Ben Schwartz, the former director for national security at the CHIPS Program Office, shares insights from his work managing a $39 billion grant program focused on reshoring semiconductor manufacturing. He discusses the balance between economic growth and national security in the context of the CHIPS Act. Schwartz elaborates on the challenges of reshoring and friend-shoring in an era of Chinese dominance, while addressing the complexities of supply chain data collection and compliance hurdles for semiconductor companies.
The CHIPS Act represents a significant shift toward direct government involvement in the semiconductor industry to counter declining U.S. market share.
Effective negotiation with companies is crucial for maximizing the $39 billion CHIPS funding and attracting further private investments in manufacturing.
The CHIPS Act includes guardrails to ensure that funding does not inadvertently benefit adversarial nations while enhancing domestic supply chain resilience.
Deep dives
Importance of the CHIPS Program
The CHIPS Program Office represents a significant shift in U.S. industrial policy, particularly regarding the semiconductor industry. This initiative is meant to address the long-standing decline of U.S. leadership in semiconductor manufacturing, which dropped from producing 40% to just 12% of global market share since the 1960s. The U.S. government has traditionally avoided direct involvement in shaping industrial markets, but the growing threat from countries like China necessitates such action. Without the grants and focus provided by the CHIPS program, the U.S. would risk unilateral economic disarmament in the face of intense global competition.
Strategic Investments and Negotiations
The CHIPS program’s $39 billion funding, while substantial, may not seem adequate in an industry where setting up a fabrication facility can cost upwards of $30 billion. Therefore, effective negotiation with companies is essential to maximize the impact of these investments and encourage additional private funding. Reports indicate that since the CHIPS and Science Act, private investments totaling as much as $640 billion have been mobilized as a direct result of the program's groundwork. Noteworthy commitments from companies like Intel, TSMC, and Samsung highlight the tangible outcomes achieved through strategic negotiations rather than standard tax incentives alone.
National Security Considerations
In framing national security within the context of the CHIPS Act, the emphasis has been placed on enhancing supply chain resilience, particularly in sectors crucial to defense. The program is designed to ensure that critical components for military systems are not sourced from vulnerable regions, thereby protecting national interests. The project proposals examined included measures to incorporate advanced technologies into the defense industrial base, fostering self-reliance in essential defense resources. This proactive approach addresses both operational security and prevents inadvertent support for foreign adversaries by establishing strong domestic capabilities.
Implementing Guardrails for Security
The CHIPS program includes specific guardrails aimed at preventing funding from indirectly benefiting adversarial nations. This includes clauses that disincentivize companies receiving CHIPS funding from expanding their operations in countries deemed concerns. Implementation of these guardrails is complex, balancing the need for stringent national security measures while maintaining companies' competitiveness. The goal is not only to secure sensitive technologies but also to ensure that U.S. investments do not inadvertently assist foreign technological advancements that could threaten American national security.
Bipartisan Support and Long-term Vision
The bipartisan nature of the CHIPS Act is deemed critical for its success, highlighting the need for collective commitment in implementing industrial policy. Effective industrial policy requires a blend of unified governmental resources and strategic private sector partnerships to be sustainable over time. Lessons drawn from the CHIPS program reveal the necessity of structural flexibility and clear objectives to respond to evolving geopolitical challenges. The program's viability hinges on continued bipartisan support and the government’s ability to adapt its structures and strategies to meet these challenges in the coming years.
After decades of neoliberalism, how much can America’s bureaucrats crank the dial on effective industrial policy? Will the CHIPS Act succeed at reshoring high-tech manufacturing?
Next week is the Chips Act’s second anniversary. To discuss, ChinaTalk interviewed Ben Schwartz, the former director for national security at the CHIPS Program Office, which manages a $39 billion grant program appropriated by the CHIPS and Science Act.
We get into:
The methods and obstacles for American semiconductor policy;
How CHIPS Act guardrails aim to balance economic growth and national security;
The negotiation process for companies interested in receiving CHIPS Act funding;
Reshoring vs friend-shoring and the challenge of Chinese dominance in legacy chip manufacturing;
Staffing and organizational structure of the CHIPS Program Office, plus the role of Commerce Secretary Gina Raimondo;
The challenge of collecting data on secretive semiconductor supply chains.
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