Marketplace - Is the U.S. ready to be a chipmaking superpower?

Episode Date: May 10, 2024

Commerce Secretary Gina Raimondo wants to position the U.S. to become a leader in semiconductor manufacturing. After all, the U.S. invented the industry not so long ago. The Biden administration has invested $30 billion in new factories, and companies have thrown in 10 times that sum. In this episode, Raimondo tells “Marketplace” host Kai Ryssdal where she hopes U.S. chip production will be by 2030. Plus, her broadband expansion plan and how she views our trade relationship with China.   Support our nonprofit newsroom today and pick up a fun thank-you gift like our new Shrinkflation mini tote bag or the fan favorite KaiPA pint glass!

You turn to Marketplace for the latest news about what's happening in the economy and how it impacts you and your community. When you donate to support our nonprofit newsroom, you can also get something a little more tangible. We've got a great lineup of donor thank you gifts right now, a shrinkflation mini tote bag, water bottles, mugs, hats, and yes, the Kai PA glasses are back, but only while supplies last, and I'm taking some of them. Contribute any amount to make a difference and pick up one of these gifts. Go to Marketplace.org. Brazilian Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and

teens. Learn more about Greenlight at greenlight.com slash million. That is greenlight.com slash million. All right. Let's try to make sense of the week, shall we? From American Public Media, this is Marketplace. In Washington, D.C., today I'm Kyle Rizal. It is Friday the 10th of May. Good as always to have you along everybody

This has been one of those weeks. Honestly, we're getting a sense of the economic zeitgeist is gonna require pulling together some Seemingly loose threads here to do that are Katherine Rampel from the Washington Post, Neila Richardson from ADP. Hey you two Hey, okay Alright, Neila you get first whack at pulling together these threads. I'm going to recite some statistics and then you're going to tell me what they all mean. Jobless claims, first-time claims for unemployment benefits. They were up this week after like 10, maybe 12 weeks of being reasonably steady. Consumer sentiment, we got this morning from the University of Michigan.

It is, in a word, terrible. Inflation expectations are higher now than they were by a not insignificant amount at the last reading. I would like to know what you make of that. Thanks for starting off with the easy questions. Love that. Let's start with jobless claims. Yes, they're up there for the first time in a long time by the most amount except context matters a heck of a lot here. They're still super low. In fact, if you look at historically where jobless claims are and remember jobless claims is a proxy for layoffs in the economy, we're at record lows still, even with a jump up.

So it only matters, it's only a jump relative to the super, super low weeks before, not relative to history. So let's move on to consumer sentiment. This one kind of came out of nowhere because that number hadn't really budged for a couple of months. Consumers didn't have a lot new to say about the economy.

And then now when gas prices are falling, for a couple of months, consumers didn't have a lot new to say about the economy. And then now when gas prices are falling, the stock market is rising and unemployment is still low, there's a downbeat sentiment. They're waiting for that other shoe to drop on their heads. And so that is a puzzle. Most economists I've read or spoken to don't really know what to make of this, but they're pointing to that inflation expectation that took a jump up, that inflation might be rising again in pockets that we're not seeing yet. And so there's still a little

mystery surrounding this, but so does the consumer, so does the economy. So it's worth watching. Catherine Rampel, riff on that for a little while, and specifically the consumer angle and why we're feeling terrible, and you cannot use price levels are still elevated as a reason. No, but I think that's a large part of it. Well, look, there's also been a little bit of re-acceleration

in price growth. I'm not talking about levels, right? There's been a little bit of a setback in a sense that we had been getting inflation down by a lot and maybe we're either treading water or it's getting a little bit worse. I think that's part of it. It's weird because consumers are still spending more or less like they feel pretty good.

And as if the prices, whether we're talking about levels or growth, are not bothering them so much. Although of course, if you interview them, whether in a survey format or in, you know, as we journalists do in a longer form, open ended conversation, they are very cranky about prices. So there's a little bit of, I don't know, a contradiction here that we've been seeing for years now about how much consumers say prices bother them, although, you know, but clearly not enough to dissuade them from continuing to buy.

Now, it does also look like they're fueling some of that growth, more of that growth through borrowing, which could be part of the reason why they're feeling so unhappy. It's not that they're spending more because they have a lot more income, even though income is now, or wage growth is now at pacing inflation. If they feel like to keep up with the Joneses or to keep up with their ongoing lifestyle, they need to borrow more. And they continue to do so. That's probably going to weigh on their psyche and their finances.

Right. Right. And the reserves people built up during the pandemic are now largely exhausted. So that's why they're going to credit cards. Right. Neela, here's another curve ball. Stagflation, and I'm going to set it up this way. Two weeks or 10 days ago, whatever it was, Chair Powell got the question of, are you seeing stagflation in this economy,

which is of course stagnant economic growth and inflation? And he said, I am seeing neither the stag nor the flation. And yet, in a perusal of Wall Street Bank analyst notes this afternoon, stagflation comes up a lot. And I wonder, do you buy it or are you with the chair? I'm with the chair on this one. It's hard to talk about stagflation with unemployment rates below 4%. Usually it's a three-pronged economy that supports stagflation, that's slower growth,

higher inflation and high unemployment. We're not seeing that. I think the narrative on the economy continues to swing between extremes, soft landing, hard landing, recession, stagflation. Pick a day, there's a different story about what the economy is. It kind of dovetails to what the consumer sentiment numbers, there is some anxiety, there is a uncertainty about what happens next. And I think that colors some of the data, that the data is not what it is on its own, it's what fits into a narrative sometimes.

And that uncertainty does matter because it translates eventually to behavior. Right, and those gyrations just make people more anxious, which feeds itself and nothing good happens from there. Catherine, I wanna talk for a second, sort of riffing on the conversation I had with Secretary Yellen yesterday about democracy and this economy and why the economy

needs democratic institutions. You've been writing a little bit about this and I know you wanna talk about it, so we're gonna. I think it's time for a clear. I'd look at the implications for the economy of a Trump second term and you've been writing on this a lot and I'd like a minute and 25 seconds from you on that Sure. So obviously I care about democracy for democracy sake not only for its potentially not only for its potentially devastating effects on the economy if we lose said democracy, but if voters out there care about the economy, if they care about inflation, for example,

I would urge them to look at the actual policy proposals that are on the table from both of the presumed presidential candidates, including Donald Trump. Donald Trump is overwhelmingly favored on economic issues if you look at polling. But if you look at the actual policies that he has proposed relating to the economy, many of them would be very inflationary. So that's things like raising prices through a universal tariff, for example. That's things like slashing immigration, which means cutting the labor supply, which is also likely to be inflationary. And then there's this kind of nerdier thing, which is about his desire to kneecap the Federal

Reserve. The Federal Reserve actually in a way is not a particularly democratic institution. It's supposed to be shielded politically from the ebbs and flows of popular sentiment, so that the technocrats at the Federal Reserve can do what they think is best for the long-run outcomes, long-run economic outcomes, rather than what feels good in the moment. And that might mean, you know, taking the punch, the proverbial punch bowl away when the economy is overheating. And Donald Trump has made quite clear in a variety of policies that he would like to exert more political pressure on the Federal Reserve, which lots of research has suggested would lead to much worse inflationary outcomes.

Katherine Ampel at the Washington Post, you should read her column on the economic implications of a second Trump term and the Wall Street Journal had the reporting on the Fed. We should say that. So Katherine at the Washington Post and yeah, and Neila Richardson at ADP on a Friday afternoon. Getting late. Thanks you two. Thanks, Kai. Bye.

Wall Street on this Friday. Traders were cautious one might say. Details, numbers, y'all know the drill. Music Financial lives are complicated. People have retirement savings to think about, car insurance maybe, credit card bills, student loans, house or car repairs to pay off, pocket money for the kids too if you feel like it, the list goes on. The point is that our personal economies aren't just one thing. So with that in mind, an update now from Violet O'Brien. She's a notary in Houston, Texas. But like all of us, her financial life neither starts nor ends with her career.

Here's today's installment of our series, Adventures in Housing. My fiance and I were out rollerblading one Saturday morning, summer 92, and we saw a sign that said for sale, and then underneath it there was that little sign that said pool. We just looked at each other and went, let's go look at it.

I still remember how excited we were. We just rolled up to the door and knocked on the door and rolled in. We fell in love with the place, even though it was in shambles. I mean, they were working on it. The carpet was all torn up and laying on the floor, but we saw the possibilities.

I think our original interest rate was something like 8.75. You know, this was right after the 80s were terrible. The first house I was living in with my first husband, I think our interest rate was like 14%. So 8.75 sounded real good. But I remember when we applied for the mortgage, it took about six weeks for her to call me back and tell me that we had been approved. And I cried because it was such an ordeal. I guess it's still like that for people, you know, to get your first mortgage and, you know, all the qualifications and the letters and everything.

It's just, you just begin to think, why am I doing this? This is just more trouble than it's worth, but it wasn't. In the end, it all worked out. I had friends that had what they called starter homes. So I guess I've considered it to be a starter home, but it's turning out to be a starter, middle, and ending home. Which is fine with me.

After the big move in, I thought, you know what, I never want to do this again. I usually say they're going to carry me out of here feet first. That's what I've been saying for years. I'm like, I'm not moving. And I've decided that I'm just going to age in place here because A, it's a good house to do that in, but I'm attached to it. You know, I guess I'm just going to age in place here because A, it's a good house to do that in, but I'm attached to it. You know, I guess I'm just attached to it. They thought of, you know, have friends that live in like retirement centers and places where you wouldn't have to hassle with all this maintenance,

but I was so excited to own my own home and we put a lot of love and care into this house. We fixed it when it needed to be fixed. We painted it when it needed to be painted. And gosh, we've grown with it. We raised our family here and had fights and made up and had parties. And it's still going. So I'm just attached to it because it's taken care of me and I'm taking care of it.

Same same Violet same same Violet O'Brien there. She's a notary and a homeowner in Houston. We cannot do this series without you whether you're in your forever home or your right now home. Tell us about it marketplace marketplace.org slash adventures in housing. Coming up. We need to trade where we can but protect what we must. It is kind of a balancing act. Actually, first though, let's do the numbers. Dow Industrial has gained 125 today,

3 tenths percent finished at 39,512. The Nasdaq off five points, less than a tenth percent, 16,340. S&P 500 added eight, that's two tenths percent, 52 and 22. For the five days gone by, the week that was, the Dow grew one and a tenth percent, the Nasdaq up 1.4 percent, the S&P 500 rose about a half percent. Just heard from Violet O'Brien about the journey of buying her home back

in the 90s. In real estate, residential stocks, Zillow down almost one and seven tenths percent. Today, Compass dropped three and nine tenths. Bonds down, yield on the 10-year T-note, four and a half percent. You're listening to Marketplace. You turn to Marketplace for the latest news about what's happening in the economy and how it impacts you and your community. When you donate to support our nonprofit newsroom, you can also get something a little more tangible.

We've got a great lineup of donor thank you gifts right now, a shrinkflation mini tote bag, water bottles, mugs, hats, and yes, the Kai PA glasses are back, but only while supplies last, and I'm taking some of them. Contribute any amount to make a difference and pick up one of these gifts. Go to marketplace.org slash donate. With access to so much information,

it's hard to feel like an informed, discerning citizen. That's why on Make Me Smart, which is a podcast from Marketplace, we make it easy for you to stay in the know. Hi, I'm Kai Rizdal. Every weekday, Kimberly Adams and I unpack the latest from Washington, D.C. The Senate minority leader has announced that he will step down as the Republican leader. What's happening in AI? I mean, don't buy at the top, but holy cow, artificial intelligence and all the companies related to it are the hot new thing.

And we do the numbers. So as a refresher, inflation is the rate of increase in the prices of things. It's not just sort of things getting more expensive. It's the speed at which things get more expensive. Because in a world that's constantly changing, we all need to stay smart. Listen to Make Me Smart wherever you get your podcast. This is Marketplace. I'm Kai Reznor. Treasury Secretary Janet Yellen was the cabinet level guest on the program yesterday.

We had a conversation about the overall economy, how consumers are feeling, keeping the United States competitive globally, in part through the billions of dollars being invested in high tech, and also the current state of our relationship with China. But Treasury is not the only department of this government working on this. So for a different perspective today at the cabinet level, Commerce Secretary Gina Raimondo. Madam Secretary, it's good to have you back on the program. Thank you. thank you. I wanna start where we left off last time, a year or so-ish ago with you,

industrial policy, the Biden administration, getting the government into this economy. CHIPS Act, you've been busy, lots of loans and grants. We were on Phoenix a number of weeks ago looking at the TSMC plant out there. Three of them, I guess, are gonna be built now. Extraordinary, they're huge, many billions of dollars. Here's my question. The CEO of Intel, Pat Gelsinger, came out maybe that day that the president was there and said,

this is great, but we need a CHIPS Act II. And my question is, come on, really? Yeah. Well, you can't blame them for trying. No. Can't blame them for trying. First of all, aren't they massive? They're huge. I said this on the air. It's the biggest thing I've ever seen. I wish everybody in America could see them.

I was in Texas with Samsung. They have 50 cranes in the air right now. Each of those clusters will employ 15,000 people. Eventually, right? It's going to be a number of years. It'll be a number of years. But by the end of the decade, they'll be humming. I'm not going to come in on the need for chips too. What I am going to say is I feel great about where we are.

When I, you came here about a year ago, a year ago, I didn't have a team, no money was out the door. We hadn't even put the applications out. Today, we have 200 people here working on chips. We've committed almost $30 billion. Say all the leading-edge manufacturers in the world have committed to scale in the United States. So as you say, it will take years,

but I couldn't be happier. Fair enough, you're not going to comment on what Mr. Gelsinger said, but here's the question in a different way. Is there a moment when the government says, you know what, we've given you the seed corn, go forth and profit? That's a good question.

Let me say this. The whole point of the CHIPS program was to be very targeted for national security purposes. And this is a key thing you need to know. For the $30 billion of taxpayer money that we have announced, the private sector has announced over $300 billion. So I would say this is working. We have given the seed corn and they've invested 10x private capital. Whether we need more down the road, I don't know because $50 billion is pretty small relative

to what's needed. But we may not because, as I said, they've already invested 10x private capital for the public capital. So we'll see. We'll see. Are you satisfied that the early signs of the long game the Biden administration is playing are paying off? Absolutely. I would say in addition to the fact that they are investing $10 for every dollar we're investing, no one thought we could get TSMC, which is the world's biggest, most successful

company to do three fabs. So here comes a trickier question. Is TSMC more important than Intel right now? No, they're all important. They're all your favorite children. They're all my favorite children. Look, here's the goal. You said the right thing. It's a long-term bet. It is a long-term bet. When will we know we're successful? If in 2030, we are making 20% of the world's leading edge chips in the United States of America. 2030 is like tomorrow.

Yeah, it's going to happen. It will happen. Right now we're at zero, just so your listeners know. Right now we make 0% of these chips in America. We buy 90% from TSMC in Taiwan. By 2030, I want 20% made in America. To hit that goal, you need several companies. You need Intel plus TSMC plus Samsung manufacturing at scale in America.

I don't want to get too geopolitical about this, but since you mentioned Taiwan, you were up on the hill yesterday, right? I forget what day of the week today is. Where you said, look, if the Chinese go into Taiwan and take TSMC, it would be disastrous. You have spent a lot of time in your first three years on this job dealing with China, specifically more in the past year or so. Where do you strike the balance between cooperating in a global economy, which needs us both, and worrying about national security and saying to the Chinese, you know what, back off.

Yeah. Look, we don't want conflict. We don't want to escalate. The president has said to me, has said to all of us on his team, we want to de-escalate. We want to trade with China wherever we can. Of course, we had President Xi here at the end of last year. So I see it as I think our trading relationship with China is like $700 billion. That's a good thing.

It creates American jobs. So we need to trade where we can, but protect what we must. And right now, making 0% of the world's leading-edge chips in our country when we invented the chip industry, that's unacceptable. Are we vulnerable right now, do you think? Absolutely vulnerable. Look, there are leading-edge chips in this room in your fantastic Apple products.

That's right. In your phone, in your product, in your car, every piece of military equipment, fighter jets. We don't make it in America. By the way, I talked to you just about a year ago. The word that didn't come up when we spoke last time about chips, AI, artificial intelligence, right? All AI runs on chips. So are we vulnerable? Yes. We want to lead the world in artificial intelligence. You can't do that unless you have the chips that run these big models.

You have said American businesses are expressing their frustration to you about the lack of a level playing field in China. How do you negotiate that? Right? You have to have that trading relationship, but you have to fend them off somehow with one hand. At the same time, American businesses say, listen, we need in there, but we need it to be fair.

What do you do? You do exactly that. You have to do both. You have to call China out every time we see that they are treating American companies unfairly, which is what I did. When I was in China, I didn't pull any punches. I met with the premier, the vice premier, my counterpart. I said, look, when you go into American businesses, unannounced, raid those businesses, demand consumer data, that's not fair. That's not right. We can't operate there. When you put restrictions on US companies

that favor Chinese companies, you know, hospitals, for example, and government buying products, favoring their companies over ours, that's not fair. So, you know, look, my approach is just be matter of fact. You don't have to be escalatory, just say, these are the facts, and you need to knock it off if you want us to do business there.

Is this what you signed up for when you became Commerce Secretary? I'm not sure I knew what I signed up for. I just loved the President, loved my country, so I took the job. The one thing I did sign up for was to revitalize American manufacturing. I believe it's so, it's core to who I am and we're doing

that and so I love that. We were out in Phoenix as I mentioned a minute ago and one of the things we did we went to the local pipe fitters union where they are bursting at the seams, no pun intended, with trainees and new journeymen and and people coming in to help build those factories that DSMC is building. Talk to me about labor force for a minute. I know you're not the Secretary of Labor, but it's a huge component of how we get from here to there. Are we ready for that, do you think? We're getting ready.

You know, I'll be very, very honest with you. Are we ready today? Probably not. Do we need to go as fast as we can to get ready and build the pipeline and build new training programs and create new apprenticeship programs for pipefitters and welders? We have to do it. Just what you said before, the size of these facilities, you can't realize it until you

see it yourself. I was at Samsung in Texas. They're building one building, one building that's 11 football fields in length. It will take probably 5,000 construction workers for that one building. They don't exist today. So we need to put on steroids, apprenticeship programs, community college programs, vocational tech in high schools if we're going to meet the need. I like our chances.

We're building the pipeline. Some of the money that we're giving to these chip companies, they have to spend on workforce. So we're telling Intel, TSMC, tens of millions of dollars, we're saying, you need to invest this working with local colleges, universities, high schools, labor unions. Child care, we talked about this last time. Child care, same thing. Like if you're going to meet the need and have the workers, you got to find the people,

men and women alike, and train them for the jobs. So one of the other projects we're working on is broadband and what's going on in the central states in this country. And I guess the question is, when you think about supply chains for higher tech products, like fiber optics, like those things, how do you get us there when that's not traditionally been a strength of ours? Yes, this is a great question. So one of my jobs is to make sure every American has the internet.

You know, we're investing $40 billion. And I sat down with my team at the very beginning and I said, map out for me the whole supply chain, the fiber optic cables, the electronics, etc. So much of it is not made in America, a vulnerability. So I said to the team, how do we fix it? We are fixing it by not giving waivers to companies. Let me explain this for a second. So US company will come to us, say a US company that makes the fiber optic cable that they

run to your house so you have the internet. Much of that is made in China. And they come to us and say, we want a waiver to be able to continue to make it in China because it's not cost effective to make it in America. And I said, no, waiver denied. Figure out a way to make it in America. And guess what? They have.

Turns out when you pressure these American companies and tell them, if you want to participate and get taxpayer money to do this, you must make it in America, they figure out a way to do it. Peter Van Doren You said, I forget if it was C-SPAN or 60 Minutes the other day, we're going to make building hardware sexy again? I did. My children have not let me live that down. I was just going to say, so maybe I should get your kids in here because, come on, really?

You sound like my son. He's like, Mom, don't ever use that word again in public. And yet here you are. And yet here I am. I mean it. You know, look, my dad, I grew up in a manufacturing family, okay? Like he made watches for a living and he loved it. He would come home at night and like his hands were grizzly and he loved making things for

a living. I think people like to design. You have a cool watch I'm looking at. You have a cool iPad. think people like to design. You have a cool watch I'm looking at, you have a cool iPad. It's fun to design things. It's fun to make things with your hands. It's fun to see what you've made instead of just coding all day software. So yeah, I'm sticking by what I said. Thanks for your time. Thank you. This final note on the way out today in which the economy, stupid, works as a campaign slogan over in the UK, just like it works over here.

The Office for National Statistics in the UK said today the British economy grew six tenths percent in the first quarter of the year, thus pulling the UK out of the mild recession it had been in since the second half of last year. No date yet because of the way British politics works, but an election is going to happen over there by the end of the year, January 25th. Our theme music was composed by BJ Liederman, Marketplace's executive producer is Nancy Fargalli. Donna Tam is the executive editor, Neal Scarborough is the vice president and general manager.

And I'm Kyle Rizal. Have a great weekend, everybody. We will see you back here on Monday. All right? This is APM. Hey, everyone. It's Rima Grace, host of This Is Uncomfortable. If you're looking for some good recommendations on books to read, well you should join This Is Uncomfortable's Summer Book Club.

Every other week in our newsletter, we'll share a new book that'll make you rethink your relationship to money, class, and work, while also featuring an interview with the author or an expert on the topic. Plus, when you join, you'll be entered in a giveaway where you can win some This Is Uncomfortable merch. Be sure to check it out. Sign up today at marketplace.org slash book club.