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Gina Raimondo warns US need to secure the future of the chip industry

Secretary of Commerce Gina Raimondo testified at a hearing in the Senate Appropriations Committee on Trade, Justice, Science and Related Agencies on Capitol Hill in Washington, DC, USA, February 1, 2022.

Andrew Harnik | Reuters

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

The bill aims to stimulate investment in US semiconductor manufacturing, research and development and supply chain security, by providing income tax deductions for chip equipment or investments in manufacturing facilities through 2026.

An ongoing global shortage of semiconductor chips has damaged a number of industries, particularly the automotive industry.

While the CHIPS (Creating Helpful Incentives to Produce Semiconductors) for the America Act was passed in January 2021[ads1], Congress has not yet agreed on a bill that will dedicate resources to the various programs, despite bipartisan support to expand domestic chip production capacity.

“It’s a big 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 have a “strong adherence to a set of norms and values ‚Äč‚Äčabout how to operate in the global economy and how to operate the global economic system,” Finance Minister Janet Yellen said in a speech in April.

Raimondo and President Joe Biden visited a Samsung plant in South Korea last week, the largest in the world, and the Secretary of Commerce reiterated calls for a similar “incredible production operation” to be built in the United States.

“If Congress does not pass the CHIPS law and pass it quickly, we will lose out on it. Intel, Micron, Samsung – they are growing, they are going to build future facilities,” she said.

“If Congress does not move fast, they will not build them in America. They will continue to build them in Asia and in Europe, and we risk losing out.”

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

Gregory Arcuri, a research assistant at the Renewing American Innovation Project at the Center for Strategist & International Studies, explained in a January blog post that the high cost and complexity of chip production led many American semiconductor companies to switch to a “fabless” model.

This meant “maintaining the more valuable design elements for new, more skilled chips while outsourcing their production abroad, primarily to East Asia, which is now home to almost 80% of global chip production,” said Arcuri.

China-Taiwan threat

Taiwan is a major source of imports for the United States, with manufacturer TSMC alone estimated to account for nearly 90% of chip production for U.S. technological giants such as Apple, Amazon and Google.

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

“America buys 70% of its most sophisticated chips from Taiwan. It’s the chips in military equipment. There are about 250 chips in a javelin launch system. Do you want to buy all this from Taiwan? It’s not safe,” Raimondo said.

“Put the bill, Congress, pass CHIPS and let’s get to the point of making these chips in the United States to secure our future.”

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

President Biden said on Monday that he would be willing to use military force to defend Taiwan in the event of a Chinese invasion, which led to 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 “directly scary and unsustainable”.

“Some things are more important than price. You can not put a price on US 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 – we have to make them in America, period.”

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