Gina Raimondo warns US needs to secure future for chip industry

Commerce Secretary Gina Raimondo testsifies before a Senate Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies hearing on Capitol Hill in Washington, DC, US, February 1, 2022.

Andrew Harnik | Reuters

US Commerce Secretary Gina Raimondo on Wednesday urged Congress to pass the CHIPS for America Act in order to safeguard national security and the future of the economy.

The bill aims to incentivize investment in US semiconductor manufacturing, research and development and supply chain security, providing income tax credit for chip equipment or manufacturing facility investment through 2026.

An ongoing global shortage of semiconductor chips has harmed a range of industries, most notably the automotive sector.

While the CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act was passed in January 2021, Congress has yet to agree on a bill that would appropriate resources for its various programs, despite bipartisan support for expanding domestic chip manufacturing capacity.

“It is a huge national security issue and we need to move to making chips in America, not friend-shoring,” Raimondo told CNBC exclusively at the World Economic Forum in Davos, Switzerland, on Wednesday.

“Friend-shoring” refers to working with countries that possess a “strong adherence to a set of norms and values ​​about how to operate in the global economy and how to run the global economic system,” Treasury Secretary Janet Yellen outlined in a speech in April.

Raimondo and President Joe Biden visited a Samsung facility in South Korea last week, the largest in the world, and the commerce secretary reiterated calls for a similar “amazing manufacturing operation” to be built in the US

“If Congress doesn’t pass the CHIPS Act and pass it quickly, we’re going to lose out on that. Intel, Micron, Samsung – they’re growing, they’re going to build future facilities,” she said.

“If Congress doesn’t move quickly, they’re not going to build them in America. They’re going to continue to build them in Asia and in Europe, and we risk losing out on that.”

The motivation behind the bill stems from a steady decline in the US share of global semiconductor manufacturing capacity, falling from around 40% in 1990 to around 12% in 2020, according to the Congressional Research Service.

Gregory Arcuri, a research assistant with the Renewing American Innovation Project at the Center for Strategist & International Studies, explained in a January blog post that the high costs and complexity of chip manufacturing led many US semiconductor firms to transition to a “fabless” model.

This entailed “maintaining the higher-value design elements for new, more capable chips while outsourcing their fabrication abroad, primarily to East Asia, which is now home to nearly 80% of global chip fabrication,” Arcuri said.

China-Taiwan threat

Taiwan is a key source of imports for the US, with manufacturer TSMC alone estimated to account for almost 90% of chip production for US tech behemoths like Apple, Amazon and Google.

But along with the commercial threat to the tech industry, Raimondo also highlighted the critical role these imports play in American national security apparatus.

“America buys 70% of its most sophisticated chips from Taiwan. Those are the chips in military equipment. There’s like, 250 chips in a javelin launching system. You want to be buying all that from Taiwan? That’s not secure,” Raimondo said.

“Pass the bill, Congress, pass CHIPS and let’s get to the business of making those chips in the United States of America to secure our future.”

A further existential threat comes from tensions between China and Taiwan, a democratically self-ruled island that Beijing considers part of its territory.

President Biden on Monday said he would be willing to use military force to defend Taiwan in the event of a Chinese invasion, prompting sharp criticism from Beijing.

Asked about the potential impact of a conflict on the semiconductor industry, Raimondo said the prospect was “not a pretty picture” and was “downright scary and untenable.”

“Some things are more important than price. You can’t put a price on America’s national security,” she said.

“The fact that we’re buying two thirds of our chips from Taiwan and these are the chips we need to keep Americans safe and secure — we’ve got to make those in America, period.”

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