[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                       TRANSATLANTIC COOPERATION ON 
                       CRITICAL SUPPLY CHAIN SECURITY

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPE, ENERGY, 
                       THE ENVIRONMENT AND CYBER

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 19, 2022

                               __________

                           Serial No. 117-99

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
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                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-523PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   
 COMMITTEE ON FOREIGN AFFAIRS
 
                   GREGORY W. MEEKS, New York, Chairman
                   
 BRAD SHERMAN, California              MICHAEL T. McCAUL, Texas, Ranking 
 ALBIO SIRES, New Jersey                  Member
 GERALD E. CONNOLLY, Virginia	      CHRISTOPHER H. SMITH, New Jersey
 THEODORE E. DEUTCH, Florida	      STEVE CHABOT, Ohio
 KAREN BASS, California		      SCOTT PERRY, Pennsylvania
 WILLIAM KEATING, Massachusetts	      DARRELL ISSA, California
 DAVID CICILLINE, Rhode Island	      ADAM KINZINGER, Illinois
 AMI BERA, California		      LEE ZELDIN, New York
 JOAQUIN CASTRO, Texas	              ANN WAGNER, Missouri
 DINA TITUS, Nevada		      BRIAN MAST, Florida
 TED LIEU, California		      BRIAN FITZPATRICK, Pennsylvania
 SUSAN WILD, Pennsylvania	      KEN BUCK, Colorado
 DEAN PHILLIPS, Minnesota	      TIM BURCHETT, Tennessee
 ILHAN OMAR, Minnesota		      MARK GREEN, Tennessee
 COLIN ALLRED, Texas		      ANDY BARR, Kentucky
 ANDY LEVIN, Michigan		      GREG STEUBE, Florida
 ABIGAIL SPANBERGER, Virginia	      DAN MEUSER, Pennsylvania
 CHRISSY HOULAHAN, Pennsylvania	      AUGUST PFLUGER, Texas
 TOM MALINOWSKI, New Jersey	      PETER MEIJER, Michigan
 ANDY KIM, New Jersey	              NICOLE MALLIOTAKIS, New York
 SARA JACOBS, California	      RONNY JACKSON, Texas
 KATHY MANNING, North Carolina	      YOUNG KIM, California
 JIM COSTA, California		      MARIA ELVIRA SALAZAR, Florida
 JUAN VARGAS, California	      JOE WILSON, South Carolina
 VICENTE GONZALEZ, Texas              RON WRIGHT, Texas
 BRAD SCHNEIDER, Illinois              
                                    
                     Sophia Lafargue, Staff Director
               Brendan Shields, Republican Staff Director
               
                                 ------                                

        Subcommittee on Europe, Energy,the Environment and Cyber

              WILLIAM R. KEATING, Massachusetts, Chairman

SUSAN WILD, Pennsylvania             BRIAN FITZPATRICK, 
ABIGAIL SPANBERGER, Virginia             Pennsylvania,Ranking Member
ALBIO SIRES, New Jersey		     ANN WAGNER, Missouri
THEODORE DEUTCH, Florida	     ADAM KINZINGER, Illinois,
DAVID CICILLINE, Rhode Island	     BRIAN MAST, Florida
DINA TITUS, Nevada		     DAN MEUSER, Pennsylvania
DEAN PHILLIPS, Minnesota	     AUGUST PFLUGER, Texas
JIM COSTA, California		     NICOLE MALLIOTAKIS, New York
VICENTE GONZALEZ, Texas	             PETER MEIJER, Michigan
BRAD SCHNEIDER, Illinois

                      Leah Nodvin, Staff Director
                      
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Shih, Dr. Willy C., Robert & Jane Cizik Professor of Management 
  Practice in Business Administration, Harvard Business School...     8
Bown, Dr. Chad P., Reginald Jones Senior Fellow, Peterson 
  Institute for International Economics..........................    15
Scissors, Dr. Derek, Senior Fellow, American Enterprise Institute    22

                                APPENDIX

Hearing Notice...................................................    52
Hearing Minutes..................................................    53
Hearing Attendance...............................................    54

            RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD

Responses to questions submitted for the record..................    55

            ADDITIONAL INFORMATION SUBMITTED FOR THE RECORD

Additional information submitted for the record by Dr. Scissors..    58

 
      TRANSATLANTIC COOPERATION ON CRITICAL SUPPLY CHAIN SECURITY

                      Wednesday, January 19, 2022

                          House of Representatives,
  Subcommittee on Europe, Energy, the Environment, 
                                         and Cyber,
                      Committee on Foreign Affairs,
                                                     Washington, DC

    The subcommittee met, pursuant to notice, at 2:08 p.m., via 
Webex, Hon. William R. Keating (chairman of the subcommittee) 
presiding.
    Mr. Keating. House Foreign Affairs Subcommittee will come 
to order.
    Without objection, the chair is authorized to declare a 
recess of the committee at any point. And all members will have 
5 days to submit statements, extraneous material, and questions 
for the record subject to the length and limitation of the 
rules. To insert something into the record, please have your 
staff email a previously mentioned address or contact full 
committee staff.
    Please keep your video function on at all times even when 
you are not recognized by the chair. Members are responsible 
for muting and unmuting themselves. Please remember to mute 
yourselves after you finish speaking. Consistent with House 
Resolution 965 and the accompanying regulation, staff will only 
mute members and witnesses as appropriate when they are not 
under recognition to eliminate background noise.
    See that we have a quorum present. I will now recognize 
myself for an opening statement. Pursuant to notice, we shall 
hold the hearing today entitled, ``Transatlantic Cooperation in 
Critical Supply Chain Security.''
    I want to welcome everyone to what is an important and 
timely hearing to address transatlantic cooperation on 
modernizing critical supply chain security. Whether it is the 
manufacturer of communication technologies in Asia or simply 
shipping cranberries from a bog in southeastern Massachusetts, 
supply chains are essential to the everyday lives of Americans 
and Europeans.
    The U.S. and the European Union together account for 42 
percent of global GDP and both rely heavily on global value 
chains for their trade. Thus it is vital that we work with our 
transatlantic allies to modernize and secure global supply 
chains, which today support two-thirds of the entire world's 
trade.
    Over the last 30 years, supply chains have diversified and 
now reached the entire globe. A high end semi-conductor, for 
example, could be designed by a tech firm in Silicon Valley, 
sourced from materials from around the world, and manufactured 
in a facility in Taiwan using equipment built in the 
Netherlands.
    Further, this same semi-conductor could be a component of a 
critical national security technology or a consumer good, such 
as an electric vehicle or a cell phone. In short, supply chain 
encompasses everything from the design of a product to the 
sourcing of its materials, to its marketing, as well as its 
distribution to customers.
    As a result, supply chains are not only complex, but they 
are also highly specialized, requiring unique solutions for 
every supply chain challenge.
    Today, the unprecedented events of the past 2 years have 
put a strain on our global supply chains and forced the world 
to find innovative and creative solutions to alleviate 
shortages. The global COVID 19 pandemic has drastically changed 
our day-to-day lives, affecting global supply chains as a 
result. Increased prices and commodities have made the health 
of our supply chains a front-page news story for many 
Americans.
    However, to meet the challenge, I believe we must consider 
more than just the obstacles that lay directly in front of us 
and consider rather long-term solutions to shore up persistent 
bottlenecks, inefficiencies, and complications that our current 
supply chains face.
    With this approach, I believe, we will not only be able to 
address current challenges, but mitigate and even prevent these 
future issues from occurring.
    One aspect of this long-term approach must be confronting 
China's role in our globalized world. China's investment in the 
semi-conductor industry and control over rare earth imports is 
a growing national security concern for the United States.
    This growing concern can only be effectively dealt with in 
a multilateral fashion with our European allies and partners. 
Confronting China unilaterally could cause considerable harm to 
our own economy. We should deepen our cooperation with Europe 
to diversify our supply chains.
    We must also stand united when China chooses to use 
economic coercion against our allies, like Lithuania who chosen 
to opt out of China's current economic forums with Europe.
    For decades it has been undeniable that our Democratic 
partners in Europe have brought immense benefits to U.S. 
consumers, businesses, and organization. Products are cheaper, 
more accessible, and the same is true for countries in Europe. 
I firmly believe our transatlantic partners remain a critical 
tool to modernizing and protecting supply chains and that a 
strong transatlantic partnership ensures a strong transatlantic 
economy.
    To this end, I am pleased to see the Biden Administration's 
work with our transatlantic partners through the U.S., EU, 
Trade and Technology Council. At the inaugural TTC meeting in 
Pittsburgh last year, ten working groups were established to 
engage with our transatlantic partners in everything from 
establishing standards for new technologies, cooperating on 
data governance, and also ensuring accessibility of digital 
tools for small and medium-sized enterprises.
    The third working group of the TTC will specifically 
address supply chains through an initial focus on clean energy, 
pharmaceuticals, the availability of semi-conductors, and 
critical materials.
    All of which sectors are immense in their importance given 
to the ongoing climate and healthcare crisis. To build on the 
TTC's objective, we, in Congress, must not lose sight of the 
importance of addressing our supply chain security, whether it 
is another pandemic, increased weather events due to climate 
change, or vulnerabilities in our cybersecurity, our supply 
chains will continue to be tested.
    Destructions in our supply chains affect all Americans and 
we need to work now to prepare harden and to secure supply 
chains to alleviate and lessen the impact a future, potentially 
economically disruptive global events.
    As I have Stated before, as chair of the subcommittee, I 
stand in full support of transatlantic solutions to our global 
problems. This includes the U.S.-EU Trade and Technology 
Council and I look forward to following up with other outcomes 
as we move forward with the second session, which will take 
place later this year.
    To discuss transatlantic solutions to our current problems 
and how we, in Congress, can work our transatlantic allies on 
these issues, we have invited three outstanding witnesses to 
provide testimony. Dr. Willy Shih from the Harvard Business 
School, Dr. Chad Bown from Peterson Institute for International 
Economics, and Dr. Derek Scissors from the Economic Enterprise 
Institute. Each will provide testimony on our supply chain 
security, and I look forward to a very productive discussion to 
see how effectively and impactfully we can move forward with 
transatlantic solutions to the current problems with the global 
supply chains.
    Now, I will recognize our ranking member, Representative 
Fitzpatrick, for his opening remark.
    Mr. Fitzpatrick. Good afternoon. Thank you, Chairman 
Keating. Thank you to our witnesses for being with us today. 
And it is my hope today that we can examine ways to strengthen 
our transatlantic partnerships and to fend off threats to our 
global economy.
    In an increasingly interconnected world, global value 
chains have become the norm and these multi-tiered supply 
chains benefit the United States and its partners greatly, but 
also present unique challenges. As the world was overcome by 
the COVID-19 pandemic, supply chains were pushed beyond their 
limit. As a result, the best and the worst aspects of these 
relationships were all exposed.
    There were many victories for sure, accelerated vaccine 
development and manufacturings at levels not seen before were 
made possible through public and private cooperation with our 
transatlantic allies. Only through advanced agreements, 
information sharing, and cooperation was this possible.
    There were also many flaws revealed. Domestic policies 
differed from nation to nation often based on the severity of 
the pandemic which brought lockdowns and dramatically reduced 
work forces. And these effects compounded at each point of 
exchange and bottlenecks were magnified.
    These flaws are not lost on the strategic competitors of 
the United States and its transatlantic allies, especially 
those nations that are deeply intertwined with us economically. 
Recognizing that the shortcomings could be exploited, our 
perspectives of supply chains must be increasingly viewed 
through the lens of national security, not just economics, but 
we have seen first hand that China is willing to undermine 
western values through forced labor in Xinjiang and predatory 
lending practices in the Balkans and beyond.
    Less than a decade ago, the Chinese Communist Party 
demonstrated its monopoly on rare earth minerals to cause 
dramatic price fluctuations that harmed American consumers. 
Recently, the CCP was quick to leverage its competitive 
advantage as a retaliatory mechanism against Lithuania. No 
industry better represents the complex nature of global supply 
chains in their nexus with national security like that of semi-
conductors.
    Chips are truly the building blocks of modern society, yet 
they take months to produce and travel around the world before 
being installed in their end products.
    While our demand grows for their use in technology from 
smartphones to our satellites, U.S. production of semi-
conductors has plummeted from 40 percent of the world's supply 
in 1990 to just 12 percent of the global supply today.
    Concurrently, China is investing in the industry at 
unprecedented levels, utilizing methods which appear to 
challenge current global rules. I have proudly worked with my 
colleagues to identify solutions to this issue and members of 
this committee, introduced through the CHIPS For America Act, 
which will go on to be included in the NDAA.
    The funding authorized by this bill would help build and 
modernize semi-conductor manufacturing facilities across 
America to alleviate the current chip shortage that is 
impacting a range of industries and millions of our American 
workers.
    These types of programs will continue to bolster American 
manufacturing of chips and bring the knowledge and skills of 
our closest allies under our own source. Just last year, U.S.-
based intel, North American-based global foundries, South 
Korean-based Samsung, and Taiwan's world leading TSMC have 
announced that they will build domestic fabrication facilities 
right here in our United States.
    The reality is that the United States and a small group of 
democratic countries right now control the vast majority of 
semi-conductor intellectual property and technology. If all of 
these countries work together, we can ensure that the means of 
production for semi-conductors stays in democratic countries 
and are not controlled or migrated to the Chinese Communist 
Party.
    Finally, to promote cooperation and competitiveness, United 
States and the EU have joined into a new trade and technology 
council, which, in part, works to develop more secure supply 
chains. And I am hopeful that if the TTC is used effectively, 
it can provide a needed venue through which to address the 
points of friction in the transatlantic relationship that have 
impeded building a united coalition against the Chinese 
Communist Party.
    Nothing is more important. However, unless Europe is 
willing to cease targeting U.S. technology companies and to be 
more clear-eyed about the threat posed by the Chinese Communist 
Party's unfair and illegal economic practices, this council 
could end up being nothing more than a talking shot that 
achieves little.
    None of us want to see that. It is my hope that our 
witnesses can address what more can be done to transform the 
strong rhetoric on the threat posed by the Chinese Communist 
Party into necessary and united action. The time is now to 
build a unified coalition and to resolve key vulnerabilities in 
our global supply chains.
    Thank you to our witnesses for being here.
    And Mr. Chairman, I yield back.
    Mr. Keating. Thank you, Representative.
    I will now recognize each witness for 5 minutes.
    Without objection, all of your prepared written statements 
will be made part of the record.
    Our first witness is Dr. Willy Shih. He is a professor of 
management practice in business Administration at the Harvard 
Business School. Prior to the Harvard Business School, Dr. Shih 
spent 28 years in industry at companies such as IBM and Eastman 
Kodak where he worked in product development and manufacturing 
in a wide variety of sectors.
    Thank you very much for joining us, Dr. Shih. You will now 
be recognized for 5 minutes.

 STATEMENT OF DR. WILLY C. SHIH, ROBERT & JANE CIZIK PROFESSOR 
  OF MANAGEMENT PRACTICE IN BUSINESS ADMINISTRATION, HARVARD 
                        BUSINESS SCHOOL

    Dr. Shih. Thank you.
    Chairman Keating, I will be using a visual aid during my 
oral testimony today. I ask that it be submitted into the 
record along side my written testimony.
    Mr. Keating. Without objection, yes.
    Dr. Shih. OK. Thank you very much.
    Chairman Keating, Ranking Member Fitzpatrick, members of 
the committee, distinguished guests, thank you for the 
opportunity to speak with you today.
    As the Chairman Keating said, I am on the faculty of 
Harvard Business School where I have taught for the past 15 
years. Prior to that, I spent 28 years in industry and doing 
manufacturing and product development during a time when we 
really saw global supply chains take root. So when I teach 
about this at the school, I come from the perspective of not 
only having studied the theory, but lived the practice.
    What I hope to convey today is some of the basic logic 
around why supply chains are structured the way they are, how 
the U.S. is deeply interconnected to so many levels to Europe, 
and why I believe a more nuanced understanding of that can help 
us build a more robust partnership.
    Now, the key concept is tiering. OK? And by this I mean, 
when you have a product assembler who will rely on a network of 
suppliers who will in turn rely on a network of suppliers and 
so on down the chain. This tiering can be quite extensive, it 
can be quite deep. In the auto industry it is as much as nine 
tiers deep.
    This is one of the reasons, for example, when you have a 
disruption somewhere in the chain, somebody cannot assemble 
their products anymore. And we have seen a lot of this over the 
last 2 years. Now, why do we have this tiering? The key concept 
here is specialization and technological complexity.
    Let's say you are making a notebook computer, it takes very 
different skills to make the microprocessor compared to the 
disc storage or the solid-State storage or the keyboards or 
mechanicals, or even the battery or charger, or the flat panel 
display. If you visit some of the factories where they make the 
chips or the flat panels or all these things, you see 
immediately how different this is.
    Now, both Chair Keating and Ranking Member Fitzpatrick have 
mentioned the semi-conductor supply chain. If you look at the 
semi-conductor supply chain, we have already heard about the 
Dutch company ASML who makes these extreme UV scanners that 
cost over $150 million each. They use an optical engine that 
comes from Zeiss in Oberkochen, Germany. Okay. They also use an 
extreme UV light source that comes from Cymer in San Diego.
    And then what they do is, they will assemble these 
machines, ship them to the TSMCs of the world, OK, who will 
use--who will manufacture chips produced by the Apples or the 
Qualcomms of the world who will use design software that came 
from Synopsis or Cadence or what have you. They will produce 
the completed wafer. Then they will ship it to Southeast Asia 
where you have outsourced assembly and test companies who will 
assemble them into packages, and then ship the chips into China 
for final assembly.
    So what you see is a very complex, highly interdependent 
global coordination. Now, the other reason you have supply 
chains structured the way you do is the ability to achieve 
scale benefits. You see this particularly_in I did a study on 
active pharmaceutical ingredients to try to map that supply 
chain last year.
    This is a corner of that map applying to pharmaceuticals 
that is normally very opaque. I am not going to bore you with 
the details this is in my written testimony. But what you see 
at the core is many European manufacturers occupy key supply 
chain positions.
    One last example, this was a metal tool that the CEO of a 
manufacturer Long-Stanton gave me a couple years ago. They are 
in West Chester Township, Ohio, and they manufacture the brake 
brackets for the carbon disc brakes in Boeing 787 and many 
other commercial airlines. They buy their steel from 
Voetsalpine and then they manufacture the brackets. Then they 
ship the brackets to Safran Landing Systems who assembles them 
in France and in the U.S., and they in turn will ship it to--
they will ship its to North Charleston, South Carolina, where 
Boeing will put it into a jet liner.
    OK. Now, what you see is a lot of this inter dependence. 
Here the message is about our trade policies. When we imposed 
tariffs on steel a couple of years ago, turns out Voetsalpine 
is the only supplier that's qualified by Airbus and Boeing to 
make this high temperature, very unique alloy, right?
    We caused this existential crisis for Long-Stanton, so that 
Safran said, I got to get rid of my U.S. suppliers. So we have 
to think about our trade policies when we do things like that. 
OK.
    Now, having said all that, I would tell you that I see 
Europe and U.S. as highly interconnected and interdependent. 
While we are still a technology leader, global R&D spending and 
technology are much more distributed than they were 50 or 30 
years ago when it disproportionately favored the U.S.
    So if we were to view the U.S. and the EU and maybe a few 
East Asian partners together, we would have a very 
comprehensive coverage of all the advanced technologies I can 
think of.
    Partnership with Europe makes a lot of sense to me, one in 
which we work together to ensure more resilience and mutual 
benefit. I think cooperation with Europe is critical to 
American competitiveness, both now and into the future.
    Thank you very much. I will be happy to take questions.
    [The prepared statement of Dr. Shih follows:]

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    Mr. Keating. Thank you very much, Doctor.
    Dr. Chad Bown is the Reginald Jones Senior Fellow at the 
Peterson Institute of International Economics.
    Dr. Bown has previously served in the Obama Administration 
and at the World Bank.
    Dr. Bown, you are recognized for 5 minutes.

 STATEMENT OF DR. CHAD P. BOWN, REGINALD JONES SENIOR FELLOW, 
         PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS

    Dr. Bown. Thank you, Chair Keating, Ranking Member 
Fitzpatrick, and the subcommittee for the invitation. It is a 
pleasure to testify in front of you again today.
    Today, I am going to briefly describe early lessons from my 
research on transatlantic policy and cooperation impacting two 
critical, but very different supply chains now influx. Those 
are COVID-19 vaccines and semi-conductors.
    For the record, my written testimony also describes 
insights for my research on personal protective equipment or 
PPE. COVID-19 vaccine manufacturing supply chains are an 
incredibly important example for transatlantic cooperation. The 
speed of scientific advancement in the supply chains that 
emerged across the Atlantic, especially for Pfizer-BioNTech, 
Moderna, and Johnson & Johnson, they were extraordinary.
    Pfizer's vaccine would not exist without the BioNTech 
invention in Germany. The Johnson & Johnson vaccine was 
codeveloped at a Janssen lab in the Netherlands, and its Leiden 
plant provided drug substance U.S. market through much of 2021. 
Moderna's mRNA vaccine in use across Europe is being bottled in 
France and Spain after its drug substances manufactured at a 
plant in Switzerland.
    Policy played a sizable role at incentivizing rapid vaccine 
research, development, and manufacturing, but it also could 
have done better. Through Operation Warp Speed in the Defense 
Production Act, the U.S. Federal Government allocated funding 
to scale up manufacturing at risk and over the entire vaccine 
manufacturing supply chain, including some critical raw 
materials and equipment.
    Despite the U.S. subsidies, though, many key inputs have 
been in scarce supply in the United States, Europe, and 
globally. DPA gave U.S. policymakers some visibility into those 
supply chains to help ration inputs to plants manufacturing 
priority vaccines in the United States. But they lacked 
visibility into the supply chains in Europe and elsewhere.
    This created needless policy conflict, including initial 
accusations, that were subsequently refuted with data, that the 
United States had imposed an export embargo on vaccine inputs. 
Additional transparency, information sharing, and cooperation 
with key partners was needed to secure those supply chains and 
better ration inputs in short supply.
    The U.S. and EU began cooperating informally in March 2021 
to resolve vaccine supply chain bottlenecks, though, their 
Joint Task Force was only formalized in September. Lessons from 
that initiative should be shared with other transatlantic 
supply chain resilience initiatives.
    Semi-conductors, my second area, are the ubiquitous chips 
used as inputs in most everything. Semi-conductor supply chains 
have been under scrutiny lately because demand has spiked. With 
too few chips, the automotive sector, as well as others, have 
been forced to cut production of their goods.
    Semi-conductor supply chains, though, were under stress 
well before the pandemic. Beginning in 2018, the U.S. 
Administration imposed 25 percent tariffs under Section 301 of 
the Trade Act of 1974. Imports from China fell by billions of 
chips per year. The Administration then imposed unilateral and 
extra territorial export controls on semi-conductors, as well 
as semi-conductor manufacturing equipment for certain Chinese 
firms for national security and related reasons.
    This triggered hoarding and other market disruptions. And 
these policies mostly remained unchanged today.
    Congress has been considering legislation, for example, the 
CHIPS Act and FABS Act that could result in tens of billions of 
dollars of subsidies to the industry. Europe is considering a 
potentially European CHIPS Act. In the U.S. legislation, some 
subsidies may be one-off incentives to locate or expand 
production facilities in the United States, potentially offered 
on a nondiscriminatory basis to both American and foreign 
headquartered firms.
    Some could be investment tax credits to fund R&D, but some 
subsidies may be tied to production of legacy or these older 
node chips that are critical for sectors like autos. However, 
such funding may be needed in perpetuity if those semi-
conductors could not be manufactured profitably in the United 
States or in another trusted supplier country.
    Nevertheless, recent reports suggest car makers and semi-
conductor manufacturers may be undertaking long-term 
contracting arrangements and partnerships to fix that 
particular problem on their own without subsidies.
    To reduce the chance of policy failure, the U.S. and Europe 
should cooperate on a semi-conductor supply chain resilience 
policy, including through the new Trade and Technology Council, 
or the TTC. That means coordinating on export controls so the 
United States is not imposing them unilaterally, as well as on 
any subsidies to highlight R&D and to ensure diversification 
across nodes, suppliers, and locations and to reduce the chance 
of a subsidy war.
    However, I also worry about the U.S. and Europe suddenly 
giving up the fight against other countries' semi-conductors 
subsidies as we used to do through multi-lateral institutions 
like the World Trade Organization.
    Both are naive to think that places like Taiwan, South 
Korea, Japan, and, of course, China would not respond with 
additional government support. A result could be global 
overcapacity, allegations of dumping tariffs in market 
segmentation.
    Finally, the experiences of semi-conductors and COVID-19 
vaccines argue strongly against the purely domestic supply 
chains and autarky. For semi-conductors, the February 2021 
winter storm in Texas knocked American plants run by NXP and 
Infineon, two major chip providers to the auto industry, 
offline.
    For COVID-19 vaccines, when the FDA shut down the Emergent 
BioSolutions facility in Maryland for 4 months in 2021 for 
quality control problems, transatlantic trade meant that 
Americans got access to drug substance for the J&J vaccine from 
a Dutch plant. Trade in these sectors has been critical 
throughout the pandemic. Supply chain resilience thus means 
additional transparency, inventory management, and diversified 
sourcing with trusted partners, as well as a commitment to 
quickly engage and cooperate on policy when an emergency 
strikes, especially to expand production.
    Transatlantic supply chain resilience policy is still a 
work in progress, but cooperation with the EU, especially 
through the TTC, should be encouraged to ensure we do it even 
better in the future.
    Thank you, and I am happy to take any questions.
    [The prepared statement of Dr. Bown follows:]

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    Mr. Keating. Thank you, Doctor.
    Dr. Derek Scissors is a senior fellow and economist rather 
with American Enterprise Institute.
    Dr. Scissors currently serves on the U.S.-China Economic 
and Security Review Commission. Thank you for joining us, Dr. 
Scissors.
    You are now recognized for 5 minutes.

   STATEMENT OF DR. DEREK SCISSORS, SENIOR FELLOW, AMERICAN 
                      ENTERPRISE INSTITUTE

    Dr. Scissors. Thank you, Mr. Chairman. I should say at the 
outset that I am not claiming to be a Europe expert. I will 
claim to be a China expert, and I will try to show why a China 
expert should be speaking today.
    My main observations start with how to deal with China. 
China is often competitive on its own. When it is not 
competitive, it will often subsidize its way as it desires into 
any supply chain where they set a national priority. No 
genuinely commercial business can compete with the extent of 
possible Chinese subsidies.
    We cannot match them here. The Chinese are better at 
subsidies than we are, thankfully, but a downside is they can 
drive us out our firms or European firms out of critical supply 
chains if they so choose.
    If Congress does not want China to participate in a 
critical supply chain, the Chinese firms have to be cut out by 
law, both their production in China and overseas production by 
their firms. Measures short of that such as tax breaks will not 
work when China sets a national priority. They will subsidize 
right through our incentives.
    The fact is this will be costly for us and it will be even 
harder for countries that do not see China as a major threat. 
We shouldn't further raise the cost for everyone by also 
cutting our friends out from supply chains. Not our treaty 
allies and not our FTA partners.
    This group certainly features but is not limited to the 
United Kingdom and much of the EU. Xi Jinping would be very 
pleased that the West got into a fight over supply chains. We 
should work for the opposite outcome. A last general 
observation, supply chain problems are not just COVID.
    For example, in 2018, Congress was correctly concerned 
about the dominance of Chinese chemicals used in active 
pharmaceutical ingredients. COVID did show that even friendly 
countries will compete over supply in a crisis and this is 
important in terms of how much U.S. supply is needed and being 
prepared enough to help our friends when they need it, but even 
if COVID were to end this year in terms of its impact on supply 
chains, we would be back to China's potentially dangerous role 
in critical chains as recognized by the committee.
    A few remarks on Europe. As noted already today very well, 
Europe is the most important of our partners due to its size 
and its technological competitiveness. Unfortunately, the 
reality is much of Europe does not see China as a serious 
security threat. If we treat Europe as a partner, when we 
consider limiting China's role or eliminating it in critical 
chains, they will benefit from relocation of that activity to 
some extent and will cooperate more.
    If we do not treat Europe as a partner, they may refuse to 
join us in our actions to change supply chains. They may set up 
their own protective chains as I believe Chad just suggested. 
The example that everyone is using is chips. I will use it too 
briefly.
    We know from just today's discussion of Dutch firm ASML 
that we must include equipment makers as part of supply chains, 
even if they do not make any components in the product. If they 
provide the equipment, they have to be part of the--considered 
as part of the change or chains.
    Elkem, which is a Norwegian company provides silicon in the 
chip making process. Arm of the U.K. can be an advanced 
manufacturer and has already faced a rogue China subsidiary, in 
part, because the Chinese Government will accept or even 
encourage economic actions whether they are illegal or legal to 
bring in chip technology.
    These firms need to be allowed to participate in U.S. 
chains. If not, it is going to hurt any effort of ours because 
we will reduce European cooperation. It is reassuring to see 
this issue in the Trade and Technology Council, which is 
Representative Fitzpatrick has noted has risk of joining a 
large pile of empty talk shops going back years.
    We cannot afford that. We need the TTC to work and it is 
good to see them considering semi-conductors. Another example 
is solar. Europe has high concerns, interest in alternative 
energy. They do not want to depend on the Chinese in a climate 
change fight and cooperation here between the U.S. and Europe 
should be possible, although will not be easy.
    I want to close with a set of U.S. policy specifics, 
because we are not going to convince Europe or anyone else to 
take difficult action if we are not willing to do so. So a 
problem here is American firms are selling China valuable 
technology and American financials are investing in Chinese 
firms. That can undermine U.S. credibility on the supply chain 
issue. It certainly makes it harder to establish independent 
supply chains because it makes China more competitive.
    Export controls are an example. There was a bipartisan 
vote--overwhelming bipartisan vote for export control reform in 
2018, but the Bureau of Industry and Security at the Department 
of Commerce has not taken a single action to control 
foundational technology, which was mandated in the export 
control reform.
    I will give you an example of foundational technology. Most 
medical equipment could be considered foundational technology. 
Right now we do not have to worry about harmonizing our export 
controls with Europe because we haven't taken any steps on 
foundational controls, foundational technology that need to be 
harmonized. That is not a good outcome.
    Perhaps an even bigger problem, from 2016 to 2020, new 
American investment in Chinese stocks and bonds, which supports 
Chinese companies, stood at $780 billion. It tripled over the 
previous level at the end of 2015. It is also about the same 
size as the current U.S. defense budget. It is a lot of money, 
American money, that is supporting Chinese firms. And I cannot 
tell you in what sectors it's supporting there because we do 
not have that information in public. The Department of Treasury 
does not publish it.
    The solution in the face of these challenges is not 
sweeping bans right away; it is that Congress decides where our 
priorities lie, where we need to secure supply chains, cut the 
Chinese out, and certainly not help them become more 
competitive.
    I read the National Critical Capabilities Defense Act, 
which was introduced on a bipartisan basis in the House last 
month, as a valuable step in this direction. This is not to say 
the bill is ideal, but I think everybody here understands that 
we are overdue for action on supply chains and the first step 
is for Congress to set priorities starting this year. These 
priorities certainly could include semi-conductors, they could 
include COVID-related medical supplies, they could include 
active pharmaceutical ingredients.
    We need to take actions quickly to move these chains toward 
independence of Chinese supply, because that will not be easy 
or fast. So we need to start the process now.
    A last example, China has not been able to sustain 
movements in markets for rare earth elements, but it is still 
trying. Recently, there was a major merger of rare earth 
subsidiaries of very large Chinese State-owned enterprises. 
There is a bipartisan Senate bill on not using Chinese rare 
earths in defense. I think it was introduced last week. That is 
certainly the right idea. China should not be in any defense 
supply chains.
    While these steps are being taken by the Congress, if the 
executive branch is willing, they should be brought on the TTC 
as priorities. Obviously, Europe will have a response, but as I 
mentioned at the outset, we should not be cutting Europe out of 
these chains. So I hope that response is cooperative.
    In my view, this is proper congressional guidance on trade. 
It could be viewed--and I hate to bring this word up because it 
is controversial, but it could be viewed as a narrow form of 
trade promotion authority where Congress tells the President we 
want you to consider these trade issues in the TTC.
    The Trump and Biden Administrations have only talked about 
supply chains over the last 2 years, which I find very 
unfortunate. We need strong congressional action of some sort 
urgently.
    Thank you, and I would be happy to answer questions.
    [The prepared statement of Dr. Scissors follows:]

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    Mr. Keating. Thank you, Dr. Scissors. And thank all of you 
for your testimony. I think you gave us just a bit of an 
understanding how complex this issue is and hopefully we will 
be able to, during our questioning period, draw out some more 
specifics.
    I will now recognize members for 5 minutes each. And 
pursuant to House rules, all time yielded is for the purpose of 
questioning our witnesses. Because of the virtual format of 
this hearing, I will recognize members by committee seniority, 
alternating between Democrats and Republicans.
    If you miss your turn, please let our staff know and we 
will circle back to you. If you seek recognition, you must 
unmute yourself through your microphone and address the chair 
verbally.
    I will now recognize myself for 5 minutes.
    I give this question to Dr. Bown first. The others can come 
in. You touched on the idea that an example was the prior 
Administration, the Trump Administration. They went ahead with 
tariffs and at the time I heard from the smallest companies in 
my district to some of the industrial leaders in our country. 
In fact, without identification, one of our major automobile 
manufacturers set up great investment in the U.S. moved away 
from that and instead went to China because of the uncertainty 
around some of the trade issues.
    To go ahead and deal with tariffs without doing their 
proper oversight before decisions were made to see what the 
impacts can be on our own business here in the U.S., I saw that 
happen in real-time.
    What can we do as Members of Congress for Administration so 
that when these decisions are being made, there is more 
oversight and more of a recognition and the opportunity from 
those businesses affected, from the small businesses at the 
local level to our major global corporations to make sure they 
have input before final decisions are made so we do not repeat 
this mistake?
    Start with Dr. Bown.
    Dr. Bown. So I think that is a wonderful question and an 
accurate depiction of what happened. I would say maybe two 
things. So first of all, when it comes to China and semi-
conductors, not disagreeing at all with what others have said, 
China does subsidize its industry tremendously and with the aim 
of achieving, you know, not only autarky, but a huge global 
role.
    That being said, you know, still Chinais not a major player 
at the high end of semi-conductors. It is a major player in the 
low end, high-volume chips. And as we have seen with the 
pandemic when it only takes missing one semi-conductor--does 
not have to be a complicated one, but one semi-conductor can, 
you know, prevent a car from rolling off the assembly line that 
can be a problem.
    And so not knowing the impact of these policies up front is 
critical. So I think what can Congress do? Well, you know, it 
is hard. The last Administration, in my view, wasn't going to 
take much advice from anyone. Things like allowing--you know, 
it is always hard for consumers and, in this case, businesses, 
businesses of the consumers of a lot of these products that got 
tariffs put on them have a greater voice, small businesses 
especially in the process, allowing them to understand how they 
are going to be impacted and that is going to mean, you know, 
better access to data and information so that folks can be 
telling the story for them I think is key.
    But aside from that, you know, it really would be reining 
in some of the executive's authority to be able to undertake 
the sorts of trade policies that we saw unilaterally in the 
last Administration, whether it was under Section 301, whether 
it was under the Section 232, national security tariffs on 
steel and aluminum, you know, that is rarely where, I think, 
Congress can weigh in and have a more interactive oversight 
constraining role on executive discretion there.
    Mr. Keating. Yes. I think that your point about the 
positions relatively percentagewise. I mean, the U.S. semi-
conductor industry supply chain is about 39 percent of the 
total value of the global semi-conductor and if you put in 
Japan, Europe, especially the Netherlands, the United Kingdom, 
and Germany, Taiwan, and South Korea collectively, they 
contribute another 53 percent. And China, while contributing 
only 6 percent, is quickly developing capabilities and that is 
what we have to be careful of.
    But I also, you know, to great attention--put great 
attention to what Dr. Scissors said, too. In the long run for 
our own economy, we just cannot have a race to the bottom with 
China. They are authoritarian. It is a government run business, 
and they can outlast us and put more supports in sector by 
sector. So we do not win by that.
    So how do we balance this? We have seen in the 
pharmaceutical industry, we have seen with COVID, dealing with 
that pandemic, we have seen with semi-conductors, in 
particular, what happens and we are taking actions in our 
defense to build our own capacity, but how do you balance that 
off? How do we balance off the fact that we have to remain 
self-sufficient as a country?
    Clearly, one solution is to work with our transatlantic 
allies and make it a bigger footprint, but also how can we not 
take actions that would indeed put China in a better 
competitive situation as Dr. Scissors said? Any suggestions how 
we can create that balance?
    Dr. Bown. Well, I think, it is hard in an industry like 
semi-conductors as Dr. Shih was describing. Some of the phases 
of that supply chain are extraordinarily labor intensive, and 
so they end up--the last step, in particular, of what is called 
offshore assembly packaging and testing. In many instances it 
is just--it is way too labor intensive to be able to do it 
competitively in probably either the United States or Europe.
    So it does involve working with non-rich countries and 
making sure their supply chain engagement in our secure supply 
chains is there as well. Now you might ask who should those 
countries be. You know, it might be Mexico as part of USMCA. It 
might be other parties and other countries in East Asia through 
something like if we ever want to think about TPP or the CPTPP 
agreement as well.
    So it is not just in these complicated supply chains where 
there is lots of fragmentation. It is not just us and Europe. 
It really is looking around and figuring out who we need to 
collaborate with in all parts of the supply chain to make sure 
it is more secure and ultimately cost competitive as well.
    Mr. Keating. Great. I hope we get questions later on on the 
distribution aspects, too, which are such a bottleneck right 
now.
    I will now recognize Ranking Member Fitzpatrick for 5 
minutes.
    Mr. Fitzpatrick. Thank you, Chairman Keating.
    I pose this question mainly for Dr. Scissors, but when his 
time is expired, if the rest of the panelists want to weigh in, 
I would appreciate that.
    Sir, the United States and the EU represent roughly 21 
percent of the world semi-conductor manufacturing capacity in 
2020, but that does not consider inputs into the semi-conductor 
supply chain such as rare earth minerals. Can you try to unpack 
the supply chain and give us more context, particularly about 
the inputs to the semi-conductor fat process that are 
predominantly controlled by the Communist Chinese Party, rare 
earth extraction and processing, for example? And moreover, 
what actions should the EU bring and the United States take to 
ensure that this supply chain does not slip under the complete 
control of the CCP?
    Dr. Scissors. I thank you, sir. I will try to be quick so 
others can join in. You know, I would say at this point you 
start at the materials end. The Chinese are involved in the 
supply chain for semi-conductors outside of China, primarily in 
my view at one end and the other, the materials end and the 
packaging end. And so the question is, you know, do we need 
materials from China to start the semi-conductor production 
process in a sense--I do not think the answer is yes as of yet.
    We have to watch Chinese behavior in rare earths and other 
materials markets. China, as you may know, sir, is investing 
heavily in lithium and cobalt overseas. So they are going to 
look to have a dominant position in materials markets, but as 
far as I know--and I am glad to be corrected by my colleagues--
that is not a concern at present.
    On the other side, Chinese packaging is almost impossible 
to compete with partly due to subsidies, partly due to China's 
own competitiveness. This is a concern I have with new American 
plants where the supply could be interrupted, even though the 
chips have been produced, because they are all sent to China 
for packaging. And if you say, well, you know, we will try to 
create a packaging alternative, the Chinese will just subsidize 
right over it.
    They may not have the cobalt onsite, but they can subsidize 
over a packaging competitor very easily, which is why I said 
the tool here has to be, not broad bans, but when the Congress 
thinks this is really critical to the United States, you simply 
cannot allow Chinese participation at all back to the equipment 
manufacturers, everybody in the supply chain. Because if you 
do, where they have an advantage now they will subsidize their 
way in.
    And where they do not have an advantage, but they are 
looking for one such as in materials, they will also subsidize 
their way in.
    One more comment to reinforce what I was saying earlier. We 
are shooting ourselves in the foot if we sell China advanced 
technology for short-term gain and then we have to face a 
tougher Chinese competitor down the line and set up a supply 
chain separate from them. And we are shooting ourselves in the 
foot, actually, even a little bit more if we give the Chinese 
the money to develop more advanced technology in China.
    So this is a situation where I absolutely think we should 
be working with Europe. I think Europe has very similar 
incentives to us, at least up to a point on semi-conductors, 
but we need to look in the mirror and think about, like, what 
we are doing to help China become more competitive in an area 
where we explicitly do not want them to become more 
competitive. And I will stop there.
    Dr. Shih. Could I weigh in here? I think one of the things 
we should be doing is, we should be investing in new process 
technologies. Every time there is a transition point and we are 
coming up on a transition point of the semi conductor industry 
because, as we know, Moore's law has been hitting the ceiling 
and, you know, as people go to three or four nanometer, you 
know, it is questionable how we are--what is going to happen 
next. But the clear frontier is an advanced packaging.
    And a lot of that OSAT work not only happens in China, but 
the big players are actually in Malaysia and Vietnam as well. 
OK? And we have seen a lot of COVID outbreaks there, which has 
shut that down, OK, but that is the more labor intensive stuff.
    Historically that packaging was there because it was more 
labor intensive, but as we go to new technologies that are more 
prone to like automation, you know, using for example Intel's 
tile technology and things like that, that is an opportunity 
where, you know, we can do a transition.
    Similarly, for example, in chemicals. You know, 75 percent 
of all fine chemicals are manufactured in China. That was my 
point earlier about scale efficiencies and how they do that. 
The way you unseat that is you invest in continuous flow 
manufacturing and make all that established capacity obsolete. 
OK?
    If you look back in history and other industries, every 
time there has been that type of technology transition that is 
how you grab the lead. I actually have hope on rare earths in 
the same way because one of the problems with rare earths is it 
is very polluting in terms of the processing. OK?
    Rare earths themselves are not that rare; it is just the 
concentrations are not economic. And where the concentrations 
are higher is in some parts of China and they have done a lot 
of the processing stuff, but there is a lot of research work in 
how can I do it maybe using biological processing methods for 
extracting rare earths or other things.
    You know, if we go back to technology leadership, OK, and 
really focus it on new processing technology, continuous flow 
manufacturing technology, and some of these other things, I 
mean, then we can take advantage of these transitions that are 
coming and, you know, kind of grab the lead back.
    Mr. Fitzpatrick. Thank you to both of you.
    Mr. Chairman, I yield back.
    Mr. Keating. Thank you. The chair recognizes vice chair of 
the committee, Representative Spanberger, for 5 minutes.
    Ms. Spanberger. Thank you very much, Mr. Chairman.
    I am a strong believer that the United States must ensure 
that we have the domestic production capacity to ramp up 
production of necessary medical countermeasures in the event of 
shortages or emergencies.
    And so Dr. Shih, I was very pleased to hear you talk about 
APIs in your opening statement and in your written testimony. 
Unfortunately, 87 percent of facilities that produce the active 
pharmaceutical ingredients for essential generic medicines are 
overseas, and as a result, our healthcare system suffers 
routine shortages of these medicines even outside of 
emergencies.
    For example, the United States has lost the capacity to 
produce Penicillin here domestically and our reliance on 
foreign suppliers jeopardizes our ability to respond to future 
biosecurity threats and it causes routine shortages that put 
patients' care at risk. That is why I introduced the PREPARE 
Act, which is a bipartisan piece of legislation to identify the 
essential generic medicines that are necessary to have 
available at all times and then it authorizes the creation of a 
stockpile of active pharmaceutical ingredients to ensure that 
pharmaceutical supply chains can always produce the medicines, 
the essential medicines, that Americans need in the event of an 
emergency.
    So Professor Shih, I appreciate your research on the 
economics of active pharmaceutical ingredient production. Could 
you discuss the economic barriers to domestic production of 
APIs and give your thoughts on how Congress may be able to can 
overcome them?
    Dr. Shih. Well, thank you for the question. I think it is a 
very important question. I think there are several aspects of 
it. One is the distribution channel where a lot of the 
purchasing happens.
    It is all done through group purchasing organizations and, 
you know, I have talked to a number of API manufacturers. They 
do not make a lot of money on the generics because--a lot of 
the GPOs, that is where they can earn more returns.
    So they are very motivated by price and they will go to 
offshore suppliers, primarily India, you know, and a lot of 
those APIs will come out of China because of price. But your 
point on purchasing for the stockpile, especially if there is 
domestic manufacturer, I think would go a long way to foster 
domestic production with one caveat.
    I also did a study on PPE during the crisis and one of the 
things that we found is a lot of small American manufacturers 
rose to the call from government officials, from business 
leaders, and everybody to manufacture PPE. By the time they 
ramped up, the Chinese had flooded the market with PPE masks, 
for example, or hospital gowns, sold below the cost of the 
materials of those American manufacturers could produce it.
    So what we ended up doing is all these American businesses 
that rose to the call, the call to respond, ended up becoming 
positioned as swing producers. Now, if you are operating in the 
U.S., you are a higher cost producer, right, but as a higher 
cost producer, you cannot be a swing producer.
    My view of the answer to that is, we have to give them 
stable production and buying for the stockpile is one way to do 
that. I am going to give you a long-term contract. I want you 
to produce for the stockpile. I will give you stable 
production. Use the overseas guys as a swing producer. do not 
use American companies as a swing producer.
    So I think that would help a lot. And then as I said 
earlier on API production, we need to think differently about 
process innovation and the research is going on in the U.S. and 
there is some small startups that I visited who doing this API 
production with continuous flow, but we need to help these guys 
to be successful----
    Ms. Spanberger. Professor Shih, you actually got to my 
second question, which was related to continuous manufacturing 
research. Because what I am hearing from your answer and from 
your comments is that this is an element of the challenge that 
encouraging the adoption of advancing manufacturing techniques 
is part of how we pivot into this next phase or ensure that we 
have the domestic production and create the need for the 
domestic production.
    How could improved advanced manufacturing techniques like 
continuous manufacturing overcome some of these--the 
disincentives and I think we may be short on time, but----
    Dr. Shih. OK. I will give you a very quick answer. First of 
all, it reduces the scale economies. . Because the continuous 
flow manufacturing enclosed volume is very small. It is also 
very--is very susceptible to parameter tuning with things like 
machine learning in terms of, I have got to reduce my waste 
products and prove my yields and stuff like that.
    I visited one of the startups in the Boston area that is 
doing this. A lot of this work came out of MIT. It is just 
remarkable. That is how we have to think about--you know, we 
are not going to play the same game against somebody who is 
subsidized. What we have to do is change the game.
    Ms. Spanberger. Professor Shih, we have got some 
interesting innovation happening in central Virginia, so I 
would hope you might travel and visit us in the future.
    Dr. Shih. I would love to.
    Ms. Spanberger. Then thank you so much for your time to all 
of our witnesses.
    And Mr. Chairman, I yield back.
    Mr. Keating. Thank you, Representative. The chair now 
recognizes Representative Wagner for 5 minutes.
    Mrs. Wagner. I thank you, Chairman Keating, and thank our 
witnesses for joining us today.
    The supply chain crisis has been a total disaster for 
families and for small businesses. So very many of my 
constituents in the second congressional district of Missouri 
are experiencing empty shelves and skyrocketing prices due to 
unacceptably long shipping delays.
    As of Friday, January 14th, there were still more than 100 
ships waiting to be unloaded at the Port of Los Angeles. Supply 
chain disruptions are directly tied to this Biden 
Administration and its failed policies. We have all called 
repeatedly to demand that the Administration take immediate 
action to resolve these unprecedented supply chain disruptions.
    This is an issue that effects the daily life of every 
American, but it also is a matter of national security. China 
is aggressively working to become a global power as we have 
talked about semi-conductor industry and it already dominates 
the supply of rare earth minerals and active pharmaceutical 
ingredients.
    The United States has an opportunity to work with like-
minded partners as Dr. Scissors has said in Europe and 
elsewhere to deny our adversaries the power to wreak havoc on 
our supply chains.
    Dr. Scissors, Taiwan is one of the world's leading 
manufacturers of semi-conductors. To what degree is China's 
drive to control the semi-conductor industry motivated by a 
desire to isolate Taiwan and how can the United States and its 
allies best protect Taiwan from China's economic bullying?
    Dr. Scissors. Oh, that is a tough question, you know, 
because there are multiple angles to look at this. I think all 
of us who follow this issue, simultaneously feel a desire to be 
good partners to the Taiwanese semi-conductor industry because 
it is so important to the Taiwanese economy and want to 
encourage the democracy on Taiwan who is under threat by- cult 
of personality leadership, but at the same time, TSMC has a lot 
of sales in China.
    It is--you know, it can be coerced, to some extent, by the 
Chinese Government. And I would not be comfortable, for 
example, if--somebody said earlier, there are a list of new 
plants that are planned for the United States. Might have been 
Representative Keating or Representative Fitzpatrick, but I 
would not be comfortable with the only a giant TSMC plant.
    So we have to balance two things, which is, we have to help 
Taiwan, include them absolutely as one of our partners in high-
value supply chains, but also not be too dependent on Taiwanese 
supply. Because whether we like it or not, Taiwan is very 
tightly implicated economically with China and that is not 
going to end any time soon. I am not sure I got to your 
question, so----
    Mrs. Wagner. Let me ask you this----
    Mr. Scissors [continuing]. Sorry about that.
    Mrs. Wagner. Well, let me ask you, Dr. Scissors, can you 
provide an overview of the PRC's policy designed to maintain 
dominance of the rare earth industry? You know, what are the 
ultimate aims of China's new export control law and how can the 
United States proactively mitigate its impacts?
    Dr. Scissors. So the Chinese have learned from their own 
dependence on oil, some foreign agricultural products, iron ore 
that when they have the opportunity to control the raw 
material, they want to. And so they have set up sort of a rare 
earth OPEC within China. Used to be a lot of independent 
distributors and manufacturers, and now they are all controlled 
by essentially State-owned enterprises.
    So the Chinese have centralized the rare earth production 
process. And what they are trying to do is to be able to not 
necessarily even, you know, ban exports, but to threaten to ban 
experts to make clear to everyone that if you want a reliable 
supply of rare earths, you need to base your facility in China 
whatever you are making.
    And as you know very well, ma'am, that extends to a large 
range of products.
    Mrs. Wagner. Yep.
    Dr. Scissors. So they are not necessarily looking to try to 
force people to respond to a supply cutoff because then people 
start looking for recycling and their own production. What they 
want to do is to tell firms the best place to get your rare 
earths for sure, cooperate with us. That is the message.
    Mrs. Wagner. And I think that that is the ultimate aim of 
their new export control law.
    Switching topics here in my brief time. Europe is suffering 
a serious energy shortages due in large part to Russia's 
efforts to constrict supply and destabilize markets as it 
foments a crisis here in Ukrainian. Europe's dependence on 
Russia for energy may cause much human suffering this winter 
and could become a serious vulnerability for NATO members.
    It is clear that Nord Stream 2, a Russian, as we know, 
influenced project that the Biden Administration allowed to 
move forward by removing sanctions will only exacerbate 
Europe's dependence on Russian energy. There is probably not 
time, but Dr. Shih, I would love to get your perspective on 
what role can the United States play in securing Europe's 
energy supply?
    Mr. Keating. Dr. Shih, briefly, since time is expired, if 
you could answer that.
    Dr. Shih. OK. Well, we are a large producer of natural gas 
as well. I think, you know, the other thing is, we should be 
talking with them very carefully about, you know--and this is--
something that has just come to the floor is like this 
decarbonization and this energy transition is going to cause 
dislocations in many sectors. And I think that is absence of 
planning.
    Mrs. Wagner. I thank you.
    And I yield back.
    Mr. Keating. Thank you.
    Mrs. Wagner. I appreciate the chair's indulgent.
    And I yield back.
    Mr. Keating. The chair recognizes Representative Susan Wild 
for 5 minutes.
    Representative Wild, are you there?
    We will go on to see if Representative Deutch--I know some 
people are in and out--recognized for 5 minutes.
    Same with Cicilline. 5 minutes. I know some are coming 
back.
    I know Representative Titus is there, I can see you. You 
are recognized for 5 minutes.
    I think we are frozen here now. Are we back in?
    Mr. Mast. I can hear you, Chairman Keating. Brian Mast. I 
can hear you fine.
    Mr. Keating. The chair recognizes Representative Titus for 
5 minutes.
    Representative Titus. She cannot hear me either.
    We are having a little technological difficulty.
    I can see Representative Titus.
    All right. I am going to go to Representative Schneider for 
5 minutes. I see you just sitting down, Representative.
    So are we having some difficulty? I know Representative 
Mast----
    Mr. Schneider. No. Sorry, Mr. Chairman. I just stepped 
away.
    Mr. Keating. OK. You are recognized for 5 minutes.
    And while we are doing that, staff can touch base with 
Representative Titus, perhaps her staff and see what is going 
on there.
    You are recognized, Representative Schneider, for 5 
minutes.
    Mr. Schneider. Thank you. I want to thank you for calling 
this hearing and our witnesses for sharing their perspectives 
today.
    And, Professor Shih, if I may start with you. You know, 
reading your bio, I come from a similar vintage. I was an 
industrial engineer, graduated 1983. And in preparing for the 
hearing, I was struck--I was doing some research. I came across 
a New York Times article by David Sanger--I think he might 
still be there--talking about critical shortage in 
semiconductors. The only thing that was easing, after a year of 
scarcity forced by many makers of computers, video cassette 
recorders and other electronic products to reduce their 
production. That was 1984, and it was talking about E prongs 
and 64K memory chips, a very different time.
    In your remarks and answer, you talked about many of the 
advances made but also an emphasis of shifting technologies. I 
know we have made so much advance, especially under Moore's law 
with the doubling of capacities, getting to extremely tight 
tolerances, but we need to look at other areas.
    So I was hoping you might expand a little bit more about 
the continuous process manufacturing, how that differs from 
batch manufacturing and how it is potentially a pathway for us 
to both address supply chain but also the dependencies on 
foreign countries and improve our strategic position, as well 
as what might be some of the barriers to achieving it long 
term.
    Dr. Shih. OK. So let me talk about continuous manufacturing 
in chemicals. OK.
    Mr. Schneider. Right.
    Dr. Shih. 75 percent plus of fine chemicals come from 
China. OK. It was a sector they identified as very important. 
All right. So there was a lot of subsidies into small companies 
who would make these fine chemicals. And as we know, fine 
chemicals go to a lot more than just pharmaceutical 
ingredients. They go into many, many different things.
    When you think about a typical batch reactor, that may be 
50 liters. It may be 500 liters. Sometimes it may be larger 
than that. And, you know, usually it is like a stainless steel 
or a titanium vessel, and you mix chemicals in there. And you 
make things a batch at a time. And, hey, I will have a tank 
truckload of methylene chloride that I will use for--and I will 
go and do all of these things batch-wise.
    Now, there is a cost to doing things in those scales, all 
right, because you have to also process the waste and you have 
to purify them and stuff like that.
    The continuous flow manufacturing--and there is a company 
that I visited in Boston. I mentioned it, Snapdragon Chemistry, 
came out of MIT, and this was work originally funded by DARPA. 
And the idea was, you know, loosely I want to take earth, fire, 
water, and air in one end, and I want to be able to make 
battlefield medicine. So it was the DARPA Battlefield Medicine 
Initiative, but the idea was could I put inside, like, a 
shipping container a factory that could make chemicals on 
demand.
    Now, in the continuous flow model, what I am doing is I am 
talking about very small reactors that are--because they do not 
have a lot of chemicals--they do not enclose a lot of volume, 
and usually I am flowing them. Then I can do a lot of things 
that I cannot do in a batch reactor. I can handle explosive 
reactions because I have very small volumes or I do not have to 
worry about mixing or I can put sensors on all of this stuff 
for monitoring the inputs and outputs and improve my yields.
    OK. So it is a new way. It is a--you know, a lot of 
companies are interested in adopting it, but what it does is it 
obsoletes all of that existing infrastructure that people 
already have, and it becomes much more scale efficient. It is 
much more kind of IT intensive, things that play to American 
strengths.
    So I have been advocating we should think that way, you 
know, on some of these kind of technology transitions; the same 
with chip packaging, all right, which I think is a technology 
transition. We can be smart about it, and it is, like, let's 
grab the lead doing stuff that the U.S. has always been good 
at, which is leading in science, leading edge thinking, if you 
will, taking those risks.
    I mean, we saw what Operation Warp speed did in terms of 
mRNA vaccines in terms of accelerating something that had never 
been an approved drug before. OK.
    And so the way I think about it is, like, in 
semiconductors, advanced packaging, you know, Pharma APIs, 
continuous flow manufacturing, think process changes like that.
    Mr. Schneider. So taking that a step further--and I can 
open this up to everyone--you mentioned Operation Warp Speed 
which did accelerate bringing the vaccines to the market. You 
mentioned DARPA. There are ways governments can remove 
barriers, remove obstacles. There are ways governments can 
change the slope to accelerate progress. We are not the ones 
who are necessarily inventing it, certainly not the people on 
this panel.
    What things can we do to help expand our capabilities, 
expand our capacities, open the doors so that U.S. industries 
are leading the ways on new technologies, new capabilities?
    Dr. Shih. Yes. And recognizing time, I'll be very brief 
here. Let's talk about Operation Warp Speed and mRNA vaccines. 
Everybody thinks that was a 1-year miracle or a 2-year miracle. 
mRNA vaccines were first proposed in 1990, and it was because 
the U.S invested so much in genomics, the human genome program, 
biotechnology, you name it, life sciences broadly over the 
period of the 1990's to 2000's, you know, DARPA did a project 
with Moderna on mRNA vaccines and pandemic preparedness in, I 
think it was 2013, 2014. But it was that long-term investment 
in the basic science, the leadership there. That is what this 
country is good at. Right.
    So I think if we invest in that kind of leadership R&D, 
foster this marketplace of competing ideas--that is what you do 
not see in China, by the way. You know, fostering all of these 
competing ideas, that is what we are good at. That is how we 
lead.
    Mr. Schneider. Thank you. I know I am out of time. I do not 
know if there is time for the other witnesses to weigh in. But, 
if not, I yield back my time and, again, thank the chair.
    Mr. Keating. Thank you, Representative.
    The chair recognizes Representative Mast for 5 minutes.
    Mr. Mast. Thank you, Mr. Chairman. Drs. Scissors, Shih, 
Bown, I appreciate your testimoneys today.
    I just want to start with a question surrounding the LNG 
conversation, the gap in Europe. We can taught about what is 
going on in Asia as well. This is just an opinion question for 
each of you. Do doctors consider LNG clean or dirty energy?
    Dr. Scissors. I consider it clean. I do not--we could go 
into detail about that, but short answer, I consider it clean.
    Dr. Shih. I consider it cleaner and a critical transition 
fuel.
    Dr. Bown. Same, cleaner.
    Mr. Mast. Cleaner. All right. Fair enough. I appreciate you 
giving me an answer.
    Dr. Scissors, I guess I would ask, or Shih or Bown after 
that, do you think there is anything that we in the U.S. should 
be learning from that, that gap that we are filling for Europe 
right now as it relates to LNG? I have watched the numbers over 
the months, you know, of our exports. It has gone from 20, 30, 
40, over 50 percent I believe at one point of our exports going 
to fill that gap for LNG over in Europe.
    You know, opinion, love to see us taking work away from 
Russia, but is there something that you all think that we 
should be learning from that?
    Is there a point that we hit a wall that we cannot fill 
that gap?
    And do we consider that to be sustainable to continue to 
fill that gap for them?
    Dr. Scissors. I will go quickly first because I know you 
want to hear from all of us.
    I think the LNG, the gas crisis in Europe falls under the 
category that I was mentioning right at the beginning, which is 
when we think of crisis preparedness in the United States, we 
should not just think about what we are producing for 
ourselves. We should be thinking about what we are producing, 
if we can, for our key allies.
    So I criticized the Biden Administration right from the 
beginning saying, Look, you know, go slow on this whole we do 
not like fossil fuel production thing, because the world isn't 
moving at the same speed we are. And it would be helpful right 
now if the U.S. had whatever our maximal gas production 
capacity was so that we could help our friends when they are in 
trouble, so that we could serve our geopolitical aims to reduce 
Russian influence in this case.
    So my general point here is I do not think we are maximized 
at our energy production. You do not want to necessarily 
maximize your energy production at all times, but you do when 
one of your close allies, as Europe is, is in jeopardy. And I 
would like us to think about crisis preparedness not just for 
ourselves but for our friends, and I think that would put us in 
a better position with regard to energy supplies to Europe or 
to Asia which, as we know, East Asia is extremely dependent on 
the Middle East.
    Mr. Mast. Dr. Bown?
    Dr. Bown. I guess I would say LNG is--it is only recently 
that we have been able to export LNG, and there is a difference 
between production and export. Export requires massive 
investments, you know, in these terminals to be able to sell 
it. And so this is not something you are going to be able to 
ramp up on scale relatively quickly.
    And piggybacking on that, you know, this was a huge 
priority with the Trump Administration as part of the phase 1 
agreement with China. China is supposed to be buying all of our 
LNG exports in order to meet the phase 1 commitments. So, you 
know, you kind of cannot have both, saying they have to reach 
$200 billion of American exports and say that you want to 
divert LNG exports to Europe to help deal with the challenges 
there. Right. So some of this is part of the inherited mess 
from the Trump Administration.
    Mr. Mast. If I could pause you, Dr. Bown.
    How much of that do you think is from us approving permits 
for those plants--not us, but, you know, how much do you think 
of that is in red tape? Could that be ramped up quicker?
    Dr. Bown. My understanding of this industry--and I am not a 
huge expert, but it requires--the capital investments 
necessarily for the terminals is a separate endeavor that 
typically requires long-term relationships between, you know, 
American suppliers and foreign buyers to make it worthwhile for 
them to undertake the investment, you know----
    Mr. Mast. They are not going to know the buyers so they are 
not going to start sucking it out of a Russian pipeline right 
away?
    Dr. Bown. No, it is not quick.
    Mr. Mast. Dr. Shih, anything you care to add? We have got 
about 40 seconds remaining.
    Dr. Shih. Yes. I would just add, you know, one of the 
things I think we should have learned is we need to do more 
planning around the energy transition, all right, because, you 
know, we are going to see that in, you know, the grid going 
from centralized generation to distributed generation and 
distributed consumption. Right.
    So there are other areas. I mean, to me it is a warning 
call that we need to think about the other implications of this 
energy transition which we are moving down.
    Mr. Mast. I appreciate the testimoneys from everybody 
today.
    Thank you, Mr. Chairman. Yield back.
    Mr. Keating. Thank you, Representative.
    The chair recognizes Representative Costa for 5 minutes.
    Representative Costa?
    We are having people come in and out I know because of 
other issues.
    Mr. Costa. Can you hear me now?
    Mr. Keating. I can. Representative Costa, you are 
recognized for 5 minutes.
    Mr. Costa. Thank you very much, Mr. Chairman, for holding 
this important subcommittee hearing, and I am multitasking. I 
have got a markup in Natural Resources going on concurrently.
    But, Dr. Bown, I work very closely with the chairman here 
with our European allies, and I chair the Transatlantic 
Legislators Dialogue and in our parliamentary group that you 
may be familiar with, the US-EU. Do you see any potential for 
cooperation that does not already exist between ourselves and 
the European Union on critical supply chains?
    And what topics do you believe that we should prioritize 
for Transatlantic cooperation to improve supply chain 
resiliency, particularly in reducing our dependence on China?
    Dr. Bown. So some of it is already happening, and I think 
it is being facilitated by not only the work that you are doing 
but by the TTC. Right. So I think one aspect is on export 
controls. You know, this is sort of a new competency in the 
European Commission, and it is important to get them aligned 
with what we want to be doing on export controls because we 
produce, manufacturers, so many of the same things that if they 
are not willing to put controls on exports, our willingness to 
do so could go for naught and not end up protecting national 
security. So they need to be on the same page.
    In other areas I think it is, you know, important to have 
the chains--the channels of communication open. So the example 
that I gave about vaccines, you know, was hopefully unique, we 
never see something like that again. But the shortages that 
arose meant that--and arose essentially because American 
policymakers didn't have visibility into the European supply 
chains.
    So we needed communication between essentially, at that 
point, the White House coordinator on COVID response with the 
Brussels coordinator on COVID, and they eventually got there. 
But I think having a TTC up and running in place could help 
facilitate those connections earlier so that when problems do 
arise, we can tackle them, whether it is on, you know, vaccines 
or semiconductor shortages, things like that.
    My sense is that hopefully we will see better integration 
and policy in the future.
    Mr. Costa. You are basically saying closer cooperation 
between the EU and ourselves on a host of these supply chain 
issues are critical to both ourselves and our allies.
    Dr. Bown. Yes. Recognizing that when a challenge happens, 
that someone across the Atlantic may be able to help us as 
opposed to being your nemesis. Right. I think it is sort of a 
change in mindset, that we can rely on each other and we need 
to be benefiting from diversification.
    Mr. Costa. No. And I have reminded folks our European 
friends are our allies, not our adversaries.
    Dr. Bown. Exactly.
    Mr. Costa. And thanks for giving context on Warp Speed 
because, while it was successful, clearly a lot of work had 
been done over the last 20 years.
    Dr. Shih, what should be our focus during the Trade and 
Technology Council sessions during the 2022 Spring Forum?
    And can we ensure that concrete actions and policy 
solutions emerge from the forum?
    Dr. Shih. Well, I think--as Dr. Bown said, I think 
alignment on kind of some of the strategies around supply 
chains, I think especially around export controls, as he 
pointed out, you know, if we impose controls and, you know, 
other countries go to the Europeans, that--you know, we end up 
shooting ourselves in the foot.
    A good example of that is what happened with GPS when we 
controlled that. That spawned an European effort, as well as a 
Chinese and a Russian and now U.K. effort.
    I think the other thing is, like, we need to have a pretty 
candid discussion with them about a lot of these issues, you 
know, and we need to understand what it takes to be a reliable 
supplier to them too. I think their perception is not that we 
are a reliable supplier. And if you are not a reliable 
supplier, then they are going to look for alternatives. Right. 
True allies will share the pain when we have a natural gas 
crisis, even though there may be domestic cost to that.
    Mr. Costa. I think that is a good point.
    Mr. Keating. Representative Costa, if I could suspend for 2 
seconds.
    Someone is not on mute in the background. I just ask 
someone to check to see that you are on mute.
    The chair recognizes Representative Costa.
    Mr. Costa. All right. I will be quick here.
    I do not know which of the three of you might want to offer 
whether or not we can grow our rare earth industry in the 
United States and how we can work with our allies to solve 
problems with the rare earth supply chain.
    Dr. Shih. Let me offer, we have good deposits in Wyoming. 
OK. We do not have the processing infrastructure. Lynas, the 
Australian firm, is building a processing plant in Texas. OK. 
Having stable demand for domestic suppliers is a good way to do 
that, and that might--in this case it would make a lot of sense 
to purchase for a stockpile.
    Mr. Costa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Keating. Thank you, Representative.
    The chair recognizes Representative Meuser for 5 minutes.
    Mr. Meuser. Thank you, Chairman. Thank you to our witnesses 
very much.
    Dr. Scissors, would you say that in 2019 the U.S. economy 
on a comparative basis to the rest of the world that we traded 
with was doing well?
    Dr. Scissors. Wow, put me on the spot there, sir.
    I would say, yes, it was. But I also see the seeds for 
problems because we were borrowing too much money. That is my 
own personal opinion.
    Mr. Meuser. Fair. Our deficit did increase that year by 
$520 billion. Of course, over the last couple of years, we 
have--you know, we have had COVID. But, I mean, we are up $6 
trillion, I believe it is, so a little bit more.
    In 2018, our GDP was $20 trillion. Our China trade deficit 
was $419. In 2019, our GDP was $21 trillion. Our China trade 
deficit was $319. In 2020, the year of COVID, we went down to 
$19 trillion in GDP, $310 China trade deficit. And in 2021, we 
had an absolutely booming year, $23 trillion, with $344 trade 
deficit.
    So what is interesting there is that the size of the 
increase, $4 trillion, nearly 20 percent, but also the fact 
that here we are thinking that we are buying everything 
necessarily from China, and it went up relatively 
proportionately. Of course, you have got inflation in that GDP 
number and a tremendous amount of government spending.
    So we know where we are with outcomes. You know, I was in 
the real world in business for 25 years, and there you focus on 
outcomes, not intentions.
    So, you know, what we have right here is we have enormous 
demand in certain sectors. I am not telling anybody anything 
they do not know. Consumer spending is very high. We have 
incredible work force shortages in rural areas and throughout 
cities. It exists. All you have got to do is take a walk with 
me down Main Street, and you will hear every single business 
tell you that.
    Now, in China, they had their shutdowns as well, and that 
is primarily the reason that we have got, you know, so many 
cargo ships offshore. But our domestic production clearly was 
dramatically reduced, from furniture to bacon, and, you know, 
that is why we have the type of inflation we haven't seen since 
1982.
    So why would you think that this Administration would think 
it is a good idea--because to me it is the worst time--to 
increase government spending? And this is for Dr. Shih as well 
and perhaps the other witness. I mean, worst time to increase 
taxes, worst time to put down certain mandates on employment 
availability, all right, without doing it in a smart way, 
particularly without doing any stockpiling of testing. Here you 
have this huge test mandate, and you do not--or you discuss it 
anyway. It gets proven unconstitutional, and then you do not 
even bother worrying about the supply.
    And so my question to you is, do you think the continued 
idea to continue to spend and increase taxes is the right way 
to go in this sort of environment?
    Dr. Scissors. No, I definitely do not. I understand why 
people have a response to the crisis that they think in the 
short term what we need to do time now, this is urgent. I get 
that. And we can have an argument over short-term policy. But 
on long-term policy, I think we are in complete agreement, sir.
    I would say as somebody who thinks about U.S. economic 
competition versus China, you do not want to win the debt race. 
You do not want to be first in debt. As we had discussed 
repeatedly in this hearing, you do want to be first in 
innovation. And innovation does not solve all of your problems, 
but if you want to win an economic competition and be healthy 
economically, you need to innovate.
    And, finally, as you mentioned, we need to train our 
workers. We have a lot of people--there are, you know, thoughts 
that people do not want to work anymore. Let's give them the 
skill level to get a job that they like better than the one 
they have or the one they do not want to apply to.
    Mr. Meuser. I agree. It is hard with a $50,000 annual cost 
for college, 50,000 plus--and I would love to get the witnesses 
thoughts on the CHIPS Act because I certainly believe it is 
imperative, important, and necessary, so maybe we could get 
that in a followup.
    But I yield back, Mr. Chairman. I understand my time has 
run out.
    Mr. Keating. Thank you, Representative.
    The chair recognizes Representative Tenney for 5 minutes.
    Ms. Tenney. Thank you, Mr. Chairman and Ranking Member. 
Thanks to the witnesses, really interesting discussion.
    I am going to direct my first question to Dr. Scissors or 
Dr. Scissors. In 2020, the Chinese Communist Party signed the 
15-nation Regional Comprehensive Economic Partnership and 
included some of our close allies, like Japan and South Korea, 
who are already parties to that. What do you think this will 
mean for the EU, Britain, and the U.S. as we seek to create 
supply chain resiliency against the Chinese Communist Party?
    That is my first question. I have got a quick second one 
coming on that.
    Dr. Scissors. Well, I do not think RCEP itself, the 
substance of it matters very much. It is not a liberalizing, 
you know, dynamic agreement. I think what matters in RCEP is 
the question of U.S. commitment. As I mentioned earlier, and 
others have mentioned during the conversation, if you want to 
cooperate with Europe, you need to be a reliable partner in 
your regulatory action, in your supply. And if the U.S.--the 
U.S. does not have to respond to RCEP, but if the U.S. says, 
Look, we really cannot make international agreements, it is too 
hard, there's too much bipartisan bickering, that really hurts 
our cooperation here.
    So I do not think RCEP puts us in a difficult way itself in 
supply chains. Where we put ourselves in a difficult position 
is we are not out there saying, We want to work with our 
partners. We are willing to pay some price to do that. We are 
going to stick to policies. We have agreement.
    And that's--I'll be--to wrap up quickly, I think the TTC 
and congressional guidance to the TTC is an area where we could 
have bipartisan cooperation. That would be really important. 
That would be a really important signal, not just to Europe, 
but to our allies in East Asia.
    Ms. Tenney. OK. So I see your recommendation for the Biden 
Administration is not too worry about this too much at this 
point?
    Dr. Scissors. Not to worry too much about RCEP. RCEP is a 
diplomatic agreement, but it is to care about U.S. credibility 
that we will engage on economic issues and stick to our word.
    Ms. Tenney. So let me just say, the EU has been pursuing a 
digital sovereignty agenda that targets U.S. firms for 
discriminatory treatment, which in some ways is similar to what 
China often does. These EU policies are antithetical to 
Transatlantic cooperation--I realize that was a diplomatic 
one--on critical supply chains in security and other areas. If 
the EU is unwilling to treat the United States as a trusted 
partner, especially referring to those agreements, in the case 
of cloud services in this case, why should the United States 
treat the EU as a trusted partner when it comes to 
semiconductors, pharmaceuticals, and others that we are dealing 
with them on?
    Dr. Scissors. Very quickly, I think you raise a really 
important point. We are being--you know, we do not have all the 
time in the world. We are being very facile in saying, OK, the 
U.S. and the EU should cooperate more. But there are problems 
in the U.S. and EU relationship that we are going to have to 
overcome. I guess what I hope the EU will do--I certainly hope 
we will do--is remember that our differences with the EU pale 
in comparison to our differences with China. So we have to be 
prepared to say, you are doing something we do not like. We 
will put up with that one, not this one. We will put up with A, 
not with B. And they have to be prepared to do the same thing.
    And we may find out Europe cannot do this. The EU is not a 
single actor as we know. It takes them a long time to come to 
an agreement, even when some of the partners agree with us. But 
I think we should try because our problems with Europe, while 
they exist and they are important, they are much less than our 
problems with China.
    Ms. Tenney. Right. So in terms of technological sovereignty 
for these products, shouldn't we be a little less reliant on EU 
and, you know, maybe chart our own course? Because we are going 
to have to be--have some, you know, preventative resiliency 
against China, even with EU not as much a partner as we would 
like them to be or at least not as trusted as we think they can 
be.
    How would you react to that?
    Dr. Scissors. Well, I think we should try to talk to our 
friends, Europe, our USMCA partners, Japan, Australia, 
Philippines, this is a treaty ally. When they won't go along, 
we are going to have to be self-reliant. So we are going to 
have to be prepared to be self-reliant. We should try to get 
our friends on board, but we have to have a backup plan.
    Ms. Tenney. Thank you.
    So, Dr. Shih, I do not know, I have 55 seconds left. What 
specific suggestions for the US-EU Trade and Technology 
Council, which had its first meeting in September of last year, 
do you have beyond just the Statements we have seen?
    Specifically what actions would you like to see come out of 
these talks upcoming?
    You have got 40 seconds. Thank you.
    Dr. Shih. I would like to see the discussion on kind of our 
strategic interest and how, as Dr. Scissors has pointed out, we 
actually have a lot in common. There are issues, obviously, on 
some of the technology companies, and I think that is the 
essence of a negotiation and horse trading. OK.
    But I think right now many of the countries I talk to over 
there are very worried about the U.S. in terms of what they 
view as perhaps, you know, a somewhat cavalier approach on 
sanctions, and so on. All right. So I think it is a hard 
negotiation. It is going to take time.
    Ms. Tenney. Thank you.
    I yield back.
    Mr. Keating. Thank you, Representative.
    Just briefly to go through some followup second round 
issues that I know that members that were called away wanted to 
address. And one is what Dr. Shih has spoken about with 
research and the importance of that research.
    We know from the defense side our government is investing 
in many research areas, but also with other governmental 
efforts, including the Infrastructure Bill that was passed or 
Build Back Better which is in the Senate.
    How important for us competitively is it to keep investing 
as a country in research?
    Dr. Shih?
    Dr. Shih. I think it is foremost. That is what we are good 
at. That is--as we see, those are the things that lead to down 
the road, you know, whole industries. And the example I always 
use is, you know, biotech, life sciences, what we did in the 
eighties and nineties. And we are just scratching the surface 
on all the good things that are going to come out of that that 
are world leading. Right. If you look at all of the global 
Pharma companies who have decided they have to be in the U.S. 
because of that. OK. And that has happened before. Right. We 
saw it in semiconductors in the 1960's, OK, with investments 
primarily by NASA and the Defense Department in semiconductors. 
In the sixties NASA and DOD consumed 60 percent of all of that. 
We have seen that in aerospace. Especially, I am a huge fan of 
what NASA has done in terms of, you know, technology programs, 
winglets, super critical wings, high compression ratios, you 
know, energy efficient engine program is a remarkable success, 
or what they have done with commercial crew. Right.
    And so what you see is that kind of investing of the 
forefront, investing in, you know, having the competition of 
ideas, OK, having lots of different players come up with their 
ideas. Not all of them succeed. That is what this country is 
good at.
    Having said all of that, one of the other things I tell 
people that I think is very important is we have to work on the 
demand side as well, OK, because, you know, too many 
technologies we have seen get developed in the U.S. and they 
get commercialized offshore because we no longer have, you 
know, the manufacturing infrastructure or the products that 
those go into. I have been associated with companies that end 
up being sold off to Asian competitors because we do not have 
that. Right.
    So working on the demand side I think is also an important 
part of that.
    Mr. Keating. Yeah, the other broad issue that we really 
haven't touched on, to any great extent, really is the 
timeframe that is out of our control and exigent, and that is 
the whole issue of climate change. When I was at the Summit in 
Glasgow, the private sector came forward with a commitment to 
$131 trillion of investment.
    And as we go forward, how can we be sure the U.S. is 
positioned to take advantage economically of this massive 
investment that is going into climate change?
    Dr. Shih. So let me give you a few examples there. OK. 
Because one of the main trends that you are seeing, of course, 
is electrification, not only in transportation but also grid 
monitorization, distributed generation, and stuff like that. 
OK. Knowing that that is coming and the U.S. is still a leader 
in, for example, group III-IV semiconductors. If you want to 
build 800 watt car chargers, you know, fast chargers, you are 
going to need silicon carbide and gallium nitride group III-V 
semiconductors, right, but understanding where these things are 
going and then investing in the forefront technologies. OK.
    And actually the opportunity for the U.S. in grid 
monitorization with the Infrastructure Bill is that we will 
have demand for some of those things, right, so that we can 
pull them through, and then we can actually make businesses 
that are successful producing those in the U.S.
    So I think it is actually an opportunity. But, you know, we 
really need to be well-informed on some of the challenges 
associated with that because, you know, like--and the Europeans 
have seen this a lot in terms of the electrification and 
distributed generation and power storage, and stuff like that. 
They have encountered a lot of problems. China has encountered 
a lot of problems.
    I was reading a paper on high voltage DC and net 
oscillation because of, you know, using a lot of power 
semiconductors connecting all of those wind turbines and solar 
farms, and stuff like that.
    So there is a lot of opportunity, but we really need to 
understand those issues and recognize them as opportunities.
    Mr. Keating. OK. Does anyone else want to touch base on 
that?
    Dr. Scissors. Could I make a 30-second comment on that, Mr. 
Chairman?
    I agree completely with the emphasis here on innovation. It 
is absolutely vital for competitiveness. And I do not want to 
cast the slightest aspersion on it. I do not think it is 
sufficient. And I will give an example on climate change. The 
Chinese did not come up with the breakthrough solar panel 
technology originally. I am not saying they are not competitive 
in solar panel technology now, but originally they didn't. And, 
yet, they subsidized and drove everybody out of business, and 
they have an absolutely dominant position in solar panels.
    So when you are ahead of a competitor in terms of 
innovation, fine. You do not have so worry about them barging 
in on your market. But in areas where the U.S. cannot stay 
ahead--and we will not be able to stay ahead in everything--we 
do have to consider that secondary point of we are going to 
have nonmarket economies or interventionist economies harm our 
demand. Europe had a ton of demand for solar, but it wasn't 
enough to keep the Chinese out, even though the Chinese at the 
time were not the most innovative.
    So innovation is the first step for sure. I just want to be 
cautious that we are not going to be ahead in every area, which 
means there are other factors we have to consider.
    Mr. Keating. Dr. Bown, any comments on that?
    Dr. Bown. So related to this, and it will tie in with 
climate, is I think going back to Operation Warp Speed and 
drawing the lessons from that. And while I do not disagree with 
the way it has been characterized, I would like for us to take 
a little bit of a step back and remember that we actually 
subsidized six different vaccines at the beginning. Three of 
them didn't work out. One of them worked out, so this is the 
J&J, but then we had massive production problems. All of this 
is to say that is incredibly natural. We need to diversify.
    So anytime we are thinking about industrial policy or 
intervening in areas, we have to think about being diversified. 
We have to be willing to accept some failure because that is 
part and parcel of how innovative sectors work.
    And then we need to have an exit strategy when we see the 
failures are happening so that we do not, you know, pile good 
money after--or bad money after good, or whatever the 
expression is.
    So I think there is a full range of lessons that we can 
take from the experience of Operation Warp Speed to apply to 
other areas in the future.
    Mr. Keating. Last, Representative Titus, who was on for 
most of this hearing, has asked me to bring forth one other 
issue, if you could, for the record. And that is one that we 
are all familiar with. I mentioned it briefly in my opening 
remarks, hoping to get to it. But that is part of the 
distribution problems that we have as well.
    Representative Titus has a great concern on ports and the 
issues that, you know, hurt us in terms of transportation, 
backlogs and jams in the distribution network of our supply 
chains.
    Would anyone want to comment on that issue?
    Dr. Bown. Let me say two things related to the distribution 
and kind of equity issues here.
    One is to remind everybody that much of the explanation for 
the massive supply chain disruptions that we are seeing is a 
demand-side phenomenon. We are not back to a normal world where 
people are consuming the normal amount of services that they 
would normally consume. They do not go to restaurants. They do 
not go to spas. They do not go on vacation as much.
    And what that means is they have taken their budgets and 
they are spending it on goods. And a lot of those goods are 
traded. They come through the ports. They come through the 
transportation system. And that is why the supply chain 
logistics network has been overstressed. Some of that will go 
away with time. Some of that is pandemic related.
    Finally, one other one on distribution, so Professor Shih 
rightly characterized new technologies in the semiconductor 
industry as potentially allowing us to bring back this offshore 
assembly and test this last stage of the semiconductor 
manufacturing process. But we should keep in mind that it is 
incredibly automated new technologies. And so if we are 
thinking that manufacturing of semiconductors is a jobs plan, 
we have to keep that in mind. We are not talking about jobs 
here. And the jobs that are going to be there are probably 
really high-end jobs.
    So there is--this is national security. I understand it. It 
is resilience. I understand it. But this could in and of itself 
feed into additional inequities in our system that need to be 
addressed elsewhere.
    Mr. Keating. Yes, I think the EU clearly has integrated 
that into their decisionmaking on these areas as ultimately we 
have too.
    I noticed that Dr. Shih wanted to comment on that.
    Dr. Shih. I was just going to reinforce what Dr. Bown said, 
about it has really been a demand surge. If you talk to people 
in the logistics industry, container lines, and so on, they 
will point to the eastbound Trans-Pacific as being the thing 
that has upset all of the logistics networks. There is so much 
demand on that trade lane, it is sucking capacity out of, for 
example, out of the Westbound Transatlantic trade lanes and 
some of the other trade lanes.
    And the other thing to remember is that as you get 
congestion, as you get 100 new ships anchored offshore, as 
they--you know, if you looked--I checked Port of Long Beach 
yesterday. There are some ships unloading there that had left 
their ports in Asia in November. OK. And they are just 
unloading now.
    What that does is it removes a huge amount of capacity from 
the system. And so now the congestion, when we have all of the 
containers piled up, it is very hard to move stuff through the 
yards onto intermodal, onto trucking, especially when you are 
facing labor shortages. With the congestion, you get more 
delays with congestion, and that is what we are seeing right 
now.
    Mr. Keating. Yes. And we are seeing how fragile the supply 
chain is too because just the lack of a universal platform on 
the trucks when the containers are being, you know, loaded, 
that is created jams, as well as some of the unforeseen, I 
think, resignations in certain areas of people moving away, 
where they were able to make money as a truck driver, they are 
being paid on the number of deliveries. Now that is cut in 
half. And a lot of them are getting out of the business as a 
result.
    So it is a fragile network we have. I think the fact that 
some of the things we import come from countries where they are 
still not digitalizing, -digitizing rather the cargos, they are 
still doing it in hand, and they cause delays in that respect.
    So there is things we will learn from this going forward, 
but I think the three of you have clearly raised a lot of 
issues that still remain to be dealt with.
    I really appreciate your participation because I think we 
looked at this issue from so many different perspectives and, 
in many respects, just scratched the surface of what we are 
doing, and that is something that probably we anticipated. But 
I appreciate your input. We will look forward to your entire 
testimony being part of the record, and some members may have 
questions in writing as we go forward.
    So the members will have 5 days to submit statements, 
extraneous materials, and questions for the record, subject to 
the limitations on the rules.
    And, again, I want to thank all of you for your 
participation. This is an issue that will be ongoing and one 
that is critical, not just to the U.S. economy, but globally to 
the economies that we face.
    So, again, thank you for your time.
    This hearing is adjourned.
    Thank you.
    [Whereupon, at 3:51 p.m., the subcommittee was adjourned.]

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