Interest in revitalizing U.S. manufacturing combined with COVID-19 supply chain disruptions is driving new action in Washington to support strategic industries and protect strategic supply chains.  The Wall Street Journal recently reported Intel’s offer to partner with the Pentagon in building a silicon chip foundry in the United States.  Taiwan Semiconductor Manufacturing Co. just announced plans to build a chip factory in Arizona based on unspecified incentives from the federal government.  NAATBatt believes that a federal initiative to support domestic manufacturing of lithium-ion batteries may soon be announced as well.

While NAATBatt can be expected to endorse any initiative to support the advanced battery supply chain in North America, it is important to understand why supporting the advanced battery supply chain would be objectively important to the United States.  National industrial policy is a slippery slope.  Every industry believes that it is strategic and will fight for every dollar of federal subsidy.  So it is important to define objectively exactly what factors make an industry or a technology strategic and worthy of federal support.

The need to designate certain industries and supply chains as strategic is a function of globalization.  Although globalization sometimes gets a bad name, it is overall a positive economic force.  Countries, regions and companies that specialize in making certain goods will generally make them more efficiently and less expensively than others.  Those others are then freed up to specialize in and make other goods.  This results in lower costs and greater efficiencies for everyone.

But globalization comes with two catches:  The first is that if certain strategic goods are manufactured only offshore, the supply chain for those goods can become subject to disruption.  The second is that not all goods are created equal.  It is better to specialize in manufacturing some goods rather than others.  Some goods command higher margins in the market than others.  Also, the process of manufacturing certain goods generates more know-how and spin-off opportunities than can others.

The goal of a good national industrial policy should be twofold:  First, to secure a country’s access to strategic goods free from reasonable risk of disruption.  Second, to identify the highest value products that a country’s manufacturing base can make and ensure that the country gets “first pick” of those premium products in the global competition for manufacturing.  Over the past decade, the Chinese have excelled in this second goal of industrial policy.

Advanced battery technology today are strategic goods made primarily offshore that are subject to a reasonable risk of disruption.  This column has long sounded the alarm about the fundamental importance of electricity storage to a wide range of 21st Century technologies and the erosion of the U.S. domestic supply chain for it.  A sound U.S. national industrial policy should make a detailed study of the advanced battery technology supply chain, both as it exists today and as it will likely evolve in response to expected technological improvements.  It is not necessary that all elements of the supply chain be located in the United States.  But great care should be taken to domesticate any parts of it that are significantly concentrated in the hands of only one or two foreign producers.

Advanced battery technology also meets the second qualification of strategic goods.  Because electricity storage is fundamental to so many of the technologies and devices that will shape the 21st Century economy, the opportunities for those making batteries to see and exploit new opportunities will be profound.  Batteries and battery makers will be at the fulcrum of new technology innovation.  Those who place great confidence in the innovative skills of American scientists and entrepreneurs should take sober note of the adage that 80% of all innovation takes place on the shop floor.  Without domestic manufacturing, American innovation prowess will become a thing of the past.

Finally, a word about margin.  Some products command higher profit margins than others in the marketplace and securing a manufacturing base for those products is an important goal of national industrial policy.  Of course, manufacturing advanced batteries is not a high margin business.  The opposite is and may always be the case.   High margin products tend to be those that have a direct relationship with the ultimate customer.  No customer buys a car, cell phone or computer because of who makes the battery inside.

But what batteries do provide is a platform to move up in the supply chain, into other segments that have a direct relationship with the consumer.  This was the concern that drove the founders of SEMITECH to resist Japanese penetration of the semi-conductor market in the 1980’s.  It is also the opportunity that the Chinese saw in the last decade: using lithium-ion battery manufacturing as a way to break into the 21st Century automotive market without having to compete with companies having a hundred years of prior experience making traditional ICE cars.  The objective was not really to make the battery.  The objective was to eventually make the car and establish valuable relationships with consumers willing to pay for the vehicles.

NAATBatt has contended since its inception that he who makes the batteries will one day make the cars.

Advanced battery technology is about as strategic a technology as there will be in the 21st Century.  If the U.S. government is serious about a national industrial policy that will support the manufacture of strategic and high value goods in the United States and ensure the long-term prosperity of the American economy, advanced battery technology must be a primary focus of that policy.