It has been publicly reported that discussions are underway within the Trump Administration for a coordinated interagency initiative to remove key industrial supply chain dependencies from overseas, especially China, and redouble efforts to secure such supply chains in the United States. While this initiative proceeds alongside ongoing efforts to secure supply chains in sectors such as semiconductor manufacturing, rare earth minerals processing, and more recently, medical supply manufacturing, the new initiative is expected to extend beyond such sectors in an effort to reduce import dependencies in a range of industries, such as advanced manufacturing. Further, the Administration’s effort is expected to involve expanded government action, including both affirmative and punitive measures, to encourage the reshoring of production. This report addresses what is currently known, and, importantly, what is still uncertain, regarding the new initiative.

  1. What is the current status of this initiative?

The initiative is under active discussion within the U.S. government. Recent public reporting, as well as recently announced administrative actions, have signaled this broader initiative. For example, Keith Krach, the U.S. Department of State Undersecretary for Economic Growth, Energy, and the Environment, recently stated that the Administration is “turbo-charging” its efforts to reduce reliance on supply chains in China. Robert Lighthizer, the U.S. Trade Representative, also recently published an op-ed criticizing the “overreliance” on other countries for critical products as a strategic vulnerability.

Our understanding is that the U.S. Departments of Commerce, State, Treasury, and Defense, as well as the Office of the U.S. Trade Representative, are involved in interagency discussions. Further, the Administration’s initiative appears to be bolstered by the broad support of lawmakers, who are discussing legislative measures to secure medical and other supply chains in the United States. 

  1. What has the Administration done so far and what is different with this initiative?

The Administration has been engaged in ongoing efforts to reduce supply chain dependencies regarding key defense and strategic products, such as advanced semiconductor manufacturing and rare earth minerals processing. On semiconductors, the Administration recently negotiated the construction of a new Taiwan Semiconductor Manufacturing Co. semiconductor production plant in Arizona after expressing growing concern about the United States’ reliance on Taiwan for advanced semiconductors, and is reportedly in similar negotiations with Intel for a domestic plant. On rare earth minerals processing, the Department of Defense is contemplating funding for rare earth processors to build separation facilities in the United States with the explicit goal of reducing the United States’ dependence on China, and has increasingly made rare earth minerals projects a focus of the National Defense Authorization Act (NDAA).

Finally, in light of critical supply shortages during the COVID-19 pandemic, the Administration has recently focused on the medical supply chain, with Administration officials reportedly discussing a proposed executive order to streamline regulatory approvals for U.S.-made products and encourage the U.S. government to only buy U.S.-made medical products.

While reducing supply chain dependencies in sectors such as semiconductors and rare earth minerals has been a focus of the Administration for some years, the new interagency initiative reportedly will look beyond these traditional sectors–all industrial sectors where there may be a supply chain dependency are now in play.

  1. What are the new sectors under focus?

This remains under discussion. It is our understanding that U.S. government agencies are still deliberating as to which new industrial sectors should be the target of new measures based on the United States’ import dependencies, especially in relation to China. However, we expect information communications technology (ICT) products to be a focus, as well as other areas of advanced manufacturing in which China is pursuing a dominant market share globally, such as electric vehicle technology. We also expect sectors related to critical infrastructure to be an additional area of focus, as evidenced by the recent executive order on “Securing the United States Bulk-Power System,” which, as we explain in this alert, declares a national emergency with respect to “the unrestricted foreign supply of bulk-power system electric equipment” and delegates to the Department of Energy the authority to prohibit or require mitigation measures in connection with purchases of certain equipment.

  1. What are the new or expanded measures that may be utilized?

We expect the Administration to utilize both affirmative and punitive measures to encourage the reshoring of production. Possible affirmative measures under discussion include tax incentives for companies that shift operations back to the United States, or even government-backed loans or direct assistance, including a possible $25 billion fund to encourage U.S. companies to exit China. Administration officials have also discussed the possibility of reimbursing the moving costs for U.S. companies in Hong Kong or mainland China seeking to move back to the United States. Further, the Administration is reportedly contemplating deregulation to facilitate companies in certain sectors to operate in the United States.

Punitive measures may include increased use of the Administration’s investigative, trade remedies, and sanctions powers. The Commerce Department recently announced two new investigations under Section 232–one which examines whether certain transformer-related items are being imported into the United States in a way to threaten national security, and another which investigates whether the present imports of vanadium, a mineral with national defense and critical infrastructure applications, pose a national security risk. Such Section 232 investigations may become more commonplace as part of the initiative. Further, we expect the Administration to continue to utilize executive orders to exert pressure in particularly sensitive sectors, as exemplified by the issuance of the executive orders on “Securing the Information and Communications Technology and Services Supply Chain” and “Securing the United States Bulk-Power System.”

Finally, we also expect increased utilization of NDAA provisions to shore up U.S. production of key strategic goods through a combination of affirmative and punitive measures. On the one hand, the NDAA may be used to allocate funds to support domestic manufacturing of items critical to the defense supply chain. On the other hand, the NDAA may also be used to impose further broad restrictions on the procurement of products or services from non-domestic sources, such as the Fiscal Year 2019 Section 889 provisions which will become effective on August 13, 2020, prohibiting the U.S. government from contracting with any entity that uses Huawei and other specified Chinese ICT.

The interagency initiative remains a fluid development, and the exact focus and implementation of the initiative are still to be crystallized. We understand that the Administration is also in discussions with industry leaders to gauge their reactions on the interagency initiative and to encourage attention to reducing supply chain dependencies. We will continue to monitor and report on these developments.

  1. What is motivating this supply chain push and will it sustain past the 2020 election?

There are at least four primary motivations for the focus on supply chain. First, there has been a growing concern in the U.S. national security community in both the executive branch and Congress on the U.S. dependency on supply from Asia, and in particular China, on items that are critical to economic and national security. As noted above, the semiconductor and rare earth sectors are central to this particular concern. Intensifying concerns around economic competition with China, especially in high-technology and advanced manufacturing, is now broadening this focus to other sectors.

Second, as the executive orders focused on supply chain security in ICT products and services and bulk power systems reflect, the U.S. government has specific concerns about the vulnerabilities in critical infrastructure systems. Our understanding is that these concerns are based on continued evidence of threat actors seeking to exploit such systems.

Third, our judgment is that these developments also reflect a negative reaction to the word “foreign.” The politics around globalization has fueled a politics of protectionism–not only in the United States but more broadly–and while that is certainly not the sole driver, we should also recognize that the sprouting of these preferences for domestic supply is occurring within political environments in which there is pressure to look inward or a belief that doing so will be politically expedient.

Fourth, the COVID-19 pandemic has been an accelerant–not only in the area of medical supplies where the pandemic focused new attention on the ability of the United States to produce and mobilize critical resources from protective gear to medical equipment to drugs–but more broadly because it gave momentum to the insular views and tendencies reflected in the third point above.

Collectively, these factors are manifesting in various ways–formal executive actions and potential legislative actions, as outlined above, but also through domestic preferences that are arising in individual procurements. That is, bureaucracies are naturally responding to these trends on a daily basis in ways that are not necessarily politically directed or driven but that nonetheless reflect the overall concerns about dependencies on foreign supply.

We believe the first two factors identified above–which are grounded in the concerns of the U.S. national security community and the view that China is a long-term economic and technological competitor that started becoming more animated towards the end of the Obama Administration–are, to a degree, apolitical or at least are so deeply bipartisan that they will sustain regardless of who wins the 2020 election. That, in turn, means that there will continue to be a focus on supply chain security and shoring up domestic supply in critical areas even if the anticipated nominee from the Democratic Party, Joe Biden, wins the election. However, preferences around particular policy approaches and the degree to which the United States continues to turn more insular–and how these manifest in supply chain rules–may be impacted by the 2020 election, as well as by how long the pandemic persists and constrains global travel and supply.

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Photo of Christopher Adams Christopher Adams

Christopher Adams advises clients on matters involving China and the region. A non-lawyer, Chris served as the Senior Coordinator for China Affairs at the Treasury Department. He coordinated China policy issues across the U.S. government, led negotiations with China on a broad range…

Christopher Adams advises clients on matters involving China and the region. A non-lawyer, Chris served as the Senior Coordinator for China Affairs at the Treasury Department. He coordinated China policy issues across the U.S. government, led negotiations with China on a broad range of trade and investment issues, managed the highest level U.S.-China economic policy dialogues for the Obama and Trump administrations, and advised the Treasury Secretary and other cabinet officials.

Chris helped develop and implement U.S. trade policy toward China with the Office of the United States Trade Representative (USTR) from 2007 to 2015 as Deputy Assistant U.S. Trade Representative for China Affairs, Senior Policy Advisor to the Deputy USTR, and Minister Counselor for Trade Affairs at the U.S. Embassy in Beijing, USTR’s first representative in China.

Chris directed government affairs, public relations, and corporate marketing in China for the Eastman Kodak Company from 2001 to 2006 as Chief Representative for China; Vice President, North Asia Region; and Director, Olympic Programs. During this time, Chris was elected to four consecutive terms as a Governor of the American Chamber of Commerce in China and served on the Chamber’s Public Policy Development Committee.

Chris assisted companies with market access issues as a commercial officer in the U.S. Foreign Commercial Service in Beijing and Taipei, from 1993 to 2001. Before joining the Commerce Department, Chris managed media relations and information programs with the American Institute in Taiwan and directed business advisory services at a private trade association in Washington, DC.

Photo of Susan B. Cassidy Susan B. Cassidy

Susan is co-chair of the firm’s Aerospace and Defense Industry Group and is a partner in the firm’s Government Contracts and Cybersecurity Practice Groups. She previously served as in-house counsel for two major defense contractors and advises a broad range of government contractors…

Susan is co-chair of the firm’s Aerospace and Defense Industry Group and is a partner in the firm’s Government Contracts and Cybersecurity Practice Groups. She previously served as in-house counsel for two major defense contractors and advises a broad range of government contractors on compliance with FAR and DFARS requirements, with a special expertise in supply chain, cybersecurity and FedRAMP requirements. She has an active investigations practice and advises contractors when faced with cyber incidents involving government information, as well as representing contractors facing allegations of cyber fraud under the False Claims Act. Susan relies on her expertise and experience with the Defense Department and the Intelligence Community to help her clients navigate the complex regulatory intersection of cybersecurity, national security, and government contracts. She is Chambers rated in both Government Contracts and Government Contracts Cybersecurity. In 2023, Chambers USA quoted sources stating that “Susan’s in-house experience coupled with her deep understanding of the regulatory requirements is the perfect balance to navigate legal and commercial matters.”

Her clients range from new entrants into the federal procurement market to well established defense contractors and she provides compliance advices across a broad spectrum of procurement issues. Susan consistently remains at the forefront of legislative and regulatory changes in the procurement area, and in 2018, the National Law Review selected her as a “Go-to Thought Leader” on the topic of Cybersecurity for Government Contractors.

In her work with global, national, and start-up contractors, Susan advises companies on all aspects of government supply chain issues including:

  • Government cybersecurity requirements, including the Cybersecurity Maturity Model Certification (CMMC), DFARS 7012, and NIST SP 800-171 requirements,
  • Evolving sourcing issues such as Section 889, counterfeit part requirements, Section 5949 and limitations on sourcing from China
  • Federal Acquisition Security Council (FASC) regulations and product exclusions,
  • Controlled unclassified information (CUI) obligations, and
  • M&A government cybersecurity due diligence.

Susan has an active internal investigations practice that assists clients when allegations of non-compliance arise with procurement requirements, such as in the following areas:

  • Procurement fraud and FAR mandatory disclosure requirements,
  • Cyber incidents and data spills involving sensitive government information,
  • Allegations of violations of national security requirements, and
  • Compliance with MIL-SPEC requirements, the Qualified Products List, and other sourcing obligations.

In addition to her counseling and investigatory practice, Susan has considerable litigation experience and has represented clients in bid protests, prime-subcontractor disputes, Administrative Procedure Act cases, and product liability litigation before federal courts, state courts, and administrative agencies.

Susan is a former Public Contract Law Procurement Division Co-Chair, former Co-Chair and current Vice-Chair of the ABA PCL Cybersecurity, Privacy and Emerging Technology Committee.

Prior to joining Covington, Susan served as in-house senior counsel at Northrop Grumman Corporation and Motorola Incorporated.

Photo of David Fagan David Fagan

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers Global for his leading expertise on bet-the-company CFIUS matters and has received multiple accolades for his work in this area, including twice being named Dealmaker of the Year by The American Lawyer. Clients laud him for “[seeing] far more matters than many other lawyers,” his “incredible insight,” and “know[ing] how to structure deals to facilitate regulatory reviews” (Chambers USA).

David’s practice covers representations of both foreign and domestic companies before CFIUS and related national security regulators. The representations encompass matters in which the principal assets are in the United States, as well as those in which there is a smaller U.S. nexus but where solving for the CFIUS issues—including through proactive mitigation and carve-outs—is a critical path for the transaction. David has handled transactions for clients across every sector subject to CFIUS review, including some of the most sensitive and complex matters that have set the template for CFIUS compliance and security agreements in their respective industries. He is also routinely called upon to rescue transactions that have run into challenges in CFIUS, and to negotiate solutions with the U.S. government that protect national security interests, while preserving shareholder and U.S. business interests.

Reflecting his work on U.S.-China investment issues and his experience on complex U.S. national security matters intersecting with China, David is regularly engaged by the world’s leading multi-national companies across a range of industries to advise on strategic legal projects, including supply chain matters, related to their positioning in the emerging competition between the U.S. and China, as well as on emerging legal issues such as outbound investment restrictions and regulations governing information and communications technologies and services (ICTS). David also has testified before a congressional commission regarding U.S. national security, trade, and investment matters with China.

In addition, in the foreign investment and national security area, David is known for his work on matters requiring the mitigation of foreign ownership, control or influence (FOCI) under applicable national industrial security regulations, including for many of the world’s leading aerospace and defense companies and private equity firms, as well as telecommunications transactions that undergo a public safety, law enforcement, and national security review by the group of agencies known as “Team Telecom.”

In his cybersecurity practice, David has counseled companies on responding to some of the most sophisticated documented cyber-based attacks on their networks and information, including the largest documented infrastructure attacks, as well as data security incidents involving millions of affected consumers. He has been engaged by boards of directors of Fortune 500 companies to counsel them on cyber risk and to lead investigations into cyber attacks, and he has responded to investigations and enforcement actions from the Federal Trade Commission (FTC) and state attorneys general. David has also helped clients respond to ransomware attacks, insider theft, vendor breaches, hacktivists, state-sponsored attacks affecting personal data and trade secrets, and criminal organization attacks directed at stealing personal data, among other matters.

Photo of Peter Lichtenbaum Peter Lichtenbaum

Peter Lichtenbaum advises clients on a broad array of international regulatory compliance and trade matters, including export controls, economic sanctions, national security reviews of foreign investments, anti-corruption laws, market access, and international trade disputes. He has specialized experience in the aerospace and defense…

Peter Lichtenbaum advises clients on a broad array of international regulatory compliance and trade matters, including export controls, economic sanctions, national security reviews of foreign investments, anti-corruption laws, market access, and international trade disputes. He has specialized experience in the aerospace and defense industries.

Peter is ranked in Band 1 for Export Controls & Sanctions in Chambers USA (2019), which reports that he is “one of those rare lawyers who thinks through all the options moving forward.” Chambers describes him as a “go-to lawyer for those with export controls and sanctions issues.”

Peter has recently helped several companies establish, review or enhance their compliance programs. He is advising major technology companies regarding the impact of recent and ongoing export control developments on their businesses. He has worked with many leading aerospace and defense companies on internal investigations and disclosures related to trade controls and China. He also advises many of these companies on export control reform and defense trade policy issues, including international agreements on the regulation of defense trade. He has extensive experience with the trade controls issues that arise in the U.S. system for national security review of foreign investment, helping companies to identify issues and mitigate government concerns.

Peter served as Vice President for Regulatory Compliance and International Policy at BAE Systems, Inc., the U.S. subsidiary of one of the world’s largest defense contractors. He was responsible for a broad array of regulatory compliance and policy issues. He participated in BAE Systems’ development of innovative standards of internal governance in order for the company to be recognized as a global leader in ethical business conduct.

Previously, Peter held senior positions in the Department of Commerce, one of three key agencies responsible for administering U.S. trade controls. From October 2003 through February 2006, he served as the Assistant Secretary of Commerce for Export Administration, responsible for developing BIS policies regarding export controls imposed for national security, foreign policy, nonproliferation, and other reasons. Peter chaired the inter-agency Advisory Committee on Export Policy, and managed BIS’s participation in multilateral export control regimes. He represented the Department of Commerce in many sensitive matters reviewed by the Committee on Foreign Investment in the United States (CFIUS). Peter served for several months as Acting Under Secretary of Commerce for Industry and Security and as Acting Deputy Under Secretary of Commerce for International Trade.

Photo of Timothy P. Stratford Timothy P. Stratford

Tim Stratford is senior counsel and a member of the firm’s International Trade, Corporate, and Public Policy Practice Groups. He is also serving as Chairman Emeritus of the American Chamber of Commerce in the People’s Republic of China. Tim’s practice is focused on…

Tim Stratford is senior counsel and a member of the firm’s International Trade, Corporate, and Public Policy Practice Groups. He is also serving as Chairman Emeritus of the American Chamber of Commerce in the People’s Republic of China. Tim’s practice is focused on advising international clients doing business in China and assisting Chinese companies seeking to expand their businesses globally. Except for the five years he spent in Washington, DC as Assistant U.S. Trade Representative (2005-2010), Tim lived and worked continuously in the greater China region from 1982-2023, including for twelve years as managing partner of the firm’s Beijing office.

As Assistant USTR, Tim was responsible for developing and implementing U.S. trade policy toward mainland China, Taiwan, Hong Kong, Macao and Mongolia. He worked closely with other senior U.S. and Chinese officials from numerous government departments and agencies to address problems encountered by companies engaged in bilateral trade and investment and co-chaired a number of important bilateral working groups and dialogues established under the U.S.-China Joint Commission on Commerce and Trade and the U.S.-China Strategic & Economic Dialogue.

Prior to serving at USTR, Tim was General Counsel for General Motors’ China operations, where he was a member of GM’s senior management team in China and oversaw the company’s legal and trade policy work. Tim also served previously as Minister-Counselor for Commercial Affairs at the U.S. Embassy in Beijing and as three times as Chairman of the American Chamber of Commerce in China. He is a graduate of Harvard Law School and Brigham Young University, and is fluent in Mandarin and Cantonese.

Photo of John K. Veroneau John K. Veroneau

Ambassador John Veroneau is a Chambers-ranked international trade lawyer in the firm’s International Trade Practice Group. Having served in senior positions in both Executive and Legislative branches, he provides legal and strategic advice to clients on a broad range of international trade…

Ambassador John Veroneau is a Chambers-ranked international trade lawyer in the firm’s International Trade Practice Group. Having served in senior positions in both Executive and Legislative branches, he provides legal and strategic advice to clients on a broad range of international trade matters. Ambassador Veroneau held Senate-confirmed positions under President Bush as Deputy United States Trade Representative (USTR) and USTR General Counsel, and under President Clinton as an Assistant Secretary of Defense.

Photo of Jonathan Wakely Jonathan Wakely

Jonathan Wakely practices at the intersection of national security and the private sector, advising clients on a range of significant foreign direct investment, national security, cybersecurity, supply chain security, and public policy matters. He has particular expertise representing leading global investors and U.S.

Jonathan Wakely practices at the intersection of national security and the private sector, advising clients on a range of significant foreign direct investment, national security, cybersecurity, supply chain security, and public policy matters. He has particular expertise representing leading global investors and U.S. companies in securing U.S. national security-related regulatory approvals for foreign investments, and has advised on transactions with a combined value of over $250 billion.

Jonathan regularly represents clients before the Committee on Foreign Investment in the United States (CFIUS), the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (better known as “Team Telecom”), and the Defense Counterintelligence and Security Agency (DCSA) in proceedings related to the mitigation of foreign ownership, control, or influence (FOCI). Clients regard Jonathan as an “industry veteran,” commenting that he’s “fantastic,” “an excellent lawyer,” and applauding his “great understanding of CFIUS work” (Chambers USA).

Jonathan has represented clients on national security reviews in virtually all sectors, including semiconductors, telecommunications, financial services, software, IT services, energy, and real estate. His representations include, for example, the landmark CFIUS-based defense of Qualcomm against the attempted hostile takeover by Broadcom; securing CFIUS approval for the $7.9 billion acquisition of Westinghouse by Brookfield Asset Management and Cameco; and securing approval from Team Telecom for Univision’s $4.8 billion merger with Televisa. He has negotiated and advised companies on compliance with many of the most significant, complex, and sensitive national security agreements of the past decade.

Jonathan regularly advises clients on emerging areas of national security regulation, including outbound investment screening and the Biden Administration’s executive orders on protecting sensitive personal data and information and communications technology and services (“ICTS”). Clients also turn to Jonathan for advice on strategic business and policy matters related to U.S.-China competition. He is regularly engaged by multinational businesses—including some of the world’s leading technology companies—to assist in developing legal and business strategies related to positioning with respect to China.

Jonathan has been recognized by various publications for his work on national security matters, including as one of the world’s leading foreign investment lawyers under 40 by Global Competition Review, as a “DC Rising Star” by The National Law Journal, as a “Rising Star” by Law360, and as a leading CFIUS expert by Chambers USA.

In addition to his legal practice, he is an adjunct professor at the Georgetown University Law Center, where he teaches a course on national security and the private sector. Jonathan has also published extensively on matters related to the regulation of foreign investment; his articles have appeared in the Harvard National Security Journal, The International Lawyer, and the Global Trade and Customs Journal.

Before joining Covington, he served as a political analyst with the Central Intelligence Agency (CIA), where he provided strategic analysis to the President and other senior policymakers.