Tom Williams /CQ Roll Call via AP Images
Commerce Secretary Gina Raimondo addresses the U.S. Conference of Mayors at the Capital Hilton in Washington, January 20, 2023.
At a Georgetown University talk on Thursday, Commerce Secretary Gina Raimondo outlined her ambitions for the Biden administration’s $53 billion CHIPS and Science Act, which includes manufacturing incentives for domestic semiconductor plants known as fabs, as well as funds for research and development, regional tech hubs, and workforce training. The speech came as Raimondo is set to unveil more detailed guidance next Tuesday for companies seeking federal funds.
Major semiconductor producers including Taiwan Semiconductor Manufacturing Company (TSMC), which is currently upgrading and expanding an Arizona factory with a $40 billion new project, are awaiting next week’s Notice of Funding Opportunity, which will include details on how to apply for funds, as well as guardrails on spending.
Trade unions expect the guidance to include language favorable to the use of unionized construction workers, suggesting that it will be frowned upon if companies do not commit to using project labor agreements, a type of prehire collective-bargaining deal. Labor shortages have already hit projects in the Southwest, as the demand for commercial construction soars, forcing companies to turn to unions for training and recruitment.
The precursors to the CHIPS and Science Act had included language on project labor agreements, in addition to requirements for union neutrality at the factories receiving subsidies. But that was all taken out in congressional negotiations, leaving it to Raimondo, whom some progressives view skeptically, to use the implementation process to condition funds on gains for labor.
In her speech, Raimondo struck several populist notes, surveying the outsourcing of advanced electronics production over the last 30 years. “We sacrificed our manufacturing capacity and our workforce in the mistaken belief that we could somehow maintain our technological leadership without them. But it isn’t possible,” she said. “It’s actually quite painful … we let ourselves go.”
The commerce secretary emphasized the urgency of investments in hardware over software, noting that venture capital funding in physical gadgets has “shriveled up.” “Everyone’s a coder. Which is great, because we need all that,” she said, “but we also need to make things. We need the ASIC systems, and the chips, and the stuff.”
Raimondo declined to say whether Commerce will limit CHIPS fund recipients from engaging in stock buybacks, as Democratic lawmakers step up pressure on this point. Sens. Bernie Sanders (I-VT) and Ed Markey (D-MA) are among those asking Commerce to prevent funds from CHIPS from being used to boost corporate stock prices.
The CHIPS statute does ask companies not to use taxpayer funds for stock buybacks. But money is fungible. Lawmakers have asked Commerce to ensure public funds cannot be used to juice share prices either “directly or indirectly,” by restricting CHIPS awardees from engaging in stock buybacks for at least ten years.
The department has said that CHIPS subsidies are not meant to give companies “more cash for stock buybacks or to pad their bottom line,” and said it will give preference to companies that commit not to engage in stock buybacks.
But the semiconductor industry is dominated by a handful of large firms that have used past federal subsidies for buybacks. Intel, IBM, Qualcomm, Texas Instruments, and Broadcom together repurchased $249 billion of their own stock between 2011 and 2020, according to INET. The total size of the semiconductor subsidies in the CHIPS Act is just $50 billion.
Raimondo declined to say whether Commerce will limit CHIPS fund recipients from engaging in stock buybacks.
The fear with buybacks is not just that they will reward shareholders, but that they will undermine the goal of CHIPS: building fabs in the U.S. that would otherwise have gone overseas.
TSMC and Intel plants in Arizona, which are seen as top contenders for federal support, were already under way before the federal subsidies were signed into law. And, following severe bottlenecks during the pandemic, the semiconductor shortage turned to a glut, sending these companies’ stock prices plummeting. Critics fear subsidies will now flow toward production that would have happened anyway, while companies use the cash infusion to buoy slumping stock values.
At the talk, Raimondo emphasized the urgency of making American fabs globally competitive. In a New York Times story published yesterday, TSMC employees complain about high labor costs, permitting barriers, and challenges working with American engineers. U.S. construction could be at least four times the cost in Taiwan, the company said in a recent earnings call. (Of course, that’s just the cost of construction, and doesn’t account for savings down the road in shipping and logistics, as well as the reduced risk of concentration in production and technological leadership in a country under threat of Chinese aggression.)
“We know it’s more expensive to build a big factory in America than in Asia,” Raimondo said. She added that the tight labor market in construction is an opportunity to grow the workforce, particularly by training women and minorities.
“In case you haven’t noticed, the unemployment rate in the construction field is essentially zero. It’s a very tight labor market,” she said. “If we don’t think differently—this is just a question of math—we will not have the workers to build the facilities on time, on budget, with the skills … we need to open the pipeline to women, to veterans, to people of color. These people have never been in higher demand.”
The commerce secretary also said the U.S. is “committed to being transparent with our allies in how we administer this program.”
“We don’t want a subsidy race, and we certainly don’t want to produce all the chips we need in America. This isn’t about that,” Raimondo explained. Referring to Europe, Japan, and South Korea, she said, “we will be dependent on those countries for a long time, and that’s fine—that’s trade, that’s globalization, that’s all OK. But what we cannot have is what we have now, which is an untenable reliance on one or two companies.”
The U.S. has also imposed new export controls on American technologies used by firms abroad, in a move that has drawn comparisons to economic sanctions. Asked by an audience member whether the U.S. would impose extraterritorial export controls if countries like Japan and the Netherlands do not enforce those measures against China, she said, “It depends.”
“The right way to do export controls is in concert with allies. For example, a year ago, we led a coalition of 36 countries to align export controls against Russia. We could have done what you said. We had the tools to do extraterritorial controls. And I thought about it,” she said. “We prefer to go to our allies, as we did in Ukraine, and say, you should use your own controls. We don’t want to reach in and do that.”
However, Raimondo said, “our export controls are narrowly tailored and designed to deny China certain technology that China wants for its military. And we’re going to do whatever we need to do to make that happen.”
