You've no doubt heard President Joe Biden is pumping billions of dollars into bringing micro chip manufacturing back to the US. It's called the Chips Act, and Biden talks about it every chance he gets. Now, no that we met this moment.
Today, I'm signing the law, the Chips and Science Act, once in a generation investment in America itself, a law that the American people can be proud of.
In large part that's all about jobs, of course, but also national security. COVID lockdowns exposed just how vulnerable the US is because of its dependence on chip makers overseas.
The demand shock of these chips really created kind of this logjam, and this says that, well, we can't access these chips that are the centerpiece of everything from our cell phones to our cars to our fighter airplace.
Later in the show, doctor Sarah Kreps of Cornell University weighs the upsides and the potential downsides of the US and its allies all racing to make their own semiconductors. First, let's bring in Bloomberg reporter Eric Martin. He's tracking where all that chip money is going. I'm West Ksova. That's today on the big Take, Eric, We're hearing about chips
just all the time. In one of the things we're hearing is the US needs to very quickly gain a new footing in what's widely called this chip war to try to dominate this industry.
Why is that?
Was this something that people in Congress were starting to look at towards the end of the Trump administration, even before COVID nineteen hit. But when the pandemic hit and it interrupted supply chains and suddenly people couldn't buy cars, there weren't enough electronics, sun stores, everybody was working from home. It really revealed how dependent we are on chips. They go into everything from your dishwasher to laptop to vehicles,
absolutely everything has chips in them. And the fact that the US for so many decades had been outsourcing chip production to East Asia, Taiwan, Singapore, Korea. It was something that kind of just happened because companies were looking for the best profit center and the cheapest place to produce. But in the process, I think a lot of people didn't realize what was happening in terms of moving US
capacity offshore. So that's why last summer Congress, with both Democrats and Republicans passed this massive fifty two billion dollar Chips bending and Production and Research Bill is to address that shortage and to try to make sure that something like that never happens again.
Eric, you point to this important distinction between designing and inventing these chips and then actually manufacturing them. And the US is still one of the leading places where especially really advanced chips are still being designed. Is that right?
Absolutely. We have Silicon Valley because it was Silicon because it's the chip industry that gave birth to this massive and powerful economy in that part of the country. And so firms like Intel, Apple, you know, they still design their chips in house, but they farm out the actual production to companies located in East Asia where the production is a lot cheaper, including in China. The China still makes a lot of the advanced chips that get shipped
to the US. But also you look at the company like TSMC, whose entire model has been around building the chips that other companies design.
And they're the big chip maker in Taiwan. We hear a lot about.
Yes, absolutely, and they're just breaking ground on a new, huge, multi billion dollar factory near Phoenix, Arizona and are looking at expanding their production in the US. Had a big groundbreaking with President Biden President last year. But looking at the fact that the US only produces about twelve percent of chips, down from around forty percent of chips as recently as nineteen ninety, but that almost none of the
chips the US produces are the most advanced chips. And that's what the Chips and Science Act really is trying to bring back, to make sure that that kind of technology is never inaccessible for the US, whether it be due to a pandemic or some of the geopolitical things that we're looking at, like the possibility of China invading Taiwan and threatening some of those TSMC production facilities that are indispensable to the US economy and really to the global economy.
You said that over the years, one of the reasons why these chip companies in the US sent production overseas is because it's so much cheaper. So what does this Chips Bill do about controlling the costs of making chips? Where does that money go that suddenly makes it economically advantageous to make chips in the US when it isn't right now?
So thirty nine billion dollars out of the fifty two billion is in incentives, grants, and other kinds of loans to help companies private companies that would like to produce in the US to help give them a greater reason financially to do so. That goes to building out factories,
it goes to helping with workforce development. One of the key things that the Commerce Department and Secretary Engineer Amundo, who are in the lead for this project, have underlined is that the US needs to build a whole ecosystem to make it attractive for chip companies to produce in the US. And right now there's a shortage of hundreds of thousands of workers that these companies are going to
need in the coming years that just aren't there. One of the things that they struggle with is a shortage of engineers. For instance, it's been really sexy in recent years to go into, for instance, software engineering, and there is a recognition that you need to make semiconductor engineering and engineering jobs on fab floors just as attractive for young people to go into and find people students in high school, how do you make them excited about going into the chip industry.
Let's say they are able to do that using some of this money. Once those fabs, those factories are up and running, the workers get paid a lot. These are very high paying jobs, and if cost is a big reason of moving things overseas, this money could be an initial influx of capital to help them build it. But then what about the cost of just paying all of these people a lot of money to make chips? Why is it economically feasible under this program when it wasn't just before.
That's a really important point, Wes. The fifty two billion on its own from the Chips program is never going to be enough, and that's something that people in the Biden administration acknowledge. This is going to need to be amplified four or five times by private companies choosing to invest in the US because of the advantages that the
US provides. That also leads to another aspect of this, which is the eleven billion dollars in research and development funding that the Chips Act provides and looking at building a national Semiconductor Technology Center and trying to bring in different stakeholders from academia, universities, bringing them together with private companies, and trying to provide a place that is going to have a government impulse and with government as the catalyst
for tackling some of the biggest global challenges in terms of technology, inventing the technologies of tomorrow. It's a role that the government played, particularly the defense industry in the nineteen forties and fifties, in getting the chip industry founded
and up and running. But it's a role that government has gotten away from in recent decades and does this kind of return in some ways to the roots of the chip industry where there was some level of government involvement in leadership and industrial planning in a way that then was copied by Taiwan, South Korea, Singapore was copied by economies in Asia with great success in more recent decades.
So let's talk a little bit more about this National Semiconductor Technology Center, because it's kind of like the centerpiece.
So it's definitely something that the Commerce Department is excited about that they talk about a lot. That one of the most important aspects of this is that it be independent, that it be seen as science driven, and that it be a place that can bring together and unify all kinds of different stakeholders because you have all these different private companies that are competing with each other, so the question is how do you pull them together to pursue
share goals. It's going to be structured as a nonprofit and there are still a lot of open questions about exactly how all of this will work. They have not yet announced the headquarters for the NSTC as it's being called for the Technology Center. It's going to be a national network of different technical centers as well, and part of the aim of the Chips and Science Act is to diversify production as well as research and development across
the country. It's an industry that's very focused on the coast right now and so looking at ways to bring that more into the heartland of the country. So it's geographically diverse, also more diversity in terms of the workers in the industry. But there are a lot of open questions about exactly how all of this will work, and
Secretary Ramondo I think is very frank about them. When we spoke with the Secretary, she talked about how this is the biggest US industrial policy foray of the past seventy years and if it doesn't work, it'll be the last attempt for seventy years.
After the break. Why billions of dollars alone won't be enough to jump start chip making in the US. Eric before the break, you were talking about how US chip makers ideally will come together in these technology centers and share what they know for the good of the country, but they're also competing with each other for business. Will they want to share with the competition?
Well, that's the fifty two billion dollar question in some way. The eleven billion that's being spent on research and development. In a net sense, it's a large amount of money, eleven billion dollars, but it's a small amount when you
look at the global spend on research and development. Intel, the biggest maker of computer processors, spend more than seventeen billion in twenty twenty two alone on R and D. And so it's something that is going to be a big challenge of how do you amplify the amount of government spending, you know, which can never equal the amount
that's spent by the private sector. You know. When we look at the goals of this broadly, some of the goals are to make it easier for particularly smaller companies and startups and companies that are not the intels of the world, but may have a great idea for the next generation of chips or next generation technology, and to give them a place to try new things, to try out prototypes, to have a less expensive way to test some of their ideas, precisely because this is an industry
that requires so much money in order to do trial runs of new technologies. So one of the things that the Center aims to do is to level the playing field a little bit. Secretary of Ramondo comes from a
venture capital background. That's what she was doing before she ran for treasurer of Rhode Island, later became governor, now obviously Commerce Secretary, so she has experience with venture capital, with new ideas, with innovation, and one of the things the Center is trying to do is to boost those opportunities,
to cut I think in half. They're looking for the cost of entry over the next decade, but to really say that innovation needs to come from the ground up, and if you're going to have that kind of competition and the profit motivations that are going to spur new entries to the industry, you really need to make it easier and lower the cost for people to try new
things and for people to test their ideas. And that's one of the things that the Technology Center aims for, as well as giving workers the opportunity to gain hands
on experience to develop those skills. And so it's aiming for this kind of virtuous cycle where both you'll have new ideas being tried, but also workers and the workforce being trained in this whole ecosystem emanating from this national network of technical facilities and the partnerships with universities, with companies, all of this kind of being created as a new initiative and as a bold new idea.
Eric like everything that's still in an idea phase. It sounds really great, but there's already been a lot of criticism about the way some of this money is being spent.
Absolutely, that workforce is a top concern when you talk to companies, and the Biden administration is pretty candid that this is one piece of what's needed to build the industry. That they would love to have immigration reform, an ability to keep more of these foreign students who come to the US get PhDs in computer science and then need to leave because they don't have the visas to stay, and also permitting reform, the ability to build these facilities faster.
But a lot of those things require Congress, and I think everyone is clear eyed and honest about the fact that Congress is stalemated in terms of any kind of imtegration reform, and it has been for years now, and so trying to address what can be done things that do have bipartisan support, like the Chips and Science Act, and understanding that workforce is going to be a big challenge. Lack of immigration reform shouldn't prevent this kind of project, this kind of effort from going forward.
Another component to this effort to make chips in the US is national security, making sure the US has the chips it needs and isn't dependent on other countries.
That's something that Secretary of Ramundo always mentions is that the focus here is not about helping particular companies or picking companies as winners and losers. It's through the north star of national security. And that what the pandemic and supply chain disruptions revealed was that a lack of chips is a threat to US economic and national security.
And when they talk about national security, what they're really talking about is China. How does the geopolitical tensions between the US and China play out here?
Absolutely, you know, the philosophy of the Biden administration has been to trade with China in goods that are not national security sensitive or do not threaten US interests, but also to protect leading edge chip technology using export controls another area that the Commerce Department has the responsibility, and to make sure that the US stays ahead of China in terms of its technology that maintains that advantage because one of the key areas that chips go into, of
course is military equipment, the next generation submarines and fire jets. And so you're absolutely right that the national security here is both about logistics and being able to get from all of Asia the chips that the US needs, but also maintaining that advantage over China at the time when the tensions between these two geopolitical rivals are only growing.
So, Eric, we've talked about a lot of high concept stuff and big plans the US government has for all this money, What can we actually expect in real life? How long before this chip center is open? How long before some of this money starts yielding tangible results?
Well, Wes, it's not going to be overnight, for sure. These fabs, the chip production factories take years to build. The funding that Congress has appropriated is for the next five years, So there are some questions about will future administrations continue the funding that would be necessary to implement this strategy over a longer period of time. But you can sense that there's a great urgency within the Commerce Department and within the broader administration to get this into place,
and so things like the National Semiconductor Technology Center. We're expecting more announcements and for that to be up and running by the end of this year and moving as fast as possible because the timing is so urgent.
Eric, thanks so much for coming on the show.
Wes, thank you for having me when we come back.
How chips figure into the rivalry between the US and China, As we've heard, geopolitics is also at the center of the push to bring chip making back to the US. So let's hear from someone who studies how technology and national security are increasingly intertwined. Doctor Sarah Krepps is a professor of government at Cornell University and director of the Cornell Tech Policy Institute.
There were many kind of long term factors that we're building, you know, the rise of China in the case of semiconductors, the share of American production of semiconductor chips had been declining for thirty or forty years, but nothing really was happening on policy side until COVID, and so COVID with the lockdowns around the world in China, in Taiwan, in South Korea, in the United States, that plus the demand shock of these chips, really created kind of this log jam.
And this says that, wow, we can't access these chips that are the centerpiece of everything from our cell phones to our cars to our fighter airplanes. And so what we need to do is reshore that industry so we can build and resilience in our supply chain, but also guard against national security risk.
And you know what has happened more recently is.
Build in some social safety net by building in some expectations of if you take these incentives, here are these other.
Things that we expect you to do.
So it's sort of ticking off a number of boxes at once. I think that policy window would have been unopened had COVID not been this real shock to the system.
Are there potential downsides to this US focus on making chips at home instead of partnering abroad.
Definitely.
One of the critiques of this is that this policy may or really kind of privileges the resilience national security criterion, which is to say that what the US is basically saying is that.
Our most important priority is to have.
Resilience in the face of what I think some people would consider a tail risk, which is a Chinese invasion of Taiwan, where Taiwan TSMC produces on the island ninety five percent of the most advanced semiconductor chips. And the view is, well, what if that happens, we need to be able to continue manufacturing those so we can run our fighter planes and our iPhones. But the downside risk of that is that US companies do a lot of business with China. China is a huge customer of US chip makers.
That is an unintended consequence.
And I think it is seen as well, that's just what happens when you're prioritizing national security.
And do you think that when you do that kind of risk benefit analysis, it's worth it to have that short term loss of market, loss of I suppose innovation and manufacturing capability for the long term gain of not being dependent on China if the relationship should turn even worse.
Clearly in the Cold War with the US and the Soviet Union, there were all kinds of these export restrictions, and so in a lot of ways, this is nothing new. But what's different here is that the US and China had such a robust trade relationship and it really did benefit overall, it benefited both countries.
So I think with policy, though.
It's always a question of trade offs, is that we're trying to accomplish let's say five different things, and this policy will really accomplish one or two of them, and then these other three are going to be unfortunate casualties of that policy. And I think that's not certainly not
how it would be pitched. But I think to the extent that these policies are really aiming at decoupling this trade relationship between the US and China, then it really does undermine all of the insight and motivation that underlied globalization, which is that we shouldn't all be producing everything in our own country because it's not economically efficient. And so you know, by saying that the US wants to reshore these industries, essentially the US is saying we're not as
concerned about price. What we're concerned about is the supply chain resilience.
That robust trade relationship with China, which is kind of broken down now looks like it's pretty broken and doesn't seem like it could easily be repaired. So is it realistic to think that chips could be manufactured in the way that you're saying, or is it that the US and China really are going to need to manufacture them themselves.
I think they're probably short answers to that question.
But one of the maybe slightly longer answers.
Is that when China acceded to the World Trade Organization in two thousand and one, I think there was a lot of hope that playing field would be leveled, and
that's just not what happened. And I think what emerged as China started to become more dominant in the two thousands and the reality that tech would be at the center of this is the restrictions on five G. But then, what I think is surprising in some senses is that President Trump had campaigned on this very aggressive d couple US from China kind of trade policy that I think was easily chalked up to just, well, he's sort of unusual in SUI generous and a lot of his policies.
And what's interesting, though, is the Biden administration took up really all of these policies and expanded these trade restrictions. So it doesn't seem like there is any near term converged of these kinds of alignment of these trade relationships, and if anything, it just continues to seem to diverge.
And do you think there's any desire on China's side to maintain or renew that kind of relationship because they seem to be diverging as well.
It does seem like China has taken a kind of turn inward where they're also pretty happy to be kind of less integrated globally as well. And so that's the way in which maybe we could say the incentives are aligned, is that all of these countries now are turning inward.
You know, the European Union, for example, has initiated its own kind of version of the CHIPAC to try to create these incentives to reshore some of the chip industry in Europe as well, because they've also gone from forty percent market shared to ten percent in the last three or four decades.
And so the problem with it is that you have.
A pie of one hundred and all of these countries, the US and European Union are trying to get from ten percent back up till let's say twenty percent.
But someone's going to lose here, and so.
They're all trying these same policies. And I think it really is kind of a collision course because it does look like protectionism, because you know, South Korea is trying to do this. All of them now are trying to kind of shore up no pun intended, but their domestic industry is to try to get a piece of this pie.
And I guess that raises this kind of question looking forward, which is the US wants to bring home manufacturing in part for domestic policy reasons, put Americans back to work, partly to protect against supply chain disruptions. And as you say, this potential risk that China would invade Taiwan and then have all of Taiwan's chip manufacturing capability. But what about creating other partnerships with European nations instead of every country doing it themselves.
So that's something I've written about in publications with the Brookings Institution, which is this idea of near shoring and friendshoring that has gotten some traction I think in policy circles, not because of what I've written, but I think that that has become.
A new watch word, which is, well, there must be a third way.
There must be something in between everyone trying to reshore everything and globalization kind of status quo ante. And I think that idea makes a ton of sense, which is there are some countries that do these things really well.
We're very close partners with those countries or they're close by, so that is becoming I think an attractive third way that friends showing or near showing to kind of try to optimize on that idea of the resilience and national security that we discussed earlier, without the adverse consequences of you know, the cost consequences, let's say.
Doctor Sarah Craps, thanks so much for coming on the show. Thanks Liz, thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen. And I'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of the Big Take is Vicky Bergalina. Our senior producer is Katherine Fink. Our producers
are Michael Falero and Moberrow. Raphael m Sey is our engineer. Our original music was composed by Leo Sidrin. I'm West Kasova. We'll be back tomorrow with another Big Take.