The Biden administration is preparing for a historic expansion of a key department to address the semiconductor shortage
Commerce Secretary Gina Raimondo has inherited a bit of a mess.
The relatively quiet cabinet role typically involves what Raimondo describes as piling “a bunch of CEOs on planes” to fly around the world and promote trade missions and U.S. exports. But in a preview of her Tuesday speech at the Economic Club of Washington where she outlined her agenda and advocate for President Joe Biden’s $3.5 trillion budget reconciliation package, the former Rhode Island governor said that she had plans to expand her office to focus largely on revitalizing the domestic economy.
In the past 19 months, the COVID-19 pandemic has deeply aggravated already persistent wounds in U.S. manufacturing. The country’s once-dull aches are now approaching sepsis.
Supply chain problems and a labor mismatch threaten the whole of the economy. A lack of research and development puts America far behind its competitors in the creation of essential goods and creates potential security risks. And trade relations with China and the European Union have not yet recovered from the inconsistent, hardlined, and often-confusing threats of the Trump administration.
“It’s busy,” Raimondo said.
The share of global semiconductor manufacturing capacity in the U.S. has eroded from 37% in 1990 to just 12% today but still, the chips that act as the brains that power our technological devices, remain the second largest export in the country, responsible for 2 million American jobs. A recent shortage of semiconductors sent companies—who usually rely on a lean inventory of the chips—around the world into crisis as the pandemic drummed up demand for laptops, cellphones, and other technological devices. Auto companies like GM and Ford have announced that they were temporarily shutting down plants because of the shortage.
In June, the Senate took a significant step toward alleviating the problem by passing the U.S. Innovation and Competition Act (USICA), which directed $52 billion in federal investments to the Commerce Department for the domestic semiconductor research, design, and manufacturing provisions—and another $10 billion to set up a supply chain resiliency fund and office under Raimondo. The House has yet to pass the bill, and Raimondo will set off on a tour across the country this fall, pushing for action.
While there’s no denying that COVID outbreaks hurt chip manufacturing, the majority of the shortage stems from a lack of preparedness, said Raimondo. “Today’s chip supply was determined years ago. We better get this bill passed through the House so we can get to work, because fundamentally, we need more capacity, and the investments we started to make today will determine our capacity two to six years from now,” she said.
The rapidly approaching U.S. debt ceiling, which Treasury Secretary Janet Yellen says will be hit by October 18 without intervention, could make things much worse. CEOs, said Raimondo are “literally scouring the globe” for two semiconductor wafers at a time. “Because they’re living hand-to-mouth [and] because it’s so fragile,” she said, a government shutdown could easily disrupt the flow of conductors and the manufacturing industry.
China is a net importer of semiconductors, largely from the U.S. The country imported $350 billion in chips in 2020, an increase of 14.6% from 2019. But recent trade tension under President Trump has damaged the long standing relationship and spurred China to begin accelerating and prioritizing its own chip-making programs.
Raimondo also outlined plans to work with Congress to push a bill giving $10 billion to the commerce department to create regional tech hubs or “nodes of innovation around the country outside of Silicon Valley, New York, Austin, and Texas.”
While Taiwan, South Korea, Singapore, and China invest billions annually in their semiconductor industries, the federal government has been slow to provide R&D funding and funding for domestic production.
R&D now accounts for less than 1% of the U.S. GDP. That would change under President Biden’s infrastructure bill, which proposes $52 billion invested in domestic manufacturing and another $50 billion in R&D funding to focus on semiconductors and advanced computing.
“Since 2000, China’s average annual growth rate for R&D spending was more than four times that of the U.S., and it plans to increase spending by over 7% annually,” said Raimondo in her speech Tuesday. “If we want to remain at the forefront of science and technology, we must expand R&D investments and move innovations from the lab to the marketplace at 21st century speed.“
The potential rush of money and logistics would usher in a new era of power for the Department of Commerce, and Raimondo is very aware of that. “We are poised to receive somewhere between $100 billion and $200 billion to do all this work,” she said. “That has never before happened in the history of the Commerce Department. Frankly, the execution challenges coming to the department associated with properly investing $100 billion dollars are enormous,” she said.
And while her focus is on domestic policy, trade policy with Asia and the European Union are also on the top of her list.
“China is not playing by the rules. There is not a level playing field,” she said. “They’re still dumping cheap steel and aluminum into the world’s economy in ways that hurt our industry.” But unlike her predecessor, Raimondo is taking a more nuanced approach to these issues. Her plan is to collaborate with European officials on export controls to China and on technological standards around artificial intelligence and cybersecurity.
“It’s not that we are going soft on China, quite the opposite,” said Raimondo. “But we’d like to do it with our allies in Europe, with the Quad countries, and the rest of Southeast Asia, because we think that export controls are more effective.”
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