The U.S. President Joe Biden signed an executive order this week to initiate a review and a fix of critical supply chains. Though Taiwan’s semiconductors may emerge as winners, there are long-term concerns which have to be addressed cautiously.

According to the order, the first phase review (to be completed within 100 days) focuses on computer chips, large batteries, rare earth minerals, strategic supplies and pharmaceuticals. The second phase review (within one year) widens its scope to include the defense industry, public health and biotechnology, information and communication, energy, transportation, agriculture and food production.

What these industries have in common is that all of them are in so-called “critical areas”. Their supply issues are not a big deal during peaceful times, but can lead to a crisis in the event of a natural disaster and conflicts. For example, masks tend to be thrown away on normal days but panic buying will occur during an epidemic. Semiconductors usually appear in tech news. However, a recent shortage of chips can force automakers to cut back on production, leaving many workers on no-pay leave. The impact is so huge that President Biden has to take it seriously.

Imagining the potential conflicts between the U.S. and China, you will know much better why it matters. For the past three decades, the U.S. has outsourced the production in the critical areas to Taiwan, South Korea, China, Japan and ASEAN countries, so have the factories moved overseas (especially in China).

It makes sense to fix supply chains in the cause of profit maximization. But as the new approach that U.S.-China “are not friends but foes” has been developed over the past five years, insecurity and concerns are increasing over the fact that the critical goods are made by the opponent. At the beginning of the COVID-19 pandemic, the U.S. suddenly faced widespread shortages of masks and pharmaceuticals, realizing that both items are highly dependent on Chinese imports. Though Beijing did not use masks to score points, the U.S., known for saving for rainy days, can no longer allow such risks to happen again.

Biden’s order is aimed to address two important issues. First, it intends to boost the U.S.’s ability to adapt when there is a shortage of key items. Second, the order can help resolve key bottlenecks the U.S. is facing. The challenges inflicted on semiconductors, medical and health care, rare earth and electric car batteries are different, but the solution is similar: a strong push for “domestic production” and increased cooperation with trusted partners.

Domestic production is a classic example of easier said than done. The U.S. has lost its manufacturing base, meaning the current talent is unfamiliar with manufacturing know-how, education is disconnected with manufacturing needs, and suppliers are incomplete. It will take a long time to rebuild. The U.S. also needs help and cooperation with powerful, trustworthy and non-threatening partners. That is why we see an emerging opportunity for Taiwan to join the new production alliance.

Taiwan is known for its powerful manufacturing industry. The sector needs to work with the government and proves to be trustworthy and non-threatening to U.S. security. The best strategy is to convince Washington that Taiwan is as safe and secure as the U.S. A lesser one is investing and adding an assembly line in the U.S. and thus becomes one of U.S. domestic producers.

Convincing the U.S. to move manufacturing to Taiwan is difficult and needs a lot of preparation. In fact, the Biden administration’s effort to boost domestic production has another purpose – create jobs and restore the foundation of manufacturing. The U.S., however, knows well that not all of the supply chains can move back home with regards to costs, talent and other constraints, therefore leaving some factories in Taiwan and others back to the U.S. For those affected manufacturers in Taiwan, the first thing they should do is to clarify what are the core issues that matter most to the U.S. government (and the U.S. clients). Only equipped with the knowledge will they successfully manage the location of assembly lines in the future.

Over the long term, Taiwanese manufacturers may come to find a balance, but they also need to plan ahead to match with the island’s overall economic development. In addition to the U.S., big countries like Japan and the European Union have started to promote domestic manufacturing capacity. China, in particular, has done this since a decade ago to achieve innovation and import substitution. Outsourcing and OEM are the pillars of Taiwan’s economy and have thrived in the past three decades. But given the U.S.-China decoupling and a trend of reshoring seen in big countries, it is almost inevitable to resist the change of the global supply chain and the pressure incurred. In the meantime, our adaptability will be tested.

(Roy Lee-chun/ Deputy Executive Director of the Taiwan WTO and RTA Center)

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