The national race to re-shore chips is slowly ramping up — but the story isn’t as simple as nations just competing against one another to bring factories within their borders. This year’s Trade and Technology Council illustrated that point as the U.S. and EU attempted to strike a complicated balance between advancing collective national security interests and promoting their independent domestic economic goals.

To better understand the dynamics underpinning the chip race, we spoke to Christopher Padilla, vice president of Government and Regulatory Affairs at IBM. Padilla previously served as assistant secretary of Commerce at the U.S. Department of Commerce and as chief of staff and senior adviser to Deputy Secretary of State Robert Zoellick.

Padilla told Protocol why the Chips Act is no sure thing, how national security interests are driving the race to onshore and how the U.S. and Europe might go about avoiding a subsidy race.

In this year’s TTC, the U.S. and EU agreed they want to collaborate to avoid a subsidy race. Does that scare you?

There's clearly a global recognition that we need to build up semiconductor supply chain capabilities, particularly in the U.S., Europe and Japan. There's a recognition that over-reliance on Taiwan is neither economically wise nor prudent from a national security standpoint. The reality is the war in Ukraine, while it has nothing to do with chips in Taiwan, has reminded everybody — as COVID did — that supply chains need to be robust.

The language about “let's not have a subsidy war” — in a way, it makes me chuckle a little bit, because at the moment, we don't have anything in the U.S., and prospects for getting the Chips Act are more difficult with every passing day as we get closer to the midterm elections. So in a way, the bigger problem is the U.S. fails to act, rather than that we get into a subsidy war. On the European side, they're not interested in trying to out-subsidize the U.S. either.

Why is the Chips Act in danger? Isn’t it widely popular?

The risk to the Chips Act is not the Chips Act itself; it's that it's part of a bigger package that seems to be the only legislative vehicle likely to move before the midterms. The House and Senate have both passed bills, but they're very different. The House spends [around] $400 billion in total and the Senate spends $250 billion — that's not a small difference. The Senate has language in its bill calling for removal of some China tariffs; the House doesn't have that. There is a dispute about outbound investment protections. So none of this has anything to do with chips. But there's a risk that these other issues become so politically contentious that the thing doesn't proceed.

With every day that we get closer to the midterms, that risk increases. There's also a risk that people say: “Ah, this is the only vehicle that's moving, so I want to attach my immigration provision [or] my spending provision [to it.]” You put too many decorations on the Christmas tree and it falls over. That's the real risk. Secretary Raimondo is doing a great job of keeping minds focused on the importance of this. And in all the meetings my team does on the Hill, nobody has said, “We're opposed to the Chips Act.”

By: DocMemory
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