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tv   Hearing on Supply Chain Resiliency  CSPAN  July 26, 2021 5:12pm-7:14pm EDT

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♪♪ the senate commerce committee held a hearing to examine supply chain resiliency. industry and supply chain experts testified on supply chain security, the manufacturing base, private and public partnership and competition with china.
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the u.s. committee on commerce, science and transportation will come to order. thank you all for being here. we have a distinguished group of witnesses today to talk about a very important issue to us in the united states of america, and that is the state and competitiveness of our supply chain resiliency for the future. each one of our witnesses is a distinguished dr. gary jerrefi,
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dr. james lewis, and dr. aboulafia, and dr. heeler, and mr. john miller all offer a variety of perspectives on the importance of this issue. i can say for me and the state of washington, aviation supply chain is something that we are proud of, and more than 150,000 people work in that supply chain that continue to innovate and create new products that, as mr. falapia has said in his testimony, that's where the innovation is happening in the supply chain. that is why we just recently passed the now called u.s. innovation and competitiveness act that we are trying to negotiate with our house colleagues, because we believe
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in making an increased investment in the supply chain. so i am sure that we are going to hear today also about the challenges that we face in the semiconductor sector, an aspect of the supply chain in which we saw great shifts over the last several decades and the consequence is obviously less jobs in the the united states of america. so needless to say, i think that congress has caught on that the supply chain is key to our economic strategies, and that a robust supply chain in the united states of america means that we are going to continue to have robust employment in the united states of america. without the resiliency of the supply chain, it could be complicated as to, given the experience of covid whether products can be delivered in a timely fashion, and whether our services and security could be
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impacted and just how important it is that we have a strategy for a global economy in which a variety of products and services can be delivered in a much more competitive fashion than in the past. that means the important investments that have been made and the steps taken to the contribution of the resiliency of the supply chain. and the manufacturing of the supply chain, and the resiliency of the response office within the department of commerce, and it makes tremendous investment in the department of commerce, department of energy to support r&d in translating inventions into products, creating regional technology hubs, and expanding the workforce and the economy, and these important facilities like our pacific northwest
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laboratory, and help with the spinoffs of new technology that are critical parts of the r&d domestic supply chain. and also, the manufacturing extension programs can help in developing the resiliency and the supply chain strategies so that we can continue to have not just potential customers, and the supply chain connectors, but understanding again, how to best innovate and stay competitive. i look forward to hearing the testimony of the witnesses today, and i am looking forward to having this distinguished group of colleagues in front of us, and i would say, senator wicker, i'm not sure 20 years ago we would have had this same hearing. i see our colleague senator in front of us here, sponsor of the fron teers act, i'm not sure we would be having this same
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conversation. but the world has changed. and i look forward to how the united states stays very competitive here. thank you. >> good afternoon, madam chair. good to be with you here today, and to be with the distinguished panel. what do we mean by supply chain? it's the process that starts with raw materials and ends with sale or consumption. along the way there are various steps. materials, reminement, manufacturing and distribution. resilient supply chains can withstand and quickly recover from disruptions. and we have had disruptions, but they also include the disease outbreaks, and severe weather international conflict and things like that. in recent decades, the manufacturing capacity has declined significantly. between 2000 and 2010, manufacturing jobs were cut one-third with the small businesses heavily impacted. as we all know, that's where we
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create the jobs in the united states of america, small business. as global competition increases, and control over the supply chain has fallen into the hands of fewer and fewer countries and most notably china, and such geographic concentration of supply chains has left many u.s. companies are vulnerable to disruption, and something that we are acutely experiencing. helping u.s. companies identify and address the areas of vulnerability will require strong partnerships and international partners and the federal government can help by investing in r&d and workforce development to make sure that new innovations are conceived and developed here in the united states. taylor machine works in mississippi is one great example of a u.s. company conducting r&d in the materials handling industry. and whose innovations today are being replicated throughout the world. this committee took important steps as the distinguished chair
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mentioned in passing the endless frontier act now known as the united states innovation and competition act, or usica. i don't like that, as well. this bill is authored by senator young, and passed by 68-32. the legislation would create a new supply chain resiliency program within the department of commerce to monitor supply chains and develop ways to address vulnerabilities. it also supports semi conductor manufacturing and r&d. this is a much needed response to the semiconductor shortages that have disrupted manufacturing across the nation, including my home state of mississippi. undoubtedly, we will hear about that from the distinguished panel. the legislation also includes contribution from the finance committee to combat china's
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manufacturing imbalances and threats to free and fair trade. today's hearing is a opportunity for the witnesses of the united states on how to make our supply chains more resilient. witnesses may want to share their thoughts on how the department of commerce may implement various versions of the bill. this is to take action on the broad range of topics covered by our legislation. the president recently issued a 100-day supply chain review, and that identifies some of the supply chain vulnerabilities. we perhaps will hear about that today. i'm honored that among the panel is my good friend, and fellow mississippian lex taylor, who is a leading manufacturer in mississippi. taylor builds forklifts and a variety of materials and
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machinery for industry and defense purposes. mr. taylor has first hand experience with the topics we will cover. and i know him, and he and other members of the panel will make a valuable contribution to the discussion. thank you, ma'am. >> thank you, senator wicker. we're leading off with you, doctor. thank you for being here. we are honored to have you before the committee and your expertise in the area. please proceed. >> thank you very much. madam chair cantwell, and ranking member wicker and members of the senate commerce committee, it is a pleasure and honor to be invited to testify before you today. my name is gary jeressey, and i'm a professor at duke university, and i direct the global value chains center there. i spent a number of decades
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studying global supply chains. and this is the first time that my neighbors and friends want to talk about the topic. not necessarily for a good reasons, as we know, covid-19. the pandemic has introduced many disruptions and shortages of products. so supply chains have come to the public consciousness, often times through these shortages. but i think it's the white house report released last month that said that building the resilient supply chain, because they have been a critical part of the u.s. economy for five decades, and it's important that we be aware of disruptions, not just for products like personal protective equipment or the other issues that have come up with covid-19. but as a matter of long-term competitiveness. so i want to highlight, one, the
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nature of the supply chain research. two, about the concept of resilience, and then give a bottom up perspective and conclude with recommendations. supply chain research is surprisingly recent in the university context. businesses deal with the supply chains all of the time. it's a matter of logistics. but from the researcher point of view, it's a challenging field. one, because of the boundary problem. we are aware of industry studies. but supply chains are bigger and different than industries. supply chains have multiple tiers of companies that stretch up and down. so we are not as clear with the first, second, third linkages. supply chains have backward and forward linkages.
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so it's been hard to create those boundaries. that raises a measurement problem. the data that we have like trade investment data is easier when you dealing with the traditional industries. but when dealing with supply chains, many of those linkages are confidential. they're not the kind of things that you can find easily. so the researchers working in different industries have had to try to re-create what the supply chains are. resilience, i agree as a critical concept. there's resilience from the level of the firm. but from a firm perspective, they're thinking in terms of operational efficiency and how do they deal with risk management if supply chains are disrupted. there's a second level of resilience viewed at the level of supply chains themselves. they're the industry systems that have organizational and geographic characteristics. and finally, there are supply chains, resilience in terms of
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countries and what we care about. part of that is national security. that was a key emphasis in the white house report last month. but also from a country point of view, supply chains relate to jobs. they relate to infrastructure, they relate to different kinds of economic, social, and environmental concerns. so i think when we talk about resilience, it will be helpful to link resilience for whom? firms, or countries? in these short remarks, let me mention the bottom up perspective. how do we look at this from a u.s. vantage point? one of the projects we done at duke was called the north carolina and global economy project, where we looked at seven key industries in north carolina, natural resource industries like tobacco and hog farming and biotechnology and
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information technology or banks and finance. every stage in the country has critical industries that they care about. so i think if we start looking at supply chains from the bottom up, and each state says here are the industries we scare about, there are things we can learn about how to do that kind of mapping and i gave some examples in the written testimony. final point on some of the recommendations, i noticed what's important to me is how universities get tied in to the initiatives that this committee and this legislation is talking about. i think in the u.s. ica that information and competitiveness act, there's a critical emphasis on an nsf technology director rat as a way to perhaps focus some of these efforts. i would applaud that. that's going to add applied research to the basic research. but nsf tries to get universities involved in this
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research. so one thing i would just recommend is that if we think about a technology directorate, we think about it as more than engineering. engineering is embedded in these other social areas that we care about, jobs and the like. but part of what we can do with the technology directorate is how do you link universities in different parts of the country dealing with common industry issues? so the kind of initiatives proposed are going to be important. but some of the advice you might get from private sector university folks and others could help us knit together these proposals in a strong and robust way. thank you very much. >> thank you, doctor. we'll now turn to our next witness, dr. james lewis. thank you for being here. >> chair, ranking member wicker, thank you for the opportunity to testify. the u.s. benefited for decades from the global supply chain that provided lower costs and
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greater efficiency, but that era is over. our first pandemic created an understandable demand for greater resilience. second, a predatory china would use any means to displace competitors in the quest for global primacy. we are in a conflict with china, and in past conflicts, industrial strategy and industrial policy is essential. we do not need to abandon the global supply chain, but to shrink china's role in it. that is why the united states' innovation and accomplishment act is so important. congress has already restricted channels to china, and the export control reform act, and now it must build technological reform. and now it must take into account what the global reform will look like in the future and the private sector and the innovation, and building trust
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into the innovation, and of course that includes 5g and the open radio network, and also applies to semiconductor, and matches the innovation which is the strongest in the world. and we can do this if it is implemented effectively. congress can start by funding the chip act. and by authorizing the programs already found in the text of the usica. fully funding the act will create jobs and it is essential for resilience. increased funding for research and s.t.e.m. education is essential to provide the input needed for tech leadership. congress and the white house will guide policies of implementation falls on the agencies. the commerce department plays a key role, but it faces challenges.
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commerce needs to predict and not react. it needs better analytical data to have reaction with the senior levels of the private sector to better anticipate tech trends. one advantage we have over china is that we have allies and a supply chain with allies increases diversifies sources and we will benefit economically and strategically from an allied approach. this is in usica and other bills, but it is crucial for moving ahead. the u.s. must as it is ahead strengthen strategic industries. usica identifies ten areas where the implementation should focus. the u.s. has used the industrial
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policy in every major conflict in the last century. it is one reason for the success in these conflicts. this is why usaic is so important. i look forward to testifying and look forward to your questions. >> thank you, dr. lewis. now virtually to dr. rich aboulafia, and not sure where you are in the world, but welcome into the committee conference hearing room. >> thanks so much, madam chair cantwell, and thank you to you and ranking member wicker, and i bring you greetings from an island off of stockholm, so it is a rather long ways away but deeply honored to speak to you today about the supply chain and a few things to emphasize about the character of that supply chain, some recent challenges it has faced in the wake of the
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covid-19 pandemic and the associated market downturn and a few things that the committee might want to consider as it is deliberating for the status of the industry and other supply chains. basically, there are three things that i would emphasize about the aviation supply chain. first of all, value. the overwhelming bulk of the value add in the aviation business happens at the supply chain. it is not a dig at the great contractors out there, but an aircraft is ostensibly the sum of the parts and up to 85% or more of the value of the plane comes from the suppliers, typically the prime, somewhere between 15, 20, 25% at most with the rest coming from the supply chain companies. having said that, it's also vulnerable.
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this is an industry, well, with very high barriers to entry and very low levels of substitution. as a consequence, if there is a relatively small what seems replaceable part is not available, the airplane can't be built, pure and simple. we saw it last year with the logistical challenges associated with the covid-19 pandemic. lockheed martin had planned on building 140 f-35 striker fighters for a variety of logistical reasons, almost all of them, the supply chain, they were only able to build 123. so in terms of vulnerability, that's where you face problems, i'm afraid. the bulk of technological progress that fuels this, of
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passenger comfort, really anything you associate with aviation on the other side of the house, come from the supply chain. not the prime. so it's very important that the companies in the supply chain have a steady stream of research and development resources in order to bring these new technologies to market. now the unfortunate reality of course is that we face some of the most devastating pandemic in history because of covid-19. looking back over the many decades of the aviation industry, typically in a really bad year you would lose 3% of the traffic year over year and after for example 9/11 or the 2008 recession or gulf war one or any of those two to three
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percent, but last year we lost 66% of traffic globally. that is cataclysmic, and especially for companies dependent on utilization. and financial challenges associated with unpredented -- unprecedented challenges, and for a variety of reasons most all companies have come through it, but i am concerned about their ability to access capital in order to hire people, and also to assimilate towards upturn following a downturn, and it may sound counterintuitive, but in a lot of ways some of the biggest challenges that supplier companies will face is in the recovery having come through the downturn. and especially the waiver side of things. so that is why i would commend
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the government for the several rounds of the paycheck protection program legislation, because i think this has been vital in retaining skilled workers and keeping them from, well, going elsewhere or simply just being offline for whatever reason. it has been absolutely fantastic for the industry. i deeply hope it continues. other things that the committee may want to discuss, i believe that time may be right to consider basically in the delineation of the industry are indeed the program that the government has been historically very good at basic r&d, but when it comes to applied r&d, less so. i believe there are a number of promising technologies particularly in standard aviation fuels and other sustainable initiatives that can be accelerated and with perhaps the government assistance apply
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a meaningful role in the company's ability to maintain competitiveness, and finally, another thing to discuss might be the issue with china, because china is the biggest single export market for aviation companies, and a great deal of uncertainty. talking about trade relations with china and with the shipments of technology and the entry into export is with a great deal at risk for the growth of the industry. thank you for your time. >> thank you, mr. aboulafia. i wanted to point out that we worked hard on those covid packages as it related to aviation, and senator moren and i on a package that was focused on the supply chain manufacturers.
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that program just became i think operational or available for the actual applications in the last few days. so i hope that many of the supply chain will take advantage of that. we definitely are hearing the impacts of both covid and now shortages in the workforce, just at a time we need to pick back up. we'll now turn to mr. lex taylor. thank you so much for being here. we look forward to your comments. >> thank you, ranking member wicker, as well as the rest of the committee here, thank you for allowing me to be here. i appreciate the opportunity to tell you a little bit about our company. i feel like i'm preaching to the choir a little bit. we all have the same goals in mind. but i hope i can tell you a little bit about our company, how it's affecting us at this point in time and i think you can translate it to many, many companies across this nation. umm, the taylor group is a
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manufacturer of industrial lift trucks, and we also build power generator sets for residential and commercial applications. and we are remanufacturer of material handling equipment for the u.s. military. the business began as taylor machine works in 1927 and still operates as a family privately owned business in lewisville, mississippi. our products are manufactured in america and exported around the world. in total, we have 1200 employees with an average annual sales of $550 million. our products operate every day and every prime industry, steel or metals, wood, concrete, intermode transportation, just to name a few. approximately 430 vendors support our thousands of parts and components that go into building our products. these businesses are based all over the world. and are critical to our ability
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to produce products and support our customers. some of these supplies are also our customers. the supply chain is very interwoven, and the companies within it depend on each other to keep the industry and wider economy going. i appreciate the committee holding this hearing to discuss the challenges facing our supply chain, why this interruption happened, and solutions to right the ship. america is clearly headed for further economic growth at the beginning of 2020. but then the unthinkable happened. a virus, the covid-19 virus, was the primary culprit that shut this industry down, shut the supply chain down. and it is where we are today. so where are we? yeah, the supply chain is a disaster. it's in disarray. that's where we're here. delays in deliveries have forced manufacturers like taylor to
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result to unorthodox and expedited methods of getting critical supplies. this situation is causing inflation to run rampant. so far, we have kept our lines running but facing up to 75% price increases. three examples of this are microchips, steel, and container costs, just to name a few. our products operate via some form of computer interface. so the chip shortage is extremely concerning. in addition, availability of things like chips, it depends on receiving inventory on time. steel is a major component of our products, both in structure and the components that are made of steel. we are facing price increases weekly, and in some cases every
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24 hours. these average -- and then the average cost of containers have gone from $4,000 a container to $18,000, as i speak today. due to this low supply and high demand. major shortages of key workers are contributing to the supply chain crisis. two large national trucking companies that support us have reported to us that they are trying to fill over 2,000 driver applications today. they claim that the government employment subsidy is particularly debt mental to getting prospects to come back to work. and then therefore, with all this said, our company has -- in order to protect its financial viability, we have had to institute price increases. this is happening all over the country. as i said, inflation is rampant. the worst part is we have orders, but we don't have confidence in our supply chains
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to meet the demand. we still have 40 employees now laid off still from the covid year. this means 40 families in need with no pay or benefits. we want to hire those workers back, and hire even more. but we don't dare make such a large investment when we can't commit to filling customer orders on time now. the same story is playing out in thousands of manufacturers across america. for taylor, our purchasing and manufacturing teams are doing a hercules job. with a goal to get those onlayoff back. this cannot be sustained, however, much longer. our vendors tell us they do not see an end to the supply problem until the end of 2022, at the earliest. i expect there are thousands, hundreds of thousands of other family businesses facing similar
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issues as us. we wake up every day working all day to maintain our production lines, maintain our employment and keeping our customers happy. my request to this committee is not to overreact with solutions that may cause unintended consequences. rather, i encourage you to support a free market system and allow it to do what it does best and find solutions that are practical and driven by the private sector. thank you again for allowing me to speak to you today. i look forward to any questions. >> thank you, mr. taylor. we look forward to getting more specifics on that business and opportunities during the q&a. thank you for being here. dr. gill, thank you so much. look forward to your testimony. >> good morning -- [ inaudible ]
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i'm the senior vice president of ibm and i am responsible for billions of dollars of r&d annually, to develop cutting edge technology with semi conductors, artificial intelligence, and i'm also a member -- semi conductors are the beating heart of modern electronics. we need power in every sector of our economy and -- >> mr. gill, i think people want you to pull that microphone a little closer. >> it's not working. >> okay. >> that's better. >> let's see if i can do this. hopefully that's better. >> thank you very much. >> okay. semi conductors are really the beating heart of modern electronics and power every sector of our economy and facet of our lives.
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smartphones use semi conductors under ten nano meters. in may, ibm unveiled the first two nanometer chip, which i have brought with me today. and what you could do is you could quadruple battery life for our smartphones, and really slash the carbon foot print or use of our data centers and it really shows the power of r&d. but for over a year, we have experienced consequences of semi conductor supply chain disruptions. failing to produce chips in the u.s. hinders our ability to develop emerging technologies. the facts are simple. we only manufacturer 12% of the world's capacity. global leaders turn out advanced semiconductors and seven and five nanometers. yet we manufacture nothing under 10 nanometers. for the u.s. government to
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bolster the supply chain, it needs to do three changes. invest, create effective partnerships, and focus on results that benefit all americans. we need sustained investments in domestic manufacturing and r r&d for advanced chips. we need products to manufacture, and you need to innovate new technologies, then manufacture. innovate, then manufacturer. for governments, investing in manufacturing capabilities, we are lagging. the president's 100 day supply chain review in congress demonstrate a will to invest in supply chain challenges. the senate has provided a strong catalyst for investment by overwhelmingly voting in support of the chips act.
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let's talk about partnerships. semi conductor innovation is fueled by partnerships. ibm's breakthrough was built on decades of collaborative partnerships. it requires a scaleable partnership model. the national semiconductor center is a major first step. and ibm encourages the senate to fund and empower it. we cannot afford to waste time building semiconductor innovation capabilities from scratch. they could deliver results in months if we leverage existing expertise in semi conductor infrastructure. the research center, home to many university partners, is already working on new semiconductor materials. it offers an ideal environment. as a proud member of this
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ecosystem, ibm is prepared to take a leadership role to make it a success. it should be an industry that bridges gaps between industry, academia and government in it should enable american innovators, big and small, to quickly move semiconductor designs to any u.s. foundry. but we need more than physical assets and manufacturing plants. we need to invest in american worker to education and training programs to create good-paying jobs and opportunities for decades. this moment demands great urgency and results that generate dividends for all americans, as i have outlined. the u.s. needs to address semiconductor supply-chain disruptions by investing, creating effective partnerships, and ensuring outcomes that benefit americans today, for generation to come. thank you and i look forward to your questions. >> thank you, dr. gill. thank you so much for that testimony. thank you for covering a broad view of the various sectors that
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we are going to talk at about here. mr. miller, thank you so much for joining us. >> distinguished members of the committee, on behalf of the information technology industry counsel, or iti, thank you for the opportunity to testify today on implementing supply chain resiliency. as a current co-chair of the information and communications technology supply chain risk management or ictscrim task force, the united states supply chain, public-private part nerpship, i welcome the committee's interest on this important topic. remts 80 of the world lease leading itc companies. respects the u.s. obligation to address the resiliency of global supply chains. we believe that government and industry must work together, along with international partners and allies to achieve the trusted, secure, and resilient global-supply chains needed to protect national security and which are an indispensable building block for
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competitiveness, innovation, and economic growth. iti welcomes the broad, holistic and strategic approach and related 100-day report which is also echoed in the senate's united states innovation and competition act or ucica. while i would like to take this opportunity to especially thank the committee for authorizing emergency appropriations for the chips act and oand funding for establishing a supply chain resiliency program and providing investments in the manufacturing usa and manufacturing extensive partnership programs. we look forward to working with congress to get these important strategic programs fully funded and over the finish line. iti consistently urged the u.s. government to pursue this type of broad strategic approach to supply chain policy making, which includes promoting a thoughtful, harmonized, risk-based, evidence-driven approach to facilitate
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transparency and predictability. designing measures to advance and protect u.s. national security objectives without putting american competitiveness at risk and prioritizing close-government industry collaboration to most effectively leverage resources and expertise. of course, crafting sound policy measures to address the global-supply chain resiliency challenges that were laid bare by the covid-19 pandemic does not guarantee the successful execution of those policies by the commerce department or other, federal agencies. so this hearing poses a key question. how can we most effectively implement recent congressional and administration policies to improve supply chain resiliency? i offer four recommendations in this regard. first, commerce should develop and execute a strategic coordinated plan for implementing its numerous supply chain obligations. given the sheer volume laid at commerce's doorstep by successive administrations, as well as the new responsibilities contemplated by usica, a
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coordinated and strategic approach within commerce is necessary to effectively implement supply chain resiliency. one key feature of such an approach is to identify and empower one entity within commerce to lead and coordinate with this work. another is to prioritize close coordination with industry, including by leveraging existing partnerships, information-sharing programs, and innovation ecosystems. the ict scrm task force, which is currently working with the commerce department and our sponsors the cybersecurity and infrastructure security agency provides an excellent model of public-private collaboration that commerce can draw inspiration from and coordinate with as it launches the new supply chain task force. not only by fully funding the chips act but by making sure the department is adequately resourced, in terms of both funding and staff. commerce can also help itself in this regard by focusing the
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scope of the prior administration's executive order on securing the icts supply chain and related role makings to ensure covered transactions thereto are prioritized and targeted to discrete national security risks. doing so would allow u.s. companies to conduct global business with certainty, improve u.s. competitiveness, and help commerce more effectively deploy its resources. third, congress should ensure robust liability protections to promote and incentivize the sharing of supply chain risk information. we appreciate this committee's extended information program liability protections as part of the usica supply chain resiliency program to spur much needed sharing of information. however, after months of careful study, the task force developed a legislative proposal to amend the cybersecurity information sharing act of 2015 that would provide stronger liability protections for such sharing, a preferred approach for the reasons stated in my written testimony. finally, commerce and other u.s.
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government stakeholders should deepen engagement with international partners on supply chain resiliency. iti welcomed the recent establishment of the trade and technology council has providing just this sort of opportunity to strengthen cooperation between allies on this and other critical issues. thank you for the opportunity to testify today. i look forward to your questions. >> thank you, mr. miller. and again, thank you to all the panelists. i feel like this subject is, well, you all have been studying it -- is, as i said, a new day on supply chain analysis and impact as far as what we should be doing. and you all gave us some good ideas on that. some differences. um, dr. lewis, you were unabashed. industrial policy let's go. more analysis. doctor. and very direct things in the last two witnesses about what commerce should be doing, specifically. so, i want to pose my question.
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i think, to you, and mr. taylor. and then, just see whoever else wants to jump in. but this notion that we try to get at with usica, somewhat about the supply chain. but really, just about innovation. so if -- you're right, which i think you are right that the -- that the -- that the critical -- if there is 2 million people working in the united states in aerospace or the sector of semiconductors, and yet the innovation is happening at mr. taylor's level. or mr. taylor is seeing the world and knowing what needs to happen. how do we really get that input and that strategic involvement? how -- how do they get their views on the table, i guess, is -- is my point? so, we now have two proposals strengthening tech sectors and strengthening tech hubs. but how do we -- how if, say, you have big-parent companies who are just chasing the market,
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whether it's intel chasing semiconductor markets or boeing chasing international aviation markets. but yet, the supply chain is the -- knows the next level of innovation that has to happen. how is it that we are going to drive the resources in innovation down to that level so that they can access that? >> well, yes. thank you for your -- your question, madam chair. and it's true. i'm afraid, the -- the bigger companies at the top tend to drive the conversations and tend to have a bit more of a direct pipeline to the r and d centers within the federal government. now, the good news is that thanks to some of the mega-mergers we saw back over the past 15 or 20 years, a lot of the supply chain is concentrated in companies such as raytheon technologies, general electric, honeywell, and many others, that have sort of become their own effective
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economic and business powerhouses. i would like to see greater coordination between these first-tier contractors. but how do you get the smaller companies involved? the ones that are, also, quite critical to both innovation and production. and whether that happens through the auspices of trade groups, such as the the aerospace industries association. or perhaps, maybe, just standing up other committees and organizations within, say, nasa's commercial aerospace directorate. i think it's absolutely essential and i think there is greater recognition in the government of the importance of these supplier companies. one of the great -- great saving aspects of this crisis has been the accelerated payment program by dod. which has basically called for faster transfer of dollars from the primes to the suppliers. so i think that kind of greater
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awareness of the importance of the supply chain but it's a very good question, under what always auspices that happens and how that happens but i think it is essential. >> dr. lewis, you are called for a greater role in commerce playing, as you said, a more predictive role. what -- what do you think we should do here? if -- if -- if the -- if the -- if the supply chain is identifying the innovation but they are like mr. taylor. they are running their business every day. they don't -- they don't have -- they know what needs to happen but they are not in control of the supply chain. >> thank you, chair cantwell. >> i focus on the high-tech sector and some of the innovation startups we have now spreading around the country that's a really good sign. it used to be silicon valley. it's still silicon valley, new york and boston but you are seeing research hubs spring up around the country and that is where the bill could make a
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useful contribution. we have a strong-innovation system. it's based on research universities' venture capital and then entrepreneurs. so those three elements are what produces innovation. they are really good at it. the -- there is one dilemma and this is a hard one. they follow the market. so if they think -- they all want to be unicorns, the next billion-dollar company. or the next amazon. in talking to friends at the defense innovation unit, which is dod's effort to connect to the startup community. um, we are doing great on software. we're, maybe, lagging a little behind on hardware. and that's, i think, what one of the bill points out. the bill focuses on. so how do we get greater connectivity between the national innovation system and the industry? um, with my colleague here, mr. taylor, i'd agree, let the market do it. and then, look for the places where the market isn't working.
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the market isn't working in a few places, and the bill does a good job of fixing that. but we can -- we can use both federal and private sector to make this work. >> mr. taylor? >> chair cantwell, what i can relate it to, we are small business. and therefore, the -- the overhead structure that it takes for innovative work, it gets limited. you're focusing what you have to do on materials and labor and -- and the supply chain to produce the product and get it to the market. so we use -- the research university system. and many small businesses use that resource. in -- i'm thinking my distinguish panelist at duke university. i'm not sure what they have there at mississippi state, which is just 30 minutes from
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us. there are some rules and regulations that -- that are governed by the state of mississippi. the institute of higher learning, ihl, has a mandate that if an entity, say, taylor, wants to invest some capital in a research of something for product innovation. engaging the university. if faculty are involved, immediately, if there's patentability coming from that research, because faculty involved, it stays at the university level. you know, i'm not sure about that, if an industry is willing to make the financial investment and lose the patent downside of that. so, there's some -- there's some play in the hand in hand of partnering with the university system. but that's something that can be improved in mississippi. >> thank you. that's -- that is -- that is why i've held up this rose wholeman model because they don't claim anything on the patent and researchers, companies like you
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just go right to them and say help us solve this problem. and if that was more regional in various parts of the country, it would just be a readymade asset. senator wicker. >> very good point, madam chair and mr. taylor. i meant, at the end of my opening statement, madam chair, to ask unanimous consent to enter into record a "washington post" story from yesterday entitled biden targets high-shipping costs as pandemic ravages global-supply chains. i ask unanimous consent. and -- and let me just mention it starts off, shipping a container hazardous chemicals from shanghai to chicago used to cost john about $6,600. now, the royal group chief executive pays as much as $29,000. and that's if he is lucky enough to find space on one of the much-sought-after cargo vessels. on land where royal group's shipping containers routinely get stuck in rail yards.
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logjams. and lead to costly and unpredictable storage fees. so, thank you for letting me do that. mr. taylor, you -- you mentioned that you're 30 miles away from mississippi state university, a land grant institution and a leader in research. but you're not innovator technology hub. so, what unique challenges do folks in your position have? you got 1,200 employees. you would like to hire another 40 back. and i mean, you're the big employer and economic engine in that area. what suggestions do you have for -- to make it easier for small to medium-sized businesses who are not in these large hubs? >> any, those that are not in those corridors like we are, we're a distance from the distribution hubs. so that distance plays a factor in timing of deliveries.
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one thing that comes to my mind is that from that distance, usually, interstate-highway systems are used, of course. and then, state surface-highway systems are used. at least in mississippi and, i think, in many rural parts of the nation. this infrastructure bill that's being discussed and negotiated here on the capitol now is vitally important. but i would say that if there's anything that can be done, in that regard, is not only refurbish our highways. refurbish our bridges. to get them to standards. to use as many alternatives to source components to us and then ship our products out. but also, improve. we build lifting equipment. and we see the customer base wanting bigger equipment because their machine tools, their processes are putting out bigger
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packages for efficiency. well, those bigger packages usually take weight. and impact the load limits that we currently have in our nation. if infrastructure system could be passed and it could cause an improvement in capacity, not just the surface but the capacity of transporting goods and services. rural facilities, like us, could have a better application for delivering our end product. or getting more component, per delivery or per truck or per rail. >> so, strength in our roads, as we -- as we build them. >> strength, yes. >> mr. miller, you mentioned liability. a liability concern. we are going to want people to participate in this monitoring program. that will be voluntary won't it? the government's not going to make people do that.
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what will the absence of a liability-protection provision have on the willingness of companies to participate? >> thank you, senator wicker. um, there are some very significant considerations that companies have to consider when sharing the type of information we're talking about. supply chain risk information. you know, oftentimes, that type of information is, quite candidly, derogatory information about suppliers. you know, somewhere in their supply chain. and there are just a whole number of state and other causes of action that, you know, expose them to very significant legal risk if they were to, you know, say something, you know, about a supplier. for instance, that, you know, hey, we -- this -- this is a bad company, right?
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we don't even have to get into details. breach of contract. defamation. i mean, these are all very -- you know, business disparagement. there is a number of different really significant legal risks and companies want to share this information but there is not a clear pathway to doing it, without -- without those type of liability protections. >> well, thank you very much. and i'm -- i'm going to take a little -- does anybody want to tell us we didn't quite get the chips act right and need to make an amendment or two? if -- if anybody would like to make a suggestion, in that regard, either now or on the record, that would be helpful to us. anyone? we'll take that for the record. and is it per -- raise your hands -- is it perfect? i -- i think we're onto something. i -- i assume, i -- i'm supposed to -- yes, dr. gill?
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>> yeah, thank you, senator wicker. >> reaching for that microphone. >> that's right. i am reaching. i do think it's an excellent piece of legislation. i think the consideration that we should have is how do we have a sustained effort throughout the decade? right? the priorities to get it passed and implemented and executed properly but the semiconductor industry is notorious for having to engage in long-term planning and long-term execution of roadmaps. so -- so i think that, you know, hopefully this bipartisan act and consensus of getting this done will also be the basis to enable that to sustain it over time. >> thank you. i yield. >> thanks. thanks, senator wicker. i am next in the order, and then i am going to call on someone. i will have to leave, just by way of explanation, we are in the middle of a vote right now
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and there are two votes so we will be shuttling back and forth. um, i want to focus on drones. which may not seem to be a kind of supply-chain issue. but the presence of drones grows, literally, every day, every year. in this country, they have commercial applications, recreational uses. and present great national-security threats. and more to the point for purposes of today's hearing, the overwhelming number of drones in the united states are made in china. anybody disagree with that proposition? i'm going by public reports. but you may have better information.
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last week, i had the opportunity to visit hartford, connecticut, to tour their made-in-the-usa facility. we talked about the need for growth in the domestic-drone market. and in the components and parts that go into drones. aquine is at the forefront of some of the most advanced application of drone technology. it's not a huge company but, to go to your point, dr. gill, it is one that is doing research and investment. senator scott and i introduced the american security drone act, which was incorporated as part of the competition package passed by the senate this past june. and the act helps protect federal agencies from insecure
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drones and it spurs domestic alternatives but it's only the beginning, in my view, of what we need to do. um, let me ask the witnesses here whether you agree with me that the prevalence of chinese drones represents a security threat, from the standpoint of surveillance, potentially, within the united states. certainly, lost opportunity because the market is only growing for them here and around the world. and what can be done about it? anyone, who would like to take a crack at that question. >> i'll go first. thank you, senator. um, so, i actually had dji come in when we could still have meetings. and demonstrate their products to me. they're really good. i tried to get them to give me one but they wouldn't do it. we are in a situation where dji,
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the chinese company, a couple other chinese companies, dominate the global market. and good question to ask how we got there. a rule of thumb i use is that, if it connects to china, in any way, it could be a source for intelligence gathering. and that is why i think the legislation to restrict federal-agency use of chinese drones is essential. we do not want to underestimate our opponent's ingenuity in seeking-intelligence collection. so, what do we do about it? and some of it we don't always want to copy the chinese but we want to look at some of the things they have done, which includes subsidies for research, subsidies for s.t.e.m. education. and really, closing their own market. not openly but closing their open market to foreign suppliers. china wants to bifurcate. i mean, they are the ones who came up with the idea of an
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indigenous economy. so we will need to rethink how we build our drone industry and that will not happen automatically. we still do quite well in uavs, the big drones for military purposes. can we use some of that to encourage those companies to go down market? can we find ways to support this innovative startups, like you were talking about, we'll need to do that. i don't think that's part of the -- the legislation that i have seen. but it's -- the model that you have used in usica probably needs to be applied to drones because it is a security risk. thank you. >> thank you. anyone else? my time, actually, has expired. i'm going to turn to senator fisher. but before i do, i just want to second what you have just said, doctor. was i think that the prevalence of chinese drones, because they are, essentially, even if used by companies here for commercial
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purposes or whatever. they are, essentially, eyes in the sky. and the -- and the uavs, ironically, may be used by the military for surveillance. but used abroad, whether it's afghanistan or any other countries where we're conducting military operations. # so, i -- we may have a -- a bit of a recess, before senator fisher takes over. i understand, she may be running a little bit late. but i want to thank all of you for being here today. and it's been very useful. thank you.
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so, we are turning, now, to senator fisher. >> i am here. >> the floor is yours. >> thank you, senator blumenthal. and thank you, to our panel today. a harmonized and complementary-government role is essential, when we look at sound policy that strengthens our nation's supply chain resiliency. and it's important that policymakers avoid a top-down bureaucratic approach on this issue, which may be too heavy handed or slow to respond. mr. miller, you noted in your testimony that the commerce department should prioritize working with industry and other federal partners to create synergies and stretch scarce
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resources. in what major ways can lawmakers ensure that the government is agile and efficient in this approach? >> thank you, senator fisher. um, you know, there -- there are a variety of different ways that -- that lawmakers can do that. and -- and i -- and i -- i do, sincerely, believe that, you know, you've laid out several ways in -- in the usica bill. you know, the manufacturing usa and extension partnership programs are -- are, certainly, one example. um, you know, the formation of the new supply chain disruptions task force is another. you know, i will say, the commerce department has been participating in the itc supply chain risk management task force, as well. and um, you know, i think
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commerce department, in particular, has -- does have a long history of successful partnerships with the -- with the private sector. you know, i am thinking, in particular, of various programs that ntia and nist have run. as i did state in my testimony, you know, i do think that the commerce department should develop a coordinated strategy to -- to really, you know, create synergies. and -- and maximize these -- these efforts. but -- but i do think that there's -- there's an opportunity to do that and, you know, congress, by -- by authorizing these -- these programs, is going to be very helpful in that regard. thanks. >> where -- where would you suggest congress look for some good examples of programs that might be value for us to drill down into and -- and see if they would work at a governmental level? >> well, i mean, you know, i do
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think that, you know, in terms of -- of existing programs, the -- you know, some of what we have in -- some of the suggestions in -- in -- in the 100-day report is one place. you know, i -- i do think that, you know, having -- having the -- you know, the white house involved in -- in really setting the tone there is important. um, and, you know, certainly, there -- there is a lot that's going to need to be done, i think, in terms of drilling down when we look at the supply chain resiliency program in usica and also, you know, i think as some of the other -- other -- my fellow witnesses have said. really making sure that we have a sustained effort in implementing the chips act. you know, it -- it -- it's a long game. right? i mean, it's not just drafting a
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bill and giving commerce or anyone else a pile of money. it's really having a sustained strategy to follow through on these programs that hold so much promise that, i think, is important. >> thank you very much. dr. gill, in your testimony, you also touched on the importance of an agile approach to address the ongoing semiconductor shortage. right now, timing is the key for the next steps necessary to build american semiconductors' capabilities and domestic production. you highlighted that the national semiconductor technology center could be the foundation for addressing supply-chain disruptions. but you, also, stated that, rather than creating another government program office to operate nstc, it should use an industry-led consortium model. i appreciate the suggestion, on this front. could you, please, explain --
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expand on what key elements of the model may make it more responsive or agile? >> thank you, senator. i think a characteristic of the model is to build on our strengths that we have as a nation in entire supply chain of semiconductors. actually, we have wonderful strengths and equipment manufacturers on -- in the electronic-design industry and electronic-design automation. and fabulous companies. as well as fabrication and r and d and the r and d strengths not only in industrial sector but also with universities. so i think the most important thing that we have got to get right is to bring a broad coalition, where we bring the strengths, in an environment. and -- and we have precedent for being able to do this successfully in the past. there have been moments, in fact, in the very semiconductor industry in the '80s when we were confronting great challenges. and the context of them was in
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competition with japan, at the time. where the creation of semi-tech and other environments where industries and the federal government came together, resulted in great success. so there is precedent for us coming together and i will say that would be the number one priority that we got to do. a broad coalition of leaders to make this happen and to build on the strengths of previous investments in infrastructure that we have had. i think the biggest risk we would have is to -- to sort of ignore -- ignore the strengths and start something brand new. that sounds exciting. perhaps, sometimes a little bit more academic but doesn't lead to the results we are going to want because in the end, we want the manufacturing capacity in the united states. and we want the innovation capacity to deliver results. >> thank you. i see, my time is up. and senator klobuchar is here. so, thank you very much. senator klobuchar. >> thank you very much, senator fisher. and thank you for the panel. we are proud of the work that
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has been done on this bill. the u.s. innovation and competition act. and um, i guess, i'll start with you, mr. miller. um, part of this bill, the -- something i worked on with senators wicker, coons, and portman, creates an office of policy and it prioritizes cross-agency coordination because we know we have a lot of agencies working on manufacturing. can you speak to the importance of interagency coordination when it comes to the supply chain? >> absolutely, senator klobuchar, and thank you for the question. i -- the -- the importance of -- of industry -- of interagency coordination really can't be overemphasized in -- in this case. you know, there's a couple of different reasons for that. you know, number one, i -- there really are quite a number of ongoing supply chain related
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activities across the federal government. you know, i think as -- you know, even though i focus on the -- the itc supply chain, it is clear and become even more clear from the -- the -- the ebola pandemic that global-supply chains and the importance of supply chains are really important to all-u.s. industries. so -- so, it's really a situation where, if we are going to have a coordinated strategy, you know, we -- we need to be insync across agencies and across sectors to really make sure that, you know, we have everyone pointed in the right direction. and that's why the -- the program you referenced is important to really prioritize that sort of -- of coordination. >> very good. um, i hear, dr. gill, you have a nanochip with you. and i, actually, recently, visited sky water in bloomington, minnesota, very successful chip producer. producer 65 and 90-nanometer
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chips. can you speak about investing in u.s.-based companies in the production of semiconductors? >> yes, thank you for the question, senator. um, you know, semiconductors, in the end, is the lifeblood of the electronics industry and of almost every product that we can imagine, right? in fact, i think it's been an awakening for citizens to discover how ubiquitous they are. i think it's imperative that a dual mission and we are not only talking about the traditional electronics. it is going to be the world of ai, the world of quantum computing, the world of next-generation wireless. new capabilities in cybersecurity are going to rely on this. and it's a combination of that creativity and breakthrough, with our ability to manufacture in the united states. and that is the dual equation that we absolutely have to get
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right. and it will lift many, many boats across all the industries. >> very good. thank you very much. um, mr. miller, in your testimony, you note the -- your support for funding for supply-chain resiliency program. which would include the commerce department working with the private sector. do you want to elaborate on that public-private partnership and how important that is, as we look to the future and doing this right? >> yes, absolutely. you know, i think -- i think it's been a theme that's already emerged during this hearing about how important it is for the government and the private sector to work together on supply-chain challenges. in -- in particular. you know, there -- there are a variety of reasons for that. um, you know, not the least of which is that, you know, we -- we are talking about massive, in many cases, extended global
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supply chains. where, you know, it would be impossible for the government to have visibility into what is happening in those supply chains without, you know, constant and continuous, you know, coordination and communication with industry. you know, there's also, you know, limited resources. i think, on -- on both sides of the ledger. so, to the extent that people can combine together forces, that's -- that -- that's really great. and again, like leveraging existing partnerships in innovation is great. >> sorry. >> i just want to ask one last question in my time. and in your testimony, you talk about the role research and technologies, like sustainable fuel, aviation fuel, can play in reaching zero emissions. could you, quick, touch on that for me? i'm very interested in that. >> yes. thank you, senator. i'm afraid there is not a lot of clarity in terms of the past towards reducing emissions,
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beyond traditional developments of equipment. but sustainable aviation appears to be one of the most likely ways. and hydrogen, for example, not so promising. but sustainable aviation fuel seems to offer a way forward. you know, there is an awful lot of different initiatives setting up around the world and i wouldn't want to see u.s. industry hamstrung because of a lack of parallel initiatives. and it also seems that it's important to get industry on the same page. because it's absolutely essential to make these developments, if you will, technology. so make sure we are working with -- well, 25,000 jets we have out there, rather than trying to invent technologies to work with it. and then, finally, it might behoove the committee and others
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in government to consider mandates, as a way of creating a guaranteed market for when these products come online. as we saw in the car industry. that might be a productive use of -- of government resources. >> okay. very good. thank you, everybody. >> thank you, senator klobuchar. senator peters? >> thank you, madam chair. dr. gill, i certainly applaud ibm's work to achieve incredible breakthroughs, with respect to advance semiconductors. as you are well aware, these -- these are tiny devices. just the size of -- of a fingernail, basically, that will literally shape the course of the 21st century by powering our cutting-edge technologies, like artificial intelligence and supercomputing. however, i think it's important for us to remember that againsted chips are just -- just one part of the story. there is an entire ecosystem of semiconductor technologies that our economy depends on. including what are called so-called legacy chips. and so, i -- i bring this up, in
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relation to the auto industry. where the chip shortage right now of these legacy chips is forcing productions' shutdowns. and this has had a devastating impact on -- on auto workers in michigan, as well as across the country. and i am afraid it could even become worse, in the coming months. but -- but i also want to be clear, as you know, this -- this is not just about automobiles. it's a wide range of industries and devices depend on these legacy chips, from farming equipment, to -- to medical devices, and as well as military vehicles. even ce -- ceo of apple, tim cook, said in april that a shortage of legacy chips was causing the most problems for his company. and that's why i worked with senator stabenow to include legacy chips in a $52 billion package to re-shore domestic production of semiconductors, which passed the senate last month through the u.s. innovation and competitive -- competition act. so, my question to you, dr.
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gill, is can you elaborate on the role that legacy chips play in the broader economy and employment in the united states? and could you comment further on why swiftly passing this u.s. innovation and competition act is absolutely essential to keeping our nation at the forefront of semiconductor manufacturing globally? >> you're absolutely right, senator, on the reliance on the importance of many, many generations of what is referred to as semiconductor nodes, different technologies, that are, you know, a part of our automobiles and industrial equipment. aerospace and defense. et cetera. one observation i will make is undoubtedly the case that we have to have a great urgency on being able to address the current supply chain shortages. including the legacy chips. i will make the obvious point that those legacy chips were the future chips of a decade ago. and -- and this industry, this element of planning for, you know, solving issues of today
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but planning for tomorrow is vital. and what looks like advanced nodes right now, five years from now, seven years from now, will become what we are referring today as the legacy chips that we're confronting. now, the legislation of the chips act does a number of things that are really important in the today and of tomorrow. so in the context of the national semiconductor sector, there is a great emphasis on as well assisting with the design and portability of these designs through multiple foundries. on packaging and test, et cetera. so, i think this legislation is actually going to be very, very consequential in helping the broad ecosystem be more productive in the design and production of chips including the indispensable legacy ones. but i will continue to make the point that we need to do both. the today and the tomorrow. >> well, thank you. and mr. miller, i serve as chair of homeland security and government affairs committee where, yesterday, we passed the supply chain security training act.
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this legislation directs gsa to develop a coordinated federal-government-wide training program to prepare personnel to identify and mitigate supply-chain threats, to enhance federal-supply chain, cybersecurity long-term. this bill addresses federal-supply security and, mr. miller, in your testimony, you mentioned quote, uncoordinated, inconsistent approaches to supply chain resiliency has security policy including cybersecurity. so my question for you, mr. miller, how can cisa's mandate be improved to ensure it is, indeed, the lead agency to coordinate efforts on supply chain risk management? and if so, how can its resources and authorities be improved to fulfill that mandate? >> thank -- thank you for the question, senator peters. um, it -- i -- you know, i do think that cisa has clearly
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prioritized supply chain resiliency, already, i think. you know, it was a few years ago that the secretary really prioritized supply-chain security, in particular, in, you know, kind of a, you know, spearheading the formation of the itc supply chain risk management task force. you know, i have been pleased to serve as the -- as the co-chair of that. i do think the national risk management center, also, has a very clear mandate to focus on supply chain, as well. you know, in terms of anointing or -- or making sure that -- that -- that cisa is really named, as i think your question implied as the lead agency there. i think we would have very supportive of that. there are many dimensions of the supply chain and commerce department and others have to have a role in it, particularly, we look through the broader lens of resiliency. but when we are looking at
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security in particular, you know, cisa is well positioned to -- to lead there. so, any -- any support that the congress is able to -- to provide, i think, is well received by us. >> right. thank you for that answer. thank you, madam chair. >> thank you. thank you, senator peters. so, i have a couple of questions. i'm not sure we are going to see other members here but i wanted to cover a couple of things. doctor, you talked about the research of this particular issue, too. and our witnesses and the questions from our colleagues, you can definitely see everybody's advocating for more expertise. and definitely, a larger role for commerce. so how do we get that expertise, given that any one of these things, maybe you should have a -- a dedicated supply chain focus just on aviation. and obviously, we're heading that way on semiconductors. i could make the case, we should
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have had a better analysis on aluminum, given where we are with the aluminum sector and the shift that's happening. how do we -- what do we need to do, if we're going to say we want a larger-federal role? what is it we need to do, to have the research about these sectors? again, if a lot of the innovation or the awareness about the next phase of innovation is at the very base level of the supply chain? you got to turn on your mic he microphone. >> sorry. thank you, senator cantwell. in the past, when we wanted to focus on specific industries, we had programs like national industry centers, things like the sloan foundation i mentioned in my testimony. but i think to get universities involved, we end up having to take a more interdisciplinary approach. and so, i -- i think one of the critical issues is trying to
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find some of the key industry areas, that are cutting edge. where the universities can supplement and that's where i think your national science foundation, technology initiative. the technology directorate could be a key because nsf does tie into universities, in a very direct way. and -- but i think it has to connect, also, to those industrial clusters. where the industries are located, in particular parts of the country. so, a combination of nsf, which is going to tie into applied funding, the multidisciplinarity that comes from industry clusters. and then, linking that across industries that are specialized i think is probably one of the key ways to go for universities. >> i see you nodding, dr. gill. you agree with that? >> i very much agree with that. i mean, and in the context of serving in the national science board and the evolution thatby see and the potential of the
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technology and innovation translation new directorate are bringing the best of the university would historically done in centers but imagine a new catalyst where we can bring universities and industry at all scales together through these nsf sponsored centers, i think would be a unique model that would allow us to address some of these concerns. >> well, it certainly could be more transational. i don't mean to use the word intermittent but we have -- you know, i believe the world's flat. so when you are talking about getting somebody over at commerce to understand what is happening in mr. taylor's business or what is happening in aviation or what's happening in semiconductors, it's not that there aren't people at nist. but when you want to call a shot and say, oh, well, we need a specific r and d supply-chain effort for aviation or semiconductors, that's' somebody farther up at the department of commerce making that decision.
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>> just one, further comment. i think that when we look at the existing technology areas in the u.s. that are well developed. seattle, with aerospace. or silicon valley. or -- or austin with i.t. or boston 128. all of those cases, we have well-established universities that are connected with private companies. but one thing that is happening now is we have a whole-new set of technologies that is transforming the cutting edge of research. so, artificial intelligence. quantum computing. all of the different areas that are coming out of the digital revolution. so i think that's where we need to bring universities back into the equation because what worked five, ten, 15 years ago, is changing, very fast, now. and so, that, to me, is the real challenge. how do we have that discussion between industry and universities and government? taking the next-generation technologies and bringing them into the picture. >> well, that's where the hub and the center come together. and that's, you know, may be a
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new fashion but, dr. lewis, did you have a comment on that? >> thank you, chair cantwell. commerce used to have a technology administration. technology used to be one of their central mission. they got rid of it some time ago. so one of the things to think about is you were talking about nist isn't a policy agency. do they do great work? but they don't do policy. so if you are going to rebuild that capability at commerce, the senior level, further up in the chain, we might want to look at what commerce has in place. a lot of talent there, a lot of strength. but not focused on the technology mission, in a way it might have been ten years ago. >> and -- and on -- thank you, i like that suggestion. because i do think you have to have -- there -- there's changing so fast, you have to develop expertise. there is, you know, this effort on thermal plastics that i have heard about. i have heard about it because,
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obviously, on the supply chain getting material for airplanes that don't have material flaws in them. that you have to start over. you know, is a big deal. so thermal plastics give you that ability but the most i have heard about this research is that it's over in europe. and companies like boeing that are participating. i have also heard of it from companies in spokane, who are saying i am doing this and we need to do more of this. but how do we -- how do we get the focus on the core technologies that need to happen in aerospace if these are just voices in the supply chain? or if, say, for example, europe has had associations just because they're europe. or max plank institutes, where everybody always works together. what -- what is it that we need to do to identify the next-generation technology that seems to be at the -- at -- already there, in the supply chain. but it -- but the supply chain are just small individuals trying to compete.
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what do we need to do? >> well, encouraging, the very fact that you are hearing about this technology indicates that there's some equipment and technology that are coming to public view. to your view. you know, when it comes to materials, that's actually a very good example of the kind of thing that, i think, should be accelerated because it can be brought to market a bit quicker. but despite the emphasis on creating these materials and the supply chain, it is up to the primes to specify them, at the end of the day. so bigger companies or someone like that could create these advanced materials for some of the smaller companies but ultimately, it comes down to the primes. and this is one point where, i guess, i'll slightly reverse myself, if you will. it -- i think it's up to the primes to identify what technologies they're looking to bring into next-generation
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platforms. be it materials, be it various advance-control systems, be it avionics or whatever else, they might be the best source to say, well, this is something we would like to see on our next-generation jetliner or next-generation business jet or combat aircraft. in the case it's thermoplastics, you know, there is a lot of work going on in the interiors fooelt field. so that might be the sort of immediate enduser. people who want to bring new capabilities to market. but in general, these are exactly the sort of technologies that, i think, could migrate from basic to a more supplied level of r and d. and yes, it is sort of noteworthy that a lot of other companies or a lot of other countries are engaging in this research. one thing about this is that being in the netherlands and
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belgium and other places, these are effectively neutral aviation powers. they're -- it's not -- if it's taking place in france or britain or germany, it's probably not addressable as much to u.s. contractors. and i think that's important to remember. and the reason i think, for the u.s. to have that greater capability in identifying these technologies and, well, working with u.s. r and d programs and getting them to market. >> thank you. senator scott. >> thank you, chair cantwell. i want to thank everybody for being here today. the -- i have been up here for about two and a half years and i am a business guy. and a lot of times, what people come up here to do is they always ask, what can the government do to solve a problem? can y'all talk about what your industries are doing? and what you think we could be doing, without government and without increasing our debt? you know, we have almost $30 trillion worth of debt now. could each of you talk about
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what the private sector should be doing? and what you're doing? >> who wants to start? >> i'll be happy to start. thank you for the question, senator scott. so one element, and i will speak, you know, for ibm, is we have had an unwavering commitment to invest in r and d. i am, you know, proud to lead the research division ibm. we have had a research division for 76 years. we continue to employ over 3,000 scientists who work full time to continually invest in artificial technology, quantum computing, semiconductors, et cetera. so i think that the private sector needs to continue to have a very, very strong commitment to r and d and invest in our workforce so that we can continue to create differentiated products. you know, that's one thing i would advocate strongly. >> senator, i would say that one of the things we are doing as a small manufacturer is we are
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building more and more relationships with partners. there is just a lot of technology that, as a small company, you can't do, yourself. build that relationship. and i am talking about a relationship not finding a vendor. but building a relationship with that vendor. that seeks a long, strategic approach to the innovation or the product you want to present to the consumer. and these partnerships are very, very important. particularly, to small manufacture -- manufacturers. but i think any-sized manufacturer, that's where the expansion would be. >> anybody else? >> just quickly, senator, and thank you for the question. you know, one thing that private sector can do in associations like we have today are helpful in that. it needs to send clear messages to government on what would be helpful to do. where are there areas that go outside of the purview of the
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usica that we need to address, like monetary policy, like tax policy. we need to get those signals from the private sector on the guidance for federal policy. and that would be an area where i think there's room for improvement. >> if i may just add something. >> can i just add one -- one thing, also, senator scott? you know, i think, beyond the r and d investments, as well. you know, one of the things that the -- that the private sector is doing is lending expertise and resources to the government. you know, as i stated earlier, particularly in the supply-chain context, the government -- government entities don't always have, you know, a lot of visibility into what's going on in -- across these supply chains. so partnering with the government, working, you know, on -- on public-private partnerships and task forces. and -- and really, you know, devoting industry resources
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to -- to help, you know, advance the shared-government industry mission is something that i know that iti's companies are -- are doing. and another is also partnering on, you know, some -- some of the workforce development programs. um, and things like that to really try to, you know, help rebuild the -- the -- the talent pipeline. that -- that's another thing that our companies are doing. thank you. >> is there anything that any of you think the government should stop doing that would help the supply chain? lot of people come up and say what we should do more. i wasn business. i got tired of government. i mean, they were always just a pain in the rear. >> senator, [ inaudible ] fed up with it. >> oh, okay.
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>> go ahead. >> oh, thank you very much, madam chair. senator, if i may, you know, there's one aspect i think of the government's approach to the supply chain that could, probably, change a bit. the pentagon has a rather patchy procurement policy when it comes to aftermarket componentry and given the reliance on after-market components for a lot of their profits. ultimately, the kind of lumpy buying habits and, frankly, absence of guidance, at times, is a bit of an issue for the supply chain. so perhaps, greater guidance from the pentagon and other government purchasers of componentry about what they are doing to fill their warehouses or when they're de-stocking or what their purchasing patterns are going to be in the coming couple of years would be extremely helpful, i think, to a lot of the supplier companies i would -- i speak to. but if i may, just quickly,
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address your previous question. it's a really interesting one. about what private sector should be doing. one change i would like to see them make is half less of an adversarial approach to their supply chain. many companies, at the prime level, kind of regard them as something to be, frankly, crunched for profit. basically, got to harmonize margins and whatever else. i would like to see more of a partnership between the primes and the subs. and perhaps, this crisis will illustrate the rather vulnerable nature of the supply chain. and the importance of having that partnership, and working together, in tandem, to be more resilient. >> thanks, everybody. thank you, chair cantwell. >> thank you. senator sullivan. >> thank you, madam chair. and thanks for this really important hearing. i want to start with a kind of a couple questions i am going to toss out there. all, somewhat related to dr. lewis and dr. gill.
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i was, recently, in south korea and taiwan on a bipartisan-senate delegation with senator coons and senator duckworth. and i would like to get both of your views on this issue of selective decoupling. and i was very surprised and actually pleased, both in south korea and taiwan meeting with their leaders but also, senior private-sector executives, how they do see the selective decoupling coming. and they seemed very forward leaning on making the choice about being in the united states. foreign direct investment in our country which they are starting to do. and being more interested in, you know, if there's a choice,
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the choice is united states. i was very pleased by that. um, and then, dr. gill, this obviously relates to semiconductors, too. in terms of taiwan and south korea. both of their big-semiconductor manufacturing companies are looking at major, major investments in our country, as well. so, maybe, dr. lewis, if i can start with you. and this issue on taiwan, where it's very clear, the ultimate goal is for the chinese-communist party to absorb taiwan. i don't think that's a good idea. forcefully or not. but how do we think about that, when we think about selective decoupling, as well? >> thank you, senator. i'm very grateful to the chinese communist party because they make our task so much easier. every time they open their
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mouth, countries move in our direction. >> that's really happening. i think you're right. >> yeah. and so, we need to think, then, how do we build a unified approach with our allies and partners, like taiwan and south korea? how do we streamline the path for them to work here? you know, it would be great to have tsmc in the u.s. sure they are a competitor but i feel as confident our companies can compete with them. >> well, they're obviously strongly contemplating that, as you know. >> contemplate and location are not the same. and so, how can we make it easier for them to get here? same for samsung. very strong presence in texas. but we depend on samsung and tsmc. an issue for the congress and for the administration is do we feel comfortable with that dependency? mixed answers there. um, i -- we may not have a choice, in some cases. so, how do we smooth the path to work with them? also, you were in asia but we need to think about our european
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allies. they are a little more ambivalent when it comes to cutting off trade with china. >> but that's changing, i get the sense. and the more the chinese-communist party opens its mouth, the more, i think, our european allies are recognizing what the reality is. >> let's -- let's look at the results of the elections in france and germany because i think when those are over, it might be easier to see new directions in european policy. >> dr. gill? >> to borrow the microphone. um, you are absolutely right, senator, about the strength of -- in south korea and of taiwan in terms of production. i refer, in my testimony, that they represent 100% of the manufacturing capacity, below the 10 nanometer node. so i think it's a dual policy that would be very beneficial to the united states. one is absolutely encourage their investments here, onshore. which, you know, they do have plans to do. but seeing it through.
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and the signaling that the chips act does. it is absolutely sending a very clear message about the importance and the resurgence of semiconductor industry in the united states. and the need to invest. and on top of that, also, be able to foster creation of nstc and manufacturing capacity of, with u.s. manufacturers, to complement that. i think that would be a wonderful outcome, actually. that this decade, we have all of those in the united states. >> thank you. and madam chair, it -- it is -- it was -- i mentioned this to senator wicker. it was very interesting. the -- those companies and countries, we're very closely tracking what was going on with our legislation and the chips act. if i can ask just one, final question, if that's okay? >> go ahead. >> dr. lewis, i'll just, very quickly, and it's a long question. so i will try and keep it very short. are -- one, i think, asymmetric advantage the chinese have over us is that we have an
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entire-finance class. wall street, a lot of our big private-equity groups, that seem very comfortable investing in not just china but chinese ai, chinese military, chinese communist party related companies. and of course, any chinese financiers who want to relate -- who want to invest in something related to the pentagon or something that would help us. the chinese communist party will crush them. how do we think about our own americans -- i get disturbed by this, to be perfectly honest -- who seem very happy, free, open, willing to invest in our biggest competitor? sometimes, in military applications that could, someday, be used to kill americans. i find this very, very troubling. and yet, some of our biggest finance executives seem to be completely fine with it. i'm sure they make a lot of money doing it. but it, certainly, isn't a
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patriotic undertaking, in my view. have any thoughts on that? >> thank you, senator. and you will be happy to know that the chinese are, also, closely tracking the progress of the bill that i got to be on chinese television trying to explain that. so they are very upset by it, which is good, right? >> that's a good sign. >> yeah. this is going to be a hard problem. we are at the start of a long process of if china continues on its current path, they will become more and more of an opponent. more and more of a place that we will not want to do business with. we will not want our allies to do business with, as well. for right now, there are still transactions that are safe to make. and so, the question for policy is how do we get them -- how do we exploit china, the way they exploit us? how do we find places where it's safe to do business? and the places where we will need to close off. that space is shrinking. that safe space is shrinking.
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but that's what i would look at. is let's see where the chinese come out, in a few years. they're probably not so happy, either. so -- but we will have to find ways to balance making money in china, which is good. versus the national-security risk. >> thank you. >> thank you, madam chair. >> yep. >> senator thune. >> thank you, madam chair. mr. lewis, earlier this year, i reintroduced the bipartisan network security trade act to ensure that the security of our communications infrastructure's a clear trading objective of the united states. and let me just say that i -- i believe it's critical that our global-communications infrastructure is not compromised by manufacturers, like huawei technologies, which is supported by the chinese-communist party. can you talk about the importance of this legislation, so that we can address the barriers to the security of our communications networks and supply chains? >> thank you, senator. i -- i think the bill is very
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valuable because one thing i hope we've all learned is that the use of chinese technology creates real risk of espionage. so the bill makes a valuable contribution. it's not just an american
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