
May 7, 2021, available at https://www.cnbc.com/2021/05/07/pfizer-ceo-
biden-backed-covid-vaccine-patent-waiver-will-cause-problems.html.
---------------------------------------------------------------------------
    Second, firms have developed several types of ``switching 
strategies'' to mitigate the risks of policy-related or other 
disruptions to their activities in in global supply chains: (1) 
production switching--moving production to other countries not affected 
by policy restrictions or supply-side disruptions like natural 
disasters; (2) supplier switching--changing sourcing partners to 
circumvent restrictions (such as the U.S. ban against Huawei and its 
suppliers); and (3) market switching--the strategy of selling products 
in alternative countries not affected by restrictions.\13\ While these 
firm-level options are predictable, the ability to carry them out 
depends on the current organizational and geographic configuration of 
global supply chains, and frequently our information about these 
features of contemporary industries is inadequate or out of date.
---------------------------------------------------------------------------
    \13\ Gary Gereffi, Hyun-Chin Lim, and Joonkoo Lee, ``Trade 
policies, firm strategies, and adaptive configurations of global value 
chains,'' Journal of International Business Policy (2021), https://
link.springer.com/article/10.1057/s42214-021-00102-z.
---------------------------------------------------------------------------
    Third, policy tools are in place to evaluate the impact of certain 
foreign direct investment (FDI) transactions on U.S. national security, 
such as the Committee on Foreign Investment in the United States 
(CFIUS), an interagency committee chaired by the Secretary of the 
Treasury authorized to review FDI transactions that produce or deal 
with inputs critical to U.S. supply chains. However, a former U.S. 
Under Secretary for Industry and Security who has been involved as a 
decision-maker in CFIUS deliberations cautions that not all FDI 
transactions or prospective foreign buyers involve the same risks, and 
thus advises to use this tool judiciously and ``resist a reflexive, 
sweeping approach that could undermine long-term U.S. security 
interests.'' \14\
---------------------------------------------------------------------------
    \14\ Mario Mancuso, ``CFIUS and China in the post-COVID 
environment,'' Columbia FDI Perspective, No. 310, July 26, 2021, 
available at https://ccsi.columbia.edu/content/columbia-fdi-
perspectives.
---------------------------------------------------------------------------
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                           Dr. James A. Lewis
    Preparing for Supply Chain Disruptions. In your testimony, you 
emphasized the need to strengthen the industrial analysis and support 
functions at the Department of Commerce. Impact Washington, the 
Manufacturing Extension Partnership (MEP) center in my state, helps 
small-and medium-sized manufacturers to better understand their supply 
chain vulnerabilities, to improve their cybersecurity posture, and to 
identify new opportunities, among other responsibilities.

    Question 1. What role should supply chain mapping at the Department 
of Commerce play in helping the United States predict and prepare for 
supply chain disruptions, and what historical Commerce functions can be 
leveraged?
    Answer. Commerce needs to start by identifying key technologies 
whose supply are vital for national security and economic health. Every 
shortage is not a strategic problem. It then needs to identify 
potential chokepoints in the supply of those technologies, which often 
turn out to be surprisingly fragile and dependent on only two or three 
producers. As part of this, it needs to consider how reliant these 
supply chains are to just-in-time production and how much has been 
stockpiled. The answers will point to potential vulnerabilities, since 
just-in-time and small stockpiles reduce resilience in supply.
    Commerce used to have a ``Technology Administration,'' headed by an 
Undersecretary. It needs to bring this back. Right now, the Commerce 
offices that have some insight into supply chain are scattered around 
the building and there are significant lacunae in their coverage, since 
the focus is often on export controls or trade promotion. The tech 
policy function will have to be rebuilt almost form scratch.

    Question 2. In your view, how can additional resources at the 
Department of Commerce, including for cybersecurity support at the 
Manufacturing Extension Partnership program, help to prepare small-and 
medium-sized businesses for disruptions and bolster the Nation's supply 
chain resiliency?
    Answer. Commerce can help small-and medium-sized businesses (SME) 
by reinforcing market mechanism for supply chain resilience. To use 
chips as an example, there are brokers in that market who know their 
segments and the state of supply better than anyone else. Commerce 
needs to find ways to take advantage of these deep pools of knowledge 
and identify if there are areas where this deep knowledge is lacking. 
Written surveys under the Defense Production Act are not adequate. 
Commerce can act as an intermediary to connect small-and medium-sized 
businesses to these pools of knowledge, and that means commerce must 
know the market and the players the same way an analyst on Wall Street 
knows them (and that means a lot of time on the phone, plant visits, 
etc.).
    On cybersecurity, while it is not in the Committee's jurisdiction, 
the best way to help small-and medium-sized businesses is to connect 
them to DHS's Cybersecurity and Infrastructure Administration (CISA). 
Commerce does not have the expertise for this area and it would be 
redundant for it to develop it. The best support function might be to 
advise companies on foreign cybersecurity and privacy requirements that 
affect exports, particular the requirement of the European Union, where 
Commerce's ITA probably has expertise.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Jacky Rosen to 
                           Dr. James A. Lewis
    Impact of semiconductor shortage on the tourism economy. The COVID-
19 pandemic, which has created shifts in global demand, including a 
severe downturn in the travel and tourism industry, which in turn 
dramatically decreased demand for rental cars. Rental car companies 
sold off close to half of their fleets last year when travel halted, 
and are now struggling to restock fleets as auto manufacturers are 
idled by the global semiconductor shortage.
    Now, as travel and tourism rebounds for places like Las Vegas, 
visitors are unable to find available rental cars or face extremely 
high prices. This directly impacts whether or not individuals and 
families choose to travel at all--particularly for outdoor recreation 
destinations in states like Nevada that can only be reached by car, 
even after arriving in the state by air.
    The White House's 100-day Supply Chain Review recommends addressing 
such issues by building a diverse and accessible talent pipeline for 
jobs in the semiconductor industry through significant investments in 
the STEM talent pipeline.

    Question 1. Dr. Lewis, could you please elaborate on the benefits 
of investments in the STEM talent pipeline to improve our domestic 
semiconductor capacity and discuss some ways in which Congress might 
support that effort?
    Answer. Semiconductor manufacturing requires a high tech workforce. 
The American STEM workforce is strong, but there are persistent 
shortages in some areas. The U.S. has an advantage in that its 
universities remain the most attractive for STEM graduate education, 
but in many cases, the majority of students are fairing (often Chinese) 
because of the cost to American students. Increasing the number of 
American STEM students would benefit innovation and economic growth 
across the board.
    The best way to build a STEM workforce in the U.S. is to provide 
students with financial incentives to get STEM degrees. The motto for 
this is ``pay them and they will come.'' The need to create financial 
incentives to build the STEM workforce has been a consistent theme for 
more than a decade. The intent is to duplicate success that began in 
the Eisenhower administration with the 1958 National Defense Education 
Act, which created and sustained America's high -tech workforce for 
decades. Funding university research will also help, as graduate 
students from these programs will populate the high tech industry.

    Supply chain risk management. Recent, unprecedented breaches have 
revealed the cyber risks to our information and communications supply 
chain. If a product could be compromised and go unnoticed for months, 
as in the case of the SolarWinds attack, how many more software supply 
chain compromises are out there at this very moment?
    To address cyber risks to our supply chains, President Biden 
directed the Secretaries of Commerce and Homeland Security--through 
CISA--to submit a report on supply chains for critical sectors and 
subsectors of the information and communications technology industrial 
base within 100 days.

    Question 2. How can the Department of Commerce better collaborate 
with CISA to track and resolve known cyber vulnerabilities in our 
information and communications technology supply chain before an attack 
takes place?
    Answer. Collaboration between NIST and CISA is essential for better 
cybersecurity. NIST maintains the National Vulnerability Data Base. 
Legislation passed in November 2020 (the Internet of Things 
Cybersecurity Improvement Act) also requires it to work with the 
Department of Homeland Security to develop and publish guidelines on 
vulnerability disclosure and remediation for Federal IT systems. CISA 
has the authority to issue binding operational directives that require 
agencies to address vulnerabilities. . In combination, this can be 
effective. While this system works well, areas of improvement include 
timeliness, ensure broad dissemination, and improve the ability to 
integrate input on vulnerabilities from private sector researchers.

    Question 3. And in your view, would supply chain risk management 
standards, like the one published by the Department of Commerce via 
NIST, have prevented the SolarWinds breach?
    Answer. SolarWinds was the result of 1) hostile Russian action and 
2) poor coding practices. A more assertive diplomatic policy is the 
best response to the first. Sanctions or petulant letters to the 
Kremlin are insufficient. The May 2021 Executive Order, which tasked 
NIST to develop standards for secure coding which would then become 
mandatory for software products and service sold to the Federal 
government, is the best answer to the second. Companies, often 
unwittingly, sell vulnerable IT products and mandatory standards can 
begin to change this.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Kyrsten Sinema to 
                           Dr. James A. Lewis
    Federal Investment in Semiconductors. In your written testimony, 
you describe how other nations have subsidized their own domestic 
industries for decades, while the United States has not.

    Question. Why is it important that Congress support domestic 
semiconductor manufacturing in the U.S. Innovation and Competition Act?
    Answer. Companies make business decisions on where to locate or 
expand facilities, based on the cost of different locations and access 
to resources (like a skilled workforce or a good educational system). 
Semiconductor production provides real economic benefits to 
jurisdictions where it is located and semiconductors are a growth 
market that justify investment. Countries compete for a facility by 
offering tax breaks, educational support, infrastructure and land 
guarantees and other subsidies. They have assumed, correctly, that the 
net gain justifies the cost of these subsidies.
    The United States still has a dominant position in the 
semiconductor industry when measured by overall market share, but not 
in all segments of it. It leads in design and in the production of 
semiconductor manufacturing equipment, but not in fabrication (fabs). 
This was not a concern until China became a hostile competitor. In his 
celebratory speech for the 100th anniversary of the founding of the 
Chinese Communist Party, Xi Jinping said China is ``good at destroying 
the old world'' and those who oppose it ``will find their head broken 
and blood flowing against a great wall of steel built with the flesh 
and blood of more than 1.4 billion Chinese people!'' Rhetorical 
flourishes to be sure, but a good indicator of China's intent and the 
need to offset any potential vulnerability in the supply of this key 
technology. Additionally, many commentators have pointed to the 
strategic risk of depending on Taiwan as the primary source for 
advanced chip fabrication, given its proximity to China and China's 
intent to do to Taiwan what it did to Hong Kong. All of this points to 
the need to incentivize an increased chip-making capacity in the United 
States.
    Chip production in the U.S. has decline from 35 percent to 10 
percent over two decades. The goal is to rebuild this share by having 
fabs locate in the United States. To do this, the U.S. will need to 
provide incentives if it is to compete against other countries who also 
want fabs on their territory. Arguments against subsidies are that they 
distort the market or that the semiconductor industry does not need 
funding. This does not recognize competition with China and the use of 
subsidies by many nations. There is fierce competition. These subsidies 
by other governments make it more expensive to build a fab in the U.S. 
than in other countries. A decision by Congress not to fully fund the 
semiconductor industry will keep the United States at a disadvantage 
and harm national security. Semiconductors are the foundational 
technology of the 21st century. They drive economic and military 
digitalization. The United States needs reliable and assured access to 
semiconductor and it can no longer safely rely on a supply chain 
connect to China.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Raphael Warnock to 
                           Dr. James A. Lewis
    Supply chain threats are not only a result of specific national 
security components built overseas, but also a result of the failure or 
inability for domestic industries here at home to grow. Just last year, 
Congress directed the Department of Defense to assess cybersecurity 
threats to the defense industrial base and the ability of the 
Department's industrial base and private sector partners to meet 
software development needs for our national security. I recently 
visited Project Synergy in Warner Robins, Georgia, a cutting-edge 
software laboratory built on a partnership between Robins Air Force 
Base's software depot maintenance and the regional Mercer College's 
engineering and computer science schools. One of their top requests was 
increased investment in STEM education and a strong workforce pipeline 
to ensure they can grow to meet their current needs and the threats of 
the future.

    Question 1. What is the role of investments in domestic human 
capital, education, and workforce development as a component of supply 
chain resiliency--particularly as we invest in critical growth 
industries like cybersecurity and computing?
    Answer. In 1983, Deng Xiaoping looked around China and found it 
lagging far behind in technology. To remedy this, he created programs 
to build the STEM workforce by subsiding education and research. He 
knew that technological strength and innovation capabilities require a 
strong workforce. Deng was inspired in part by the US's National 
Defense Education Act (NDEA). This is ironic because in recent decades, 
the U.S. has seen the number of STEM student decline while China's 
continues to grow. WE all know anecdotally of STEM programs at U.S. 
universities where foreign students make up the majority of a class. 
The ration of U.S. to foreign is moving in the wrong direction and 
support for STEM can change this. Regional and two-year colleges play 
an important part in this effort, since they are often best suited to 
building the technology workforce.
    The easy fix to this is to spend on STEM education by subsidizing 
student tuition. A good motto is ``if you pay them, they will come.'' A 
program focused on STEM and offering full or partial tuition coverage 
for students to obtain degrees in math, physics, material sciences, 
computing, and other related disciplines would increase the workforce. 
NDEA also supported the study of foreign languages, but a new effort 
should focus first on STEM.

    Question 2. How can Congress support these efforts?
    Answer. Congress can usefully support these efforts in two ways. 
The first, as noted above, involves subsiding students to allow them to 
choose the school and the program. The second is more difficult, but 
the rate of increase in tuition far outpaces inflation. A badly 
designed tuition subsidy program could contribute to this, and it may 
be necessary to impose tuition caps or limitation on what courses will 
be supported, Congress can mandate attention to how to increase the 
productivity and rein in costs in higher education, but this is a long-
term problem, and the immediate need is to increase the size of the 
STEM workforce
                                 ______
                                 
Response to Written Question Submitted by Hon. Shelley Moore Capito to 
                           Dr. James A. Lewis
    Question. On June 16th, I wrote a letter to Federal Maritime 
Commission (FMC) Chairman Maffei regarding the ongoing shipping crisis. 
I appreciate Chairman Maffei's expeditious and thorough response to my 
letter and the FMC's commitment to doing whatever it can--within their 
jurisdiction--to address the issue.
    In Chairman Maffei's response, he noted that most ocean containers 
and chassis are manufactured in China. It is only recently that other 
nations--like India, Vietnam, and Korea--are considering policies to 
develop or expand their manufacturing capabilities of intermodal 
equipment. You mention in your testimony that one of the U.S.'s 
advantages in securing a resilient supply chain are our allies.
    In your opinion, what strategies should we take to support a 
multinational commercial innovation base?
    Answer. Not all products made in China create security risks. To 
assess this, we might want to ask how easy it would be to duplicate the 
item if China blocked supply, whether there are movements in pricing 
that indicated intentional interference with a supply chain or 
predatory trade practices, and whether China's share of the market 
provides it with an opportunity such interference.
    In many instances, manufacturing moved to China because of its low 
cost labor, government subsidies, and in some cases, the weak 
regulatory structure (as in environmental protections). Labor costs 
have risen in China, but as we discovered during the pandemic with 
personal protective equipment, a supply chain dominated by China 
creates security risks and raises issues with quality and reliability. 
Supply chain security requires that we ask in what industries do we 
need to reduce dependence on China and what can we continue to safely 
export or import from China (recognizing that this is a shrinking 
space).
    We are not alone in having these concerns and a first step is to 
work with similarly inclined nations to respond to China's predatory 
trade practices. Low labor costs alone do not explain why industries 
moved to China, which has displayed a general disregard for its WTO 
commitments since it was admitted. Second, we need to invest 
domestically and find new ways to cooperate with security partners to 
accelerate the ability of private entrepreneurship to create new 
technologies.
    In many ways, reducing reliance on supply chains that originate in 
China is inevitable. China is not interests in global supply chains, 
unless it can dominate them. To do this, it will use any means 
regardless of its WTO obligations. Distrust of China continues to grow 
in the U.S. and elsewhere. While price may dictate continued purchases 
form China, both trade and security policy may requires limiting 
purchased from China. This will probably be incremental, first 
affecting with the most sensitive (from a security perspective) 
acquisitions. The issue for the U.S. is to identify where the security 
risk are low and continued reliance on China is appropriate. The best 
approach for contained would be to encourage other suppliers to enter 
the market and penalize China for predatory trade practices.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Maria Cantwell to 
                           Richard Aboulafia
    Aviation Workforce. Workforce shortages are known causes of supply 
chain disruptions. Maintaining a highly-skilled workforce in the multi-
tiered aviation supply chain helps ensure that firms can meet future 
demand for valuable U.S. exports and compete with international firms. 
In your testimony, you indicated that market factors such as fuel, 
financing, and availability are creating the ``perfect formula'' for 
renewed large aircraft orders.

    Question. After the COVID-19 pandemic caused smaller tier suppliers 
to close manufacturing facilities and consolidate their employees, do 
you think the aerospace manufacturing supply chain is prepared to meet 
demand? Would you recommend investing further in any existing Federal 
programs, such as the Department of Transportation's Aviation Workforce 
Development Grants, to strengthen the ability of the aviation sector to 
deter long-term risks of workforce shortages?
    Answer. First, while I am still optimistic that the market for 
single-aisle jetliners is coming back, the arrival of the Covid Delta 
variant is clearly putting pressure on aviation recovery indicators. We 
could easily see a longer-than-expected slump in air travel demand, 
leading to a significantly delayed recovery in new aircraft demand, and 
in demand for maintenance, repair, and overhaul services for the 
existing fleet. This, in turn, puts pressure on suppliers, who were 
just starting to recover from the worst aviation market downturn in 
history.
    But also importantly, many smaller U.S. aviation industry suppliers 
came through, and are still coming through, the crisis by reducing 
costs to the greatest extent possible. They did everything they could 
to raise money--selling assets, taking on debt, furloughing workers, 
cutting headcount, and of course reducing hiring to a bare minimum. 
Since this process is unfolding over at least two or three years, that 
represents a significant reduction in the number of new employees 
entering the industry.
    In short, whether or not the market recovers, securing the next 
generation of aviation workers remains a key concern.
    To me, workforce development and training grants represent the best 
use of government dollars to help the aviation industry compete in the 
long run. The Department of Transportation's Aviation Workforce 
Development Grants is a very strong program. Since funding for 
vocational training has fallen markedly over the past few decades, it 
would be good to see additional funding enacted to support vocational 
training institutions for a broad variety of aerospace functions (CNC 
operations, machining, Airframe & Powerplant mechanics, etc.). One 
option would be Federal matching grants to the states, educational 
institutions, community colleges, and other entities providing this 
training. These programs and initiatives will play a key role in the 
aviation industry supply base's future competitiveness and health.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                       William ``Lex'' Taylor III
    Supply Chain Resiliency. Other hearing witnesses noted the 
importance of promoting supply chain resiliency from the bottom up, 
with a focus on companies or groups of companies, universities, and 
government united by a common goal. By example, Washington state has 
cultivated technology and innovation clusters around the maritime, 
timber, and aerospace sectors.

    Question 1. How can the Department of Commerce integrate smaller, 
innovative companies into its supply chain planning activities?
    Answer. A suggestion for the Commerce Dept. is to direct NIST to 
give more focus toward supporting each State's industry association 
partnerships to more directly assist the small and medium companies to 
advance and increase their output to the supply chain. An example of 
this in Mississippi is the Manufacturing Extension Partnership (MEP) 
program administered by the Mississippi Manufacturers Association. The 
MEP is giving focused support to small manufacturers for services that 
they could ill afford from consulting firms.
    The Dept. of Commerce should also work in conjunction with the EPA 
to streamline the permitting process for green field and additional 
floorspace expansion projects. For instance, develop a secure web 
portal to upload required documentation rather than letters, e-mails 
and faxes. This would allow for faster permit approvals from that one 
portal.

    Question 2. What lessons can the Nation take from the private 
sector on building resilient supply chain infrastructure in a way that 
supports sustainable growth for small-to large-size suppliers?
    Answer. The private sector generally will promote discounts or 
warranty extensions to entice their customers or prospective customers 
to increase business with them. Likewise, the government can do the 
same with tax incentives programs and liability protections to entice 
manufacturers to invest in America for job growth and facility 
expansion to improve the supply chain.
    The private sector makes strategic plans for alternative supply in 
anticipating interruptions of their main supply sources. The government 
should do the same by not limiting strategic reserve contracts to union 
only shops or lowest price only contracts.
                                 ______
                                 
Response to Written Question Submitted by Hon. Shelley Moore Capito to 
                       William ``Lex'' Taylor III
    Question. Dr. Gereffi and Mr. Taylor, you both mentioned the need 
to be wary of unintended consequences before implementing policy. I 
agree and believe that our current market system has been relatively 
dynamic when addressing supply disruptions and pulling us out of the 
pandemic, especially when given additional flexibility from Federal 
regulations. Are there any consequences you believe Congress should be 
mindful of? What have been some examples of unintended consequences 
your companies has dealt with during the pandemic?
    Answer. One of the biggest unintended consequences of government 
implementing policy on the current market system is on the procurement 
of steel. Within the last year, the average price of hot-rolled coil 
(HRC) has tripled from $464/short ton to $1,491/short ton. Spot hot-
rolled coil prices has continued to rise as limited sales and offers 
pushed prices above $1,800/short ton earlier this month. The Section 
232 tariffs originally put in place to counter Chinese overcapacity of 
steel production but were implemented in a way that created numerous 
problems for U.S. manufacturers and disrupted North America's critical 
supply chains that are critical to our Nation's economic recovery from 
the COVID-19 pandemic. The Section 232 tariffs on steel have resulted 
in increased production costs, extended lead times, product scarcity, 
decreased exports, and workforce shortages that have become detrimental 
to domestic manufacturers and a boon to our foreign competitors.
    Even with near record steel prices and diminished foreign 
competition, U.S. steel mills refuse to operate at full capacity, and 
recent consolidation within the industry has resulted in fewer domestic 
producers. Our national economic recovery depends on U.S. companies 
creating more family-sustaining jobs, not price gouging domestic steel 
consuming manufactures. Congress and the Administration need to remove 
the Section 232 tariffs on our trading partners and allies, and compel 
U.S. steel mills to bring more capacity online and hire more American 
workers.
    One final example of unintended consequences is the government 
stipend to unemployment benefits. While giving much needed help to 
those individuals placed on layoff during the early uncertain days of 
the COVID pandemic; the lack of forethought for what to do as the 
economy recovers has caused a lingering problem for employers to bring 
back on that labor force as their respective business recovers. This 
has greatly exacerbated the ability to bring the supply chain back on 
line.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Jacky Rosen to 
                             Dr. Dario Gil
    Impact of semiconductor shortage on the tourism economy. The COVID-
19 pandemic has created shifts in global demand. This includes a severe 
downturn in the travel and tourism industry and a dramatic decrease in 
demand for rental cars. Rental car companies sold off close to half of 
their fleets last year when travel halted, and are now struggling to 
restock as auto manufacturers are idled by the global semiconductor 
shortage.
    As a consequence, despite travel and tourism rebounding in places 
like Las Vegas, visitors are unable to find available rental cars or 
face extremely high prices. This directly impacts whether or not 
individuals and families choose to travel at all--particularly for 
outdoor recreation destinations in states like Nevada that can only be 
reached by car, even after arriving in the state by air.
    The White House's 100-day Supply Chain Review recommends addressing 
such issues by building a diverse and accessible talent pipeline for 
jobs in the semiconductor industry through significant investments in 
the STEM talent pipeline.

    Question. The White House's report also suggests that to rebuild 
our industrial base and hopefully prevent supply chain disruptions, 
like the semiconductor shortage, the Federal government should work 
with industry and labor to create and support registered apprenticeship 
programs and skilled workers. Dr. Gil, can you discuss ways in which 
Congress can help companies like IBM support workforce development?
    Answer. Thank you for the question, Senator Rosen. Semiconductor 
supply chain disruptions will impact nearly 169 industries in the 
United States by year-end, including tourism and hospitality.\1\ A lack 
of semiconductors has caused a shortage of point-of-sale machines in 
restaurants and bars, hobbling our post-pandemic jobs recovery.\2\ 
Ultimately, semiconductor ecosystems are driven by the diverse and 
constantly evolving talents of American workers. We propose four ways 
for Congress to help IBM support workforce development:
---------------------------------------------------------------------------
    \1\ ``The Semiconductor Shortage of 2021,'' Goldman Sachs, March 
17, 2021. https://www.goldmansachs.com/insights/pages/the-
semiconductor-shortage-of-2021.html.
    \2\ ``No Chips, No Tips: How the computer Chip Shortage threatens 
Thousands of Restaurant Service Jobs,'' The Washington Post, June 11, 
2021. https://www.washingtonpost.com/business/2021/06/11/restaurant-
workers-computer-chip-shortage/.

  1.  Support the CHIPS Act and the creation of the National 
        Semiconductor Technology Center (NSTC). The NSTC should be a 
        force for inclusive, good-paying jobs across the United States. 
        To this end, the NSTC should collaborate with universities, 
        community colleges, workforce agencies, and the private sector 
        to build skills pathways to jobs in the semiconductor industry 
---------------------------------------------------------------------------
        that result in long-term outcomes for all Americans.

  2.  Increase funding for registered apprenticeships and reduce 
        obstacles to the use of apprentices in Federal contracts. In 
        order to proactively address skills gaps and support continued 
        skills development among workers, IBM launched the New Collar 
        Jobs program, which uses registered apprenticeship programs to 
        create skills pathways for workers without advanced degrees.\3\ 
        IBM has 25 registered apprenticeship roles in 16 states and 24 
        cities, and we have hired 500 apprenticeship graduates as full-
        time IBMers. IBM has partnered with the American Association of 
        Community Colleges and the Department of Labor to launch the 
        Expanding Community College Apprenticeships initiative, which 
        aims to train an additional 16,000 apprentices over three 
        years.
---------------------------------------------------------------------------
    \3\ ``IBM New Collar Programs,'' IBM, https://www.ibm.com/us-en/
employment/newcollar/.

  3.  As it builds the NSTC, encourage the Department of Commerce to 
        again convene stakeholders to resolve governance issues in the 
        electronic exchange of credentials between educators and 
        employers. Improving the technical infrastructure to better 
        support the electronic exchange of education and skills-based 
        credentials would significantly ease the management and 
        exchange of these certifications, empower learners with trusted 
        skills-based information, and align their skills to in-demand 
        jobs. In 2020, IBM joined with other employers, education 
        institutions--including community colleges--and education 
        service organizations to demonstrate an education and 
        employment record exchange. The Department of Commerce played a 
---------------------------------------------------------------------------
        critical convening role in that demonstration.

  4.  Modernize pathways to STEM fields. To maintain our global 
        competitiveness, we must dramatically increase the number of 
        individuals from underrepresented communities in STEM fields, 
        as noted in the National Science Board's Vision 2030 report.\4\ 
        IBM has committed to investing $100 million in technology, 
        assets, resources, and skills development through partnerships 
        with historically black colleges and universities (HBCUs) 
        through the IBM Skills Academy Academic Initiative. In 
        addition, the IBM-HBCU Quantum Center includes twenty-three of 
        the Nation's HBCUs.\5\ And IBM supports National Science 
        Foundation (NSF) scholarships in baccalaureate education at 
        Minority Serving Institutions (MSI) focused upon quantum 
        science and applied quantum technologies.
---------------------------------------------------------------------------
    \4\ National Science Board Vision 2030,'' National Science Board, 
May 2020. https://www.nsf.gov/nsb/publications/2020/nsb202015.pdf.
    \5\ ``The IBM-HBCU Quantum Center grows rapidly in scope,'' IBM, 
February 22, 2021. https://www.ibm.com/blogs/research/2021/02/ibm-hbcu-
quantum-center-expands.

    But, while the private sector devotes significant funding to STEM 
education, we need to do more to collaboratively addresses urgent areas 
of need, share resources, and bring the combined weight of the 
government and industry together to ensure increased diversity in STEM 
fields. As a start, Congress could reform the Higher Education Act 
(HEA) including loosening Federal work study restrictions to 
accommodate off-campus work experience in the private sector; expanding 
Pell Grants to cover skills education for part-time students and mid-
career professionals; and making career-oriented education beyond 
bachelor's and other traditional education degrees eligible for Federal 
student loans.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Kyrsten Sinema to 
                             Dr. Dario Gil
    Federal Investment in Semiconductors. The Senate passed the U.S. 
Innovation and Competition Act in June, which builds on the CHIPS for 
America Act by providing $50 billion for American semiconductor 
manufacturing.

    Question. How will this Federal funding for CHIPS Act grants 
support American semiconductor manufacturing and enable domestic 
manufacturers to develop state-of-the-art semiconductor technology?
    Answer. Thank you for the question, Senator Sinema. To build 
semiconductor supply chain resilience and ensure that next-generation 
semiconductor breakthroughs occur in the United States, we must 
manufacture and invest in research and development. One cannot happen 
without the other. This requires a robust investment in the United 
States, and therefore we strongly support CHIPS Act funding for 
semiconductor manufacturing grants, as well as the creation of the 
National Semiconductor Technology Center (NSTC). Together, they address 
short-term supply chain challenges, and long-term research and 
development needs by leveraging existing semiconductor ecosystems.
    As outlined in my written testimony, a well-structured and governed 
public-private NSTC could address immediate shortfalls by building on 
billions of dollars in previous and existing semiconductor 
infrastructure investments. In addition, the NSTC would promote 
collaboration between industry, academia, and government in advanced 
development, prototyping and packaging, and advanced manufacturing 
capabilities, serving as an important link between academic research, 
government R&D labs and programs, company specific R&D, and product 
manufacturing. Such an approach would help spur new capacity and job 
creation in America, enabling American innovators, big and small, to 
move semiconductor designs to any manufacturing plant. And it would 
provide needed flexibility in the United States manufacturing supply 
chain to support both government and commercial needs.
    Furthermore, to deliver outcomes long into the future, the NSTC 
should leverage existing, proven ecosystems for semiconductor research 
and development with strong track records of leading-edge innovation. 
IBM has a track record of semiconductor breakthroughs: in May, we 
unveiled the world's first 2 nanometer chip, which could quadruple cell 
phone battery life, cut the carbon footprint of data centers, and 
drastically speed up a laptop's functions. This was achieved by IBM at 
the Albany Research Center, an existing multi-company semiconductor 
ecosystem with over 20 industry and university partners. Work on 
advanced photo-lithography capability including EUV (Extreme Ultra-
Violet Lithography), advanced logic pathfinding, AI hardware research, 
and the development of new semiconductor materials is already underway 
at the Center, in New York. It offers an ideal environment from which 
to build and scale the NSTC. Fully funding the CHIPS Act, including the 
NSTC, will create a rising tide that will lift all boats.
                                 ______
                                 
  Response to Written Question Submitted by Hon. John Hickenlooper to 
                             Dr. Dario Gil
    Tech Apprenticeships & Credentials. In your testimony you advocated 
for technical apprenticeships and credential systems in order to grow 
our high-tech workforce and support the semiconductor industry. As 
Governor of Colorado, we started the National Cybersecurity Center in 
Colorado Springs to provide students and local governments with hands-
on cyber training and skills.

    Question. What role should these programs play in supporting mid-
career transitions and creating new professional pathways?
    Answer. IBM supports the creation of multiple education and 
training pathways that lead to good jobs. The National Cybersecurity 
Center (NCC) in Colorado Springs provides in-demand cybersecurity 
skills and training. Graduates often enter local government, where they 
deploy their skills to protect highly sensitive information and 
systems. Educational pathways, such as those offered by the NCC, 
improve equity, jobs, and pay. Making them more widely available is an 
economic imperative that our country cannot afford to ignore. IBM urges 
three additional steps to support mid-career transitions and the 
creation of new professional pathways:

  1)  Better connect pathways to existing education and training 
        systems: Nationally, only 13 percent of students who enrolled 
        in community college in 2010 earned a bachelor's degree by 
        2016. In most states, reducing obstacles to transferring 
        credits would significantly improve those outcomes while 
        reducing taxpayer and student costs. An example of good 
        practices in Colorado is Pikes Peak Community College (PPCC), 
        which offers AAS and Certificates in Cyber Security. 
        Transferring credits to the University of Colorado at Colorado 
        Springs (UCCS) is possible and the courses that transfer from 
        PPCC to UCCS are clearly defined.\1\ PPCC and UCCS are to be 
        commended on the clarity of their transfer pathway. Reducing 
        obstacles to educational pathways could also bolster the value 
        of NCC training.
---------------------------------------------------------------------------
    \1\ https://transfer.uccs.edu/sites/g/files/kjihxj1551/files/
inline-files/BC%20CSBA-Cyber%
2021-22.pdf

  2)  Use industry recognized certifications: For example, NCC awards 
        certifications to completers but may not award the most 
        valuable industry recognized certifications in the Colorado 
        employment marketplace. CIO Magazine lists 10 top IT 
        certificates, including cybersecurity.\2\ NCC should ensure 
        that its training (and the certificates awarded) best align 
        with the needs of the Colorado job market. IBM is working with 
        employers on a Learning Credential Network to ease the 
        management and exchange of these kinds of credentials--
        providing a secure and trusted source for all skills-based 
        credentials.
---------------------------------------------------------------------------
    \2\ https://www.cio.com/article/3562331/top-15-it-certifications-
in-demand-for-2021.html

  3)  Increase apprenticeship funding: Apprenticeships can be a 
        valuable pathway to jobs for Colorado and NCC students and help 
        create a more diverse workforce. In October 2017, IBM launched 
        its first of a kind technology focused Department of Labor 
        Registered Apprenticeship Program. The program grew nearly 
        twice as fast as expected in its first year. IBM 
        apprenticeships focus on building skills in rapidly growing 
        fields, such as cybersecurity and cloud network management. 
        This 12-24 month earn while you learn program pairs apprentices 
        with an IBM mentor to work through real-world projects and 
        provides traditional classroom learning in technology's 
        fastest-growing fields. IBM is partnering with the American 
        Council on Education (ACE) to increase transfer of credit from 
        apprenticeship programs. To achieve this goal, ACE will 
        evaluate selected apprenticeship programs for college credit 
        and workplace competencies based on input from schools and 
        employers. Higher education partner institutions will receive 
        support to articulate the apprenticeship credits into degree 
        programs.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Kyrsten Sinema to 
                             John S. Miller
    Federal Investment in Semiconductors. In your written testimony, 
you describe the importance of the $50 billion authorized by the Senate 
in the CHIPS Act and funded in the U.S. Innovation and Competition Act 
for the semiconductor industry.

    Question. In addition to direct investment, what other options 
would you recommend either the Commerce Department or Congress pursue 
to further increase the capacity of American semiconductor 
manufacturing?
    Answer. Thank you for the question, it is an important one given 
the importance of U.S. semiconductor leadership to both economic 
competitiveness and national security, and also due to the reality that 
increasing domestic manufacturing capacity will take time. There are 
several options we recommend the Commerce Department and Congress 
pursue to address this issue.
    First, it will be important to utilize tax policy to encourage and 
enable greater investment in the U.S. semiconductor ecosystem, such as 
through maintaining a competitive corporate tax environment, offering 
investment tax credits (ITCs) to further incentivize building new and 
modernizing existing semiconductor manufacturing facilities in the 
United States, and ensuring companies may continue to deduct research 
and development (R&D) expenses in the year incurred.
    Second, the U.S. should enhance cooperation with global partners 
and allies to ensure stability of the global semiconductor supply chain 
by convening formal supply chain reviews and other efforts to minimize 
damaging interruptions. The U.S. should also deepen trade and 
investment relationships and address unintended trade barriers that 
restrict supply chain resilience by organizing tech-sector specific 
dialogues, increasing digital trade partnerships, enhancing regulatory 
compatibility, and reducing barriers to trade through increased 
bilateral, regional, and multilateral engagement with partner 
economies. The newly launched EU-U.S. Trade and Technology Council 
provides an excellent venue for pursuing international cooperation on 
semiconductor supply chain issues.
    Third, the U.S. needs to strengthen public-private partnerships by 
convening industry and government experts to enable a holistic view of 
the semiconductor supply chain and risks, and utilize such partnerships 
to develop a coherent, streamlined, holistic, coordinated long-term 
approach to address ICT supply chain security.
    Fourth, the U.S. should support semiconductor R&D through 
innovation-forward economic policies, such as those that open markets 
and minimize burdens on U.S. overseas sales to ensure continued robust 
R&D funding and market leadership.
    Fifth, the U.S. should advance policies to ensure that America has 
the highly-skilled technology workforce necessary to support increased 
semiconductor manufacturing capacity, including providing funding for 
science, technology, engineering, and mathematics (STEM) and computer 
science education and advancing legislative proposals for immigration 
reforms.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Raphael Warnock to 
                             John S. Miller
    Supply chain threats are not only a result of specific national 
security components built overseas, but also a result of the failure or 
inability for domestic industries here at home to grow. Just last year, 
Congress directed the Department of Defense to assess cybersecurity 
threats to the defense industrial base and the ability of the 
Department's industrial base and private sector partners to meet 
software development needs for our national security. I recently 
visited Project Synergy in Warner Robins, Georgia, a cutting-edge 
software laboratory built on a partnership between Robins Air Force 
Base's software depot maintenance and the regional Mercer College's 
engineering and computer science schools. One of their top requests was 
increased investment in STEM education and a strong workforce pipeline 
to ensure they can grow to meet their current needs and the threats of 
the future.

    Question 1. What is the role of investments in domestic human 
capital, education, and workforce development as a component of supply 
chain resiliency--particularly as we invest in critical growth 
industries like cybersecurity and computing?
    Answer. Addressing America's workforce shortage must be at the top 
of the list when tackling the cybersecurity and technology challenges 
this Nation faces. The global cybersecurity workforce shortage is 
particularly acute, and impacts companies and governments alike. 
Projections as of a few years ago estimated there would be 
approximately 3.5 million open cybersecurity jobs globally in 2021, 
with the United States accounting for roughly a half-million of those 
open positions. My guess is that the actual numbers today may well be 
higher.
    Investment in education and training of the U.S. workforce is a 
part of the solution, and many ITI member companies partner with 
universities in support of science, technology, engineering, and 
mathematics (STEM) education indicatives. Additionally, the workforce 
shortage provides a good reminder of one of the reasons ITI has long 
advocated for a collaborative, public-private approach to resolving 
cybersecurity and supply chain challenges; the partnership model 
enables both government and industry to leverage shared cybersecurity 
resources they would otherwise not have access to.

    Question 2. How can Congress support these efforts?
    Answer. ITI and our member companies appreciate the U.S. Innovation 
and Competition Act's (USICA) sponsors for their attention to the 
workforce issue, by addressing STEM education which is foundational to 
training workers needed to enable the technologies of the future as 
well as the diversity pipeline. The United States operates at maximum 
global competitiveness when our workforce is both well-equipped in 
terms of both knowledge and skills and diverse. ITI is supportive of 
numerous pieces of legislation which, if passed, would promote 
cultivating a proficient workforce, including the Advanced 
Technological Manufacturing Act sponsored by Senators Cantwell and 
Wicker. Other legislation that ITI has been supportive of that address 
the workforce challenge include the Rural STEM Education Act sponsored 
by Senators Wicker, Rosen, Cornyn, and Hassan; and the and the 
Institutional Grants for New Infrastructure, Technology, and Education 
for (IGNITE) HBCU Excellence Act sponsored by Senators Coons and Scott.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Shelley Moore Capito to 

                             John S. Miller
    Question 1. I believe the significant investments and priorities 
that were included in the United States Innovation and Competition Act 
(USICA) will keep the United States competitive now and into the 
future. A critical component was the funding needed to implement 
provisions of the CHIPS Act. However, a number of these provisions may 
take years to implement and even longer to bear fruit. What are some 
short-term measures that should be taken to address the current 
semiconductor shortage? Can those measures be handled by the private 
sector or are there recommendations for the Department of Commerce in 
order to address the shortage?
    Answer. Thank you for the question, it is an important one given 
both the significance of the semiconductor challenge facing the U.S., 
but also due to the reality that increasing domestic manufacturing 
capacity will take time.
    First, it is important to identify opportunities to utilize tax 
policy in the near-term to encourage and enable greater investment in 
the U.S. semiconductor ecosystem, such as through maintaining a 
competitive corporate tax environment, offering investment tax credits 
(ITCs), and ensuring companies may continue to deduct research and 
development (R&D) expenses in the year incurred.
    Second, the U.S. has the opportunity now to enhance cooperation 
with global partners and allies to ensure stability of the global 
semiconductor supply chain by convening formal supply chain reviews and 
other efforts to minimize damaging interruptions. Deepen trade and 
investment relationships and address unintended trade barriers that 
restrict supply chain resilience by organizing tech-sector specific 
dialogues, increasing digital trade partnerships, enhancing regulatory 
compatibility, and reducing barriers to trade through increased 
bilateral, regional, and multilateral engagement with partner 
economies.
    Third, the private sector has significant expertise on supply chain 
management that can benefit U.S. government stakeholders including the 
Department of Commerce. The U.S. needs to strengthen public-private 
partnerships by convening industry and government experts to enable a 
holistic view of the semiconductor supply chain and risks, and utilize 
such partnership to develop a coherent, streamlined, holistic, 
coordinated long-term approach to address ICT supply chain security.

    Question 2. I agree with the sentiments in your testimony about the 
inclusion of Regional Technology Hubs in the USICA. I believe that 
geographic diversity of supply chains are not only beneficial to 
producers, but especially important to the economic development of more 
rural communities. Could you elaborate on how supporting such hubs will 
support innovation, especially among smaller players?
    Answer. ITI welcomes funding for the regional technology hubs to 
help increase the geographic diversity of supply chains across the 
U.S., and I appreciate your point that such hubs will also support 
innovation among smaller players, particularly as the presence of such 
hubs should help spur workforce development and attract the highly 
skilled workforce of the future to rural and underserved communities 
that smaller players will need to support innovation. Maintaining a 
trained domestic workforce is key to ensuring a resilient semiconductor 
supply chain in the United States, and is a necessary precursor to 
ensure the talent is available to support the Regional Technology Hubs.
    Policymakers should support significant funding for science, 
technology, engineering, and mathematics (STEM) and computer science 
education through these technology hubs, which should consist of 
technical training opportunities and new advanced hardware for 
teachers; expanded access to high-quality instructional materials and 
rigorous STEM and computer science coursework; hands-on practical 
experience for students; and effective regional partnerships. Moreover, 
policymakers must ensure that all students have access to high-caliber 
STEM and computer science education, including underrepresented 
minorities and girls.
    Developing Regional Technology Hubs will also provide an additional 
strategic benefit for the United States: improving the resiliency of 
U.S. semiconductor and other supply chains. The ICT SCRM Task Force's 
study of the impacts from COVID-19 on ICT supply chains underscored the 
need for an approach to improving supply chain resiliency that was 
already underway over the last six years: diversifying supply chains to 
a broader array of locations and away from single source/single region 
suppliers. While the study was focused on the impacts of single source/
single region suppliers outside the U.S., there are a variety of 
reasons why increasing the geographic diversity of supply chains within 
the U.S. can also improve resiliency, for example, by broadening 
supplier networks and lessening the overall potential impacts of 
natural disasters such as hurricanes, floods, and wildfires on 
manufacturing, logistics, transportation and other elements of supply 
chains.

    Question 3. You mention in your testimony that the Department of 
Commerce should be asked which bureau, office, or entity is best 
equipped to coordinate supply chain resiliency strategies. In your 
opinion, which bureau, office, or entity should Commerce consider to be 
the lead?
    Answer. What is more important than identifying which bureau, 
office or entity is designated as the lead is ensuring that whichever 
entity is so designated is fully resourced, equipped with a sound 
Commerce-wide strategy, and empowered to lead and coordinate on behalf 
of all Commerce Department entities to execute on that strategy. The 
Bureau of Industry and Security could potentially serve as the 
convening force to coordinate supply chain resiliency strategies and 
activities at Commerce, based on its recent track record of working 
closely with industry and demonstrated expertise in delivering the 100-
day review report. However, it is important to point out that BIS did 
not execute that report alone, and worked with ITA and other entities 
within the Department of Commerce, and also that BIS has a substantial 
number of other priorities including in the expansive area of export 
controls.

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