By Alexander Ward and Asa Fitch
WASHINGTON -- Four years after the Biden administration made the race for chip manufacturing a top priority, Commerce Secretary Gina Raimondo says efforts to restrict China's access to technology hasn't held back the country's progress, and federal funding for domestic innovation is what will keep the U.S. ahead of Beijing.
"Trying to hold China back is a fool's errand," she said in an interview. The $53 billion CHIPS and Science Act, which incentivizes U.S. firms to invest in semiconductor manufacturing and innovate in the sciences of tomorrow, "matters more than export controls."
President Biden has made industrial policy the cornerstone of the administration's economic revitalization and China competition strategy, and earlier this month boasted that the Chips Act and other related legislation amounted to "the most significant investment in America since the New Deal." The administration has also pushed forward with efforts to block Chinese companies from buying chips from American firms or semiconductor-making components, and urged U.S. allies, including Japan and the Netherlands, to join in the effort to restrict Beijing's access to the technology.
Raimondo, who has responsibility for executing Biden's industrial strategy, has lobbied lawmakers to pass mammoth bills that underwrote the plan, ramped up export control enforcement and pushed to remake the Commerce Department from a plodding bureaucracy to the primary driver of efforts to expand the U.S. chip industry.
Those efforts have led Raimondo to the conclusion that efforts to keep sensitive technologies out of Beijing's hands remain important, but export controls amount to little more than "speed bumps" for China's own push toward global technological dominance. "The only way to beat China is to stay ahead of them," she said. "We have to run faster, out innovate them. That's the way to win."
Raimondo's comments, in her final weeks in the job, come as the incoming Trump administration is expected to change course on at least some aspects of the Chips policy. The first Trump administration also took aggressive steps to limit Beijing's access to Western technology, particularly targeting Huawei Technologies, the Chinese telecommunications giant, but the president-elect has signaled he is likely to turn away from Biden's embrace of industrial policy.
"That chip deal is so bad," President-elect Donald Trump said in October. Instead of subsidies, Trump suggests imposing tariffs "so high that they will come and build their chip companies for nothing." Kush Desai, a spokesman for the Trump transition, said the president-elect's plans for a second-term economic strategy include "enacting tariffs, cutting taxes, slashing regulations and unleashing American energy."
Trump has also proposed expediting permits for companies that plan to invest at least $1 billion in the U.S. economy that could potentially see reviews like environmental studies waived. The policy may have contributed to SoftBank's pledge to invest $100 billion on artificial intelligence and other cutting-edge technologies in the U.S.
Raimondo said she agrees there are regulations hindering American competitiveness, but "giving a blank check to companies to do whatever they want, like you're waving a wand, I think that's a huge mistake."
Still, the Biden administration's rollout of the Chips Act is facing hurdles. Much of the funding intended to boost manufacturing has gone to large chip makers, including Intel, which qualified for nearly $8 billion in federal grants. But Intel has been struggling to catch up with foreign manufacturers, and after a series of bad quarterly results, Intel Chief Executive Pat Gelsinger was ousted early this month.
Raimondo says the Commerce Department has built protections into its contract: If Intel doesn't do what it says it will do, the funds will stop flowing. "We believe they'll be successful and we want them to be successful," she said. At the same time, "we're going to hold them accountable."
Some analysts question whether the U.S. focused too much on chip manufacturing and not enough on research and development. "There's some frustration about the R&D ambition being less than the ambition on the incentives side of the house," said Chris Miller, a professor at Tufts University's Fletcher School and author of the book "Chip War."
That imbalance, Miller suggested, was understandable since 80% of Chips Act funding was earmarked for production purposes. But the Commerce Department, now central to U.S. national-security policy, may need to emphasize research to stay on the cutting edge of technological progress.
Meanwhile, China has continued to acquire or locally build machines that make chips despite the export controls placed on many of the country's companies, including 140 new ones earlier this month. Biden administration officials, however, insist Chinese chips perform worse than American-designed ones, giving the local companies and the U.S. military an edge.
As Raimondo was visiting China last year, Huawei released a splashy new smartphone, an announcement U.S. officials saw as a boast by Beijing that American export controls weren't slowing the country's progress.
The Commerce chief had another takeaway: The chips powering the devices weren't as powerful as U.S. semiconductors.
"It's not a very good phone," she said.
Write to Alexander Ward at alex.ward@wsj.com and Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
December 21, 2024 23:00 ET (04:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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