Senior Vice President for International Policy, U.S. Chamber of Commerce
Managing Director, U.S.-India Business Council, U.S. Chamber of Commerce
March 21, 2023
As the United States seeks to diversify supply chains and enhance their resilience, it should look to deepen its ties with India, which has both the capacity and potential to be an ever more important partner.
India is the world’s fastest growing large economy and an active participant in the supply chain pillar of the Indo Pacific Economic Framework (IPEF). The IPEF negotiations offer an avenue to strengthen supply chains in areas of strategic significance, such as ensuring access to the life-saving medicines and critical minerals needed to safeguard Americans’ health and accelerate the energy transition.
Strengthening the supply chain for generic drugs
Today, the biopharmaceutical supply chain is largely divided between one for patented drugs and another for generics. For patented medicines, their production, as well as the sourcing of their precursors—known as active pharmaceutical ingredients (APIs) — is geographically diversified. No country dominates either the production of these drugs or their APIs, making this supply chain segment resilient.
It is a different story for generic medicines, which represent more than 90% of all medicines consumed worldwide. These have a far more concentrated supply chain, with China producing a large share of their APIs.
The United States, India, and the global business community have expressed concern over this arrangement, which makes access to generics vulnerable to geopolitical risk. Making the diversification of the production and sourcing of their precursors a priority for the IPEF agenda represents an opportunity for Americans and Indians alike.
So, what can be done? In the U.S., industry has indicated that long-term, guaranteed price contracts would be required to make domestic production of APIs for generics cost competitive. In addition, Indian generics manufacturers, which include many of the world’s largest, are keen to reduce their dependency on inputs from China and are making substantial investments to this end. Cooperation between the two governments and industry in both countries can help deliver and accelerate these outcomes.
Strengthening the supply chain for critical minerals
To mitigate climate change and promote prosperity and job creation, the world needs to reduce the carbon intensity of economic growth. The U.S. and Indian governments are already working closely with the private sector to spearhead the development and use of clean energy technologies. But rolling them out at scale will require a historic expansion of mining for critical minerals, including lithium, copper, nickel, cobalt and graphite. Estimates suggest global mining firms will have to raise their production by 500% over the next decade to provide the inputs needed for the energy transition to succeed.
As with APIs, the world is dependent on a single source for the production or processing of many of these clean tech inputs. China represents as much as 80% of the production of several critical minerals, with its dominance of the processing of these commodities even greater.
In order to diversify our supply chain for critical minerals and reduce our energy reliance on undemocratic regimes, the United States should work with democratic partners like India under IPEF to achieve resilience that comes from geographically diversified production and eliminate critical dependencies on any single source.
Fortunately, IPEF nations have impressive reserves of these minerals. India, for example, has one of the world’s largest deposits of lithium, a critical component for batteries for electric vehicles and other clean energy technologies.
The stakes are high: A failure to increase production of critical minerals or secure reliable access to them would grind the clean energy transition to a halt. The result would be either more intense climate change or significantly impaired economic growth.
IPEF has potential as a forum for both identifying supply chain concentrations that threaten its members’ economic interests and promoting cooperation to remedy these weaknesses. Industry hopes to see the Biden Administration’s initiatives under the framework succeed and knows that Washington’s embrace of a forward-looking trade policy is important to accomplishing its goals. Expanding cross border commerce, especially with India, the world’s largest democracy, will be central to IPEF’s success. It is also critical to the security, well-being, and prosperity of all Americans.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.