New Supply Chain Act Instantly Blocks Tax Credits for Components Sourced from 'Foreign Entities of Concern'

The newly proposed Safeguarding U.S. Supply Chains Act is a short, sharp piece of legislation aimed squarely at cutting off certain foreign entities from benefiting, even indirectly, from a major U.S. tax break. If you’re a manufacturer relying on the Advanced Manufacturing Production Credit (Section 45X of the tax code)—the one that rewards you for making components here—this bill changes the rules immediately. Essentially, if an eligible component you produce and sell was made by a designated “foreign entity of concern,” you can’t claim the tax credit for it. This restriction applies right away to components produced after the bill becomes law.

The Tax Credit Blacklist: Who’s Out?

This bill doesn't create a new list of restricted companies; it borrows one from existing defense law (specifically, the William M. Mac Thornberry National Defense Authorization Act). This is important because it means the definition of "foreign entity of concern" is already established, reducing some of the vagueness. For manufacturers, this is a clear warning: if your supply chain includes a company on that blacklist, you lose the federal tax incentive designed to boost domestic production. The intent here is clear: use U.S. taxpayer money to incentivize production that is completely free from the influence of these restricted foreign actors.

The Battery Component Headache

The restrictions get particularly tight when it comes to battery components. The bill states that even if you assemble the battery component here in the U.S., you still can’t claim the credit if that component was created using any technology—whether designed, developed, manufactured, licensed, or supplied—by one of those same “foreign entities of concern.” Think about that for a second. It's not just about who physically made the part; it’s about tracing the intellectual property and core technology back to the source. For a company making electric vehicle batteries or energy storage systems, this provision introduces a significant and potentially costly compliance challenge. You might have to audit your entire technology stack and licensing agreements to prove that no restricted foreign tech was used, even several steps removed from the final product.

Immediate Impact and Compliance Costs

Because these rules apply to components produced and sold immediately after enactment, companies relying on the 45X credit don't get a grace period. This forces manufacturers to rapidly restructure their supply chains, which is not cheap or easy. For a major manufacturer, switching suppliers overnight can lead to delays and higher costs, potentially impacting the final price consumers pay for goods that rely on these components, like cars or high-tech machinery. While the goal is strengthening domestic supply chains and reducing reliance on potential national security risks, the practical reality is a sudden economic burden for companies that need to quickly find and vet new, compliant suppliers and technologies. This is a classic trade-off: security and self-reliance versus immediate market disruption and cost.