Four years after the Biden administration made the chipmaking race a top priority, Commerce Secretary Gina Raimondo said efforts to limit China's access to technology have not held back the country's progress and that federal funding for domestic innovation will keep the U.S. ahead of Beijing.

"Trying to hold China back is a fool's errand," she said in an interview, adding that the $53 billion Chips and Science Act, which aims to incentivize U.S. companies to invest in semiconductor manufacturing and innovate in the science of the future, is "more important than export controls."

President Biden has made industrial policy a cornerstone of his administration's economic revitalization and China competition strategy, declaring the CHIPS Act and other related legislation "the most important investment in the United States since the New Deal." The administration has also pushed to block Chinese companies from buying chips or semiconductor manufacturing components from U.S. companies and urged U.S. allies such as Japan and the Netherlands to join efforts to limit Beijing's access to the technology.

Raimondo, who is charged with implementing Biden's industrial strategy, has lobbied lawmakers to pass a massive bill supporting the plan, strengthen export control enforcement, and push to transform the Commerce Department from a slow-moving bureaucracy into a major driver of expanding the U.S. chip industry.

Those efforts led Raimondo to conclude that efforts to keep sensitive technology out of Beijing's hands remain important, but that export controls are little more than a speed bump in China's own push for global technological dominance. "The only way to beat China is to get ahead of them," she said. "We have to run faster and out-innovate them. That's how we win."

Raimondo made the comments in her final weeks in office, and as the new Trump administration is expected to change at least some aspects of chip policy. Trump's first administration also took aggressive steps to limit Beijing's access to Western technology, but the president-elect has signaled he may abandon Biden's industrial policy.

"That chip deal was terrible," President-elect Donald Trump said in October. Trump suggested high tariffs, not subsidies, "so they'll come here and build chip companies for nothing." Kush Desai, a spokesman for Trump's transition team, said the president-elect's second-term economic strategy plan includes "tariffs, tax cuts, regulation cuts and unleashing American energy."

Trump also proposed speeding up licensing for companies that plan to invest at least $1 billion in the U.S. economy, potentially exempting them from reviews such as environmental studies. The policy may have prompted SoftBank to pledge to invest $100 billion in artificial intelligence and other cutting-edge technologies in the United States.

Raimondo said she agreed that some regulations do exist that hinder U.S. competitiveness, but "giving companies a blank check and letting them do whatever they want, like waving a magic wand, I think is a huge mistake."

The Biden administration's CHIPS bill still faces obstacles, though. Much of the money aimed at boosting manufacturing has gone to big chipmakers, including Intel, which is eligible for nearly $8 billion in federal grants. But Intel has struggled to catch up with foreign manufacturers, and its CEO Pat Gelsinger was ousted earlier this month after a series of poor quarterly results.

Raimondo said the Commerce Department has built protections into the contract: If Intel doesn't live up to its promises, the money will stop flowing. "We believe they will succeed, and we want them to succeed," she said. At the same time, "we're going to hold them accountable."

Some analysts question whether the U.S. is focusing too much on chip manufacturing and not enough on research and development. "There's some frustration that the ambition in R&D is lower than the ambition in incentives," said Chris Miller, a professor at Tufts University's Fletcher School and author of "The Chip Wars."

Miller said the imbalance is understandable because 80% of the CHIPS Act's funding is earmarked for production purposes. But the Commerce Department, now the heart of U.S. national security policy, may need to emphasize research to stay at the forefront of technological progress.

Meanwhile, China continues to acquire or locally build the machines that make chips, even as many of its companies are subject to export controls, including those imposed on 140 new companies earlier this month. Biden administration officials, however, insist that Chinese chips are inferior to those designed in the United States, giving local companies and the U.S. military an advantage.

Last year, during Raimondo's visit to China, Huawei unveiled a splashy new smartphone, a move that U.S. officials viewed as Beijing's way of boasting that U.S. export controls would not hinder China's progress.

The Commerce Secretary had another conclusion: The chips used in the devices weren't as powerful as American semiconductors

"It's not a very good phone," she said.

Source: Content compiled from WSJ

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