This Is What President Biden's CHIPS Office Actually Did

One of the stated goals for the current trade war is to build more industrial capacity in the United States. So far there doesn't seem to be much of it happening. In fact, all of the manufacturing surveys (and all evidence) so far suggests the reverse. But not that long ago there was a concerted effort to build more factories in the United States. Under President Biden there was a whole host of new industrial announcements funded in part via the CHIPS Act and the Inflation Reduction Act. But did we get anything from these bills? Do we have anything to show for it? Why is building more capacity in the United States so difficult? On this episode, we spoke with Hassan Khan, who recently left his position as the director of economic security in the CHIPS Program Office at the Department of Commerce, about what he learned, what he saw, what could be done differently, and what the results are actually were. Read more:With US Chips Act Money Mostly Divvied Up, the Real Test BeginsTSMC’s Arizona Chip Production Yields Surpass Taiwan’sUS Chip Grants in Limbo as Lutnick Pushes Bigger Investments Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots See omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 0:58Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:41Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:57Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:02Tracy Alloway?

  And I'm Tracy Alloway.

• 2:03Joe Weisenthal?

  Tracy, I just wrote about this in our newsletter like five minutes ago, but it drives me nuts how in all of the talk about reindustrialization of America, everyone had just completely memory holed like 2022 and 2023.

• 2:17Tracy Alloway?

  Well, this is the amazing thing, right? We did have a big investment program actually announced under the Biden administration, like huge amounts of money, billions of dollars. And no one seems to be talking about it that much, or at least a very important segment seems to be ignoring it. And that is the Trump administration. Trump, I think he said before that he thought it was a horrible policy.

• 2:43Joe Weisenthal?

  Yeah.

• 2:44Tracy Alloway?

  I suspect the reason he thinks it's horrible is because it was a Biden thing. But it is also amazing that like even this, even making more semiconductors in the US ended up being politicized and a sort of culture war issue.

• 3:01Joe Weisenthal?

  It's just crazy to me. It's totally insane to me of all these like influencers and LARPers that are waiting to bring back physical manufacturing and national security, etc. As if this hasn't been a dominant thing in US discourse for years, as if there weren't literally battery and chip factories being announced almost every day throughout 2022 and 2023 all across the US. It was not just a program. It was like an actual like breaking ground and new things were going up and dollars spent by the private sector partially to get public subsidies, etc. You could certainly say that it was like badly designed or that it was wrong, or there were too many rules, whatever, like all that, you know, that's

• 3:41Joe Weisenthal?

  all of this is fair play. But the idea that suddenly this is just some like new impulse and not like something that's real existing reindustrialization that's going on, I find it infuriating and or at the very least, very annoying.

• 3:56Tracy Alloway?

  Shall we fix that, Joe?

• 3:58Joe Weisenthal?

  Let's fix it. Well, we should talk about what actually happened, right? Because it does seem like either literally or de facto or de jure or whatever, the plug is being pulled on a lot of these different programs. And now there's talk about industrialization. But the hope is that tariffs themselves spur all of this domestic investment in physical things for people to do assembly line jobs, et cetera. But we should learn a little bit more.

• 4:23Tracy Alloway?

  We should talk about what the hopes actually are as well. Because, you know, yes, boost manufacturing in the US, create new jobs, spur some private investment, a sort of public-private idea. But there are a lot of different threads that you can pull here in terms of the actual goals.

• 4:40Joe Weisenthal?

  Well, we should learn a little bit more about what the CHIPS program actually was. And it does still exist, but I'm not really sure. It seems like it's more of a husk than it was. We're going to be speaking with someone we know very well, someone we've known on the internet a long time, someone who even came on Odd Lots once several years ago, who actually worked in the CHIPS program office. We are speaking with Hassan Khan. He was the Director of Economic Security at the CHIPS program office. I believe he's officially left the job. So he could talk now about what he saw inside. Hussain, thank you so much for coming back on Odd Lots.

• 5:17Speaker 04

  Joe, Tracy, it's always a pleasure. You know, your intro there, I feel very similarly. I really do feel like we forgot about what was accomplished in honestly, less than two years. So excited to talk about it.

• 5:29Joe Weisenthal?

  Why don't you tell us, what did you do as the Director of Economic Security at the CHIPS program office? What was that job?

• 5:36Speaker 04

  So if you look at why we passed the CHIPS and Science Act, Congress and the President came together and said, "Our reliance on offshore manufacturing for semiconductors presents both an economic and national security threat." And we saw that play out in real time during the pandemic, when we couldn't make cars, we couldn't make a whole host of goods. Prices went up. That posed an economic security threat because people were losing their jobs. Obviously, there's a national security angle as well because we were reliant on overseas factories for chips that go into military equipment. And as the Director of Economic Security, my role was for, it was sort of twofold. First, helping sort of set the strategy.

• 6:19Speaker 04

  What was our vision for what we wanted to accomplish with the CHIPS Program Office? So before I joined, we published a Vision for Success paper in February of 2023. I'm actually quite astonished. I think very few people who talk about CHIPS actually read that paper. And I still think it's worth reading because it laid out a roadmap for what we wanted to do within the different categories. And then the second job that I had was helping our teams understand the value of each proposed project to U.S. economic security. So why would the factory that X company is proposing improve our economic security? And obviously, there are different ways in which you can do that, whether that's advancing technological capabilities, improving supply chain resilience, plugging, you know, various gaps in the supply chain, et cetera, et cetera.

• 7:01Speaker 04

  And that's why we did sort of a deal by deal analysis on those metrics. But it was really that twofold going not just strategically across the portfolio, but on a deal by deal basis.

• 7:11Tracy Alloway?

  I wanted to ask you about exactly this because I imagine there are trade offs when you're deciding what or who to fund. Do you fund stuff that's going to have the most immediate impact, make headlines? Or do you finance stuff that maybe it takes longer to build, but it's going to have a bigger effect on the economy or national security? If you're looking at two pitches on your desk, or I guess it was an online application, like a portal, but you're looking at those applications and one is for building, I don't know, Nvidia GPUs and the other is like making an improvement on basic chips that go into MCUs in cars or whatever, lagging versus leading. How do you decide between those different proposals?

• 7:55Speaker 04

  So Tracy, that's a great question. And I would say what complicated that decision making process was when the bill was passed in August of 2022, we were solely focused as a country on the impact of shortages. And then it was in November of 2022 that ChatGPT came out. And suddenly the conversation shifted very rapidly to AI supremacy. So in real time, you know, if you ask Congress- Why are you passing this bill? They would have said, well, we can't have these car shutdowns. Or we can't have car factories shutting down. Appliances are too expensive. And then by early 2023, it was, well, we have to win the AI race. So we sat back as an office and we really said, we don't want to be chasing just one category.

• 8:39Speaker 04

  And I think, again, our strategy was we want to make sure we're making investments across the entire supply chain. So we said, hey, we're gonna, we're gonna functionally target a majority of our funding, the vast majority of our funding towards the leading edge. Why? Those are the most expensive facilities. So Intel, TSMC, Samsung and Micron, between them got nearly 28, 29 billion dollars. And don't, you know, you can check my math afterwards. Knowing that getting those facilities in the United States at the scale that they were investing in has downstream consequences too, because now you're building out the supply chain necessary for the entire industry. And that spills over to some of the other facilities that are going to come up online. We did have a statutory requirement to invest at least $2 billion in what we call legacy node chips.

• 9:23Speaker 04

  And our office spent a lot of time trying to understand what our strategy could be on shoring up legacy supply. So we made investments, you know, large ones in TI and global foundries that are in the sort of meat of the legacy node supply chain. But we also made actually dozens of smaller investments that I think get short shrift because they just aren't as headline grabbing. But they plugged up a lot of our capabilities in RF, in power semiconductors, the sort of unsexy types of electronics that are critical not just for infrastructure today, but infrastructure in the future. And how we thought about trade offs, I think the way we tried to think about it was we really tried to bucket our funds and say, hey, for the leading edge, we want to be able to, say, preserve X amount of our budget.

• 10:06Speaker 04

  It was about that $28 billion for the leading edge. And make sure that we retain sufficient funding on the backend for the legacy nodes, for advanced packaging for the supply chain. Because we knew that we needed to make investments across the entire supply chain to get to the resilience that was, you know, the reason the bill was passed.

• 10:26Joe Weisenthal?

  All right, I have a question and you could just be totally honest. You know, give it to us. One of the criticisms of Biden era industrial policy that is frequently made from our abundance brothers and sisters is that, yes, there were all of these efforts, but you know, you couldn't get the money unless you had a certain amount of workforce diversity and you had to do a land acknowledgement on where you were going to build the factory. And also you had to have like childcare, et cetera. And it's like, well, do you want to build the chip plant or not? Because if you do, then why did you put all of these other burdens that have nothing to do with building chips per se onto the money? In your experience, what is the role of these other elements in the speed of grant programs

• 11:11Joe Weisenthal?

  or project development in the US?

• 11:14Speaker 04

  I know this is a topic that gets, frankly, I think it gets way too much airtime. And I'll tell you why. First, there were statutory requirements that came from Congress on what the proposals had to be, right? So Congress themselves came and said, hey, if you're making a project proposal, you need to have opportunity and inclusion language or what your commitments are to community investments. If you look at the DFAs that we read, the direct funding agreements, the terms that we had around what you might call everything bagel policy, basically codified the commitments the firms themselves had made to the communities that they were investing in. It essentially said, hey, you told the community that you're going to be investing in, you

• 11:55Speaker 04

  know, the schools or water reclamation projects, whatever those community investment funds could be, all we're doing is memorializing that commitment that you've made. Secondly, on childcare, this is another one that, first, in terms of the amount of funding that we put towards it, I think it was a total of about $10 million across the 39 billion. Okay? So it was never a focus. It never became in any of the negotiations that I sat in, a discussion where the company came back and said, hey, we really want to build this plant, but the million dollars that you're giving us for childcare and the requirements that you have simply aren't enough. Many of these firms are investing in childcare facilities for their workers anyways, and you see it, like there's a Wall Street Journal report a few months ago about a company that wanted to expand with

• 12:39Speaker 04

  New workers that were mostly coming from like Hispanic background and they found that the biggest thing they could do to help bring them on was have childcare on site because their workers were like, I can't come to the office because I don't have a place to leave my kids. So it's just, it's actually what the private sector is doing anyway. And oftentimes, the funding that we brought to those initiatives actually helped them think outside the box and think across firms to come up with regional solutions that scaled better than they would on a firm by firm basis. I will say, however, where I think critics of sort of the everything bagel approach do have a point is whereas a lot of the terms that I just described were not deal stoppers, they didn't slow down negotiations, they weren't the points of contention. Where there are points of contention between different stakeholders,

• 13:24Speaker 04

  I think you need top leadership to be able to come and say, our number one goal is to get the factory built and various stakeholders have to get in line. And where I'm talking about stakeholders is where I think the abundance folks also speak to them. Groups like labor and environment, right? You have to come and say, hey, do we want this project to happen? There will inevitably be trade offs. There is no world in which you can build a massive factory and have zero environmental impact, right? You, you have to also, even in the context of labor, we have to understand that this is a globally competitive industry. And so the demands that labor is making have to be viewed from the con- from the context of like, what does it take for the factories in the US to be globally competitive?

• 14:06Speaker 04

  And I think you need top leadership to come and say, we're not going to allow concerns that are being raised by the community to sort of halt negotiations. So I, so there is a, a balance to be struck in terms of what's our number one goal? Is it to get the factory done or is it to make sure that no one's upset at the fact that the factory is getting done?

• 14:42Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Shaun McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 14:58Speaker 05

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service institutional clients.

• 15:07Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 15:15Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 15:34Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 15:44Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 16:26Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads. That candidates quote must be willing to work extended hours and weekends as needed. One major perk for all that hard work employees access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 17:07Tracy Alloway?

  Give us a sense of the actual timeline for the application process. Like, how quickly could you actually approve things on average? And then I'm curious, like, what was the longest negotiation that you had? And what were the sticking points there?

• 17:23Speaker 04

  Okay, so the process, the way it worked, you first had to submit a what's called a statement of interest. And this was honestly like a one to two paragraph submission via Salesforce portal that basically said, we are from company Y and we want to build a manufacturing plant for semiconductors in X city. It did not require a lot of details. That basically, you know, it puts you on the map of our office to say, hey, we should go and talk to these people and understand what they're really trying to build. Then we had what we called a pre-app process. And we can come back to that in just a moment, my thoughts on the process. But it essentially said, hey, submit a simplified version of your final application and we'll give you some preliminary feedback, kind of like a draft application.

• 18:06Speaker 04

  And we'll help identify where we think on our scoring rubric, you need to make adjustments in order to score better. By the way, our response to the pre-app was non-binding. So if we basically said, hey, we don't like your pre-app, you could still apply and submit a full application. But, you know, we did take into consideration whether or not you responded to the feedback from the pre-app. The full application was sort of your final submission. We started to receive our first full applications in the late summer, early fall of 2023. And so you saw we got to a first preliminary announcement by the end of 2023 with BAE. So it took us, you know, on the order of about a little more than a quarter to get through a first full announcement.

• 18:49Speaker 04

  The exact longest negotiations that it took, I have to think back for a moment, but we had One final step after the preliminary announcement, following sort of exactly how you do it in the private equity world. You have a preliminary announcement saying, hey, we intend to make this investment. We intend to go forward with this, but it's subject to due diligence and that'd be the direct funding agreement. Those negotiations did drag on through 2024. And I think a lot of it came down to sort of dotting the i's and crossing the t's on what did it mean for the government and semiconductor firms to make a commitment to each other on these facilities, right? There was a lot of, not on the sort of everything bagel terms, but there was a lot of negotiation on what does it mean if your company is sold?

• 19:31Speaker 04

  What does it mean if you violate guardrails statutory requirements, right? We really had to work through that because we'd never worked through it as a country before with firms at this scale. But what you saw routinely was as we reached a milestone, so as we reached the first preliminary memorandum of terms and we reached the first direct funding agreement, the second, third, fourth agreements would happen much faster because we at that point had worked out a template and could say, hey, here's how other firms are thinking about doing it. There's already comfort with this format. Let's try and, you know, work off that and you saw them happen in rapid succession.

• 20:05Joe Weisenthal?

  I want to go back to what you said, we're talking about earlier, that the abundance people do have some sort of point when it comes to environmental and labor stakeholders. What did you see specifically? Now, you don't have to like identify the names of the projects, but look, these are different parts of the Democratic Party constituency. Organized, well, I'll say this, the Democratic Party really wants to be liked by organized labor. I don't know if that organized labor, especially in the private sector, is a big Democratic constituents anymore, but Democratic Party certainly wants to be liked by organized labor. They certainly want people who concern about the environment. Talk to us about the reality of how these different impulses can collide with each other.

• 20:48Speaker 04

  So I think we have to take one step back and be honest about where we stand in terms of our manufacturing competitiveness.

• 20:56Joe Weisenthal?

  Yeah.

• 20:57Speaker 04

  Right? I think there are broad understanding that we are no longer at the frontier in a range of industries. And so what is it going to take for us to catch up to the frontier and be globally competitive again? We have cost disadvantages to operating in this country. It takes longer to build. We do have, you know, existing regulatory frameworks that, that.

• 21:18Speaker 04

  And it can complicate some of these projects, right? So I think one of the consequences of this tension of there's an urgency to move fast, an urgency to catch up to our geopolitical competitors, but not really a readiness to sort of tear down the frameworks that we had. And I think for good reason, you have to come back and say, well, what is it going to take for us to catch up? And so on a lot of these projects, you saw environmental groups raising concerns on, you know, pollution impacts. You saw labor groups sort of saying, hey, unions are being left out in the cold. And I would come back and say, I think a lot of that really was noise because there was like an open negotiation going on sometimes through the media, where these various groups were trying to say, hey, make sure you don't forget about us.

• 22:00Speaker 04

  But I do also think for policymakers, you have to be able to come out and say, what is the most important thing? Is it for the factory to get done on time? Or is it that we leverage union labor? Or is it that we make no impact to the environment? And there will be times in every complex project in the public or private sector, you have to make trade offs between different objective functions. And I think for what we saw was there was like an unwillingness sometimes to really say to stakeholders, hey, we hear your needs, but they're going to be second priority in order to get the project done. Right?

• 22:42Speaker 04

  And that complicates the discussion on how are we going to get these things done quickly? And I think there was a tension between the urgency that firms and folks within the CHIPS program office felt, and outside stakeholders who really were saying like, well, don't forget about us.

• 22:59Tracy Alloway?

  So you mentioned a bunch of competitive disadvantages that the US has. You know, things like we're starting from a lower base, at least in terms of manufacturing, higher labor costs, more rules and regulations, whether it's about the environment or something else. Do we have any competitive advantages? I'm actually struggling here, but there must be something.

• 23:22Speaker 04

  You know, okay, so I think Maybe not. No, I do. We do, right? We have, if you think about it, the world's most advanced firms were all designing the best chips in the world. They're all based in the US. We have the best university system. So we have a deep talent pipeline. We have a tech stack that in the United States, I think, is unparalleled anywhere else. But when it comes to being able to build a factory, you know, I like to use the analogy of we basically stopped going to the gym. Do you know before the TSMC fab came online in late 2024, when the last leading edge fab in the United States was built and came online?

• 23:57Joe Weisenthal?

  No, this is good. What is it? What's the answer?

• 23:59Speaker 04

  2013.

• 24:00Joe Weisenthal?

  Huh.

• 24:00Speaker 04

  So for basically a decade, we stopped building large, leading edge fabs in the United States. And so the muscle for how to build those factories atrophied. And that doesn't just mean construction workers, like obviously all those people went and probably found jobs elsewhere. But it also means for the regulatory apparatus, for what does it mean to understand the environmental impacts of these facilities? And so when you talk about the delays in construction, oftentimes those delays are from the permitting processes that are handled at the state and local level. Well, in a lot of the places that we're building these facilities, state and local regulators hadn't seen a facility like this before because we hadn't been building them in over a decade. And so they didn't know what the impacts were. And that, you know, it required an education process.

• 24:44Speaker 04

  And I think a lot of the noise that we heard in the last two years was because we were kind of starting this again after not going to the gym for over a decade. And you know what happens when you don't go to the gym? You go back one time, you're really, really sore the next day. But if you keep going, your month, your body kind of gets used to it. And that's why, for example, take TSMC's fabs in Arizona. You don't hear the same noise about labor unions or permitting concerns over fab two because the entire system sort of got into shape, right? And I think if the Chips Program Office is going to be looked at as a success, it's going to be because the second, third, fourth, fifth facilities that are being built at these sites are showing rates of learning in how long it takes for them to get.

• 25:29Speaker 04

  Brought online, brought up to speed, brought up to, you know, a similar capacity to what they have in their overseas benchmarks. So I would look at it as like the first fabs are like a proof of concept. Can we do this? And it's really in the second, third, fourth fabs at these local projects that you'll start to see. The ecosystem's mature.

• 26:02Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 26:44Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 27:25Joe Weisenthal?

  I asked earlier about whether environmentalists in unions are restrained. Something else that I'm very interested in is you mentioned, you know, the top semiconductor companies in the world are actually in the United States. We just don't really make them, but we design them and that's actually much more valuable. And Nvidia is a much more valuable company than TSMC, the legendary TSMC. And so, you know, I've been writing about for a while, like, how much of this is an issue of capitalism? And investors in semiconductor companies don't want US manufacturing because that's lower margins, you move that overseas, et cetera. You don't want design and fabrication in-house together because then you mix a high-margin company with a low-margin company, et cetera.

• 28:10Joe Weisenthal?

  Obviously, to some extent, the idea of using public money is to solve this problem. But just when you look in general at the questions of US manufacturing in high-tech areas or whatever, how much is it about capitalist incentives?

• 28:23Speaker 04

  I do think there is a tension here. I know you've covered this as well. You saw TI, which is engaging in one of the most aggressive expansions in the United States, hoping to build seven fabs by the middle of next decade overall, had activist investors basically pressuring them to reduce their capital investments. And there is a tension where shareholders are going to say, hey, you could return money to me, that would have better, and I could go use it in other use cases. Yeah, I mean, famously look at the case of Intel, which for a long time was returning a lot of cash to shareholders through dividends and stock buybacks, and fell behind the leading edge curve. So that tension is absolutely real. But I do think firms and investors understand the value of having these facilities.

• 29:07Speaker 04

  I think the challenge is creating a structure where the government can help equalize the returns so that the private value is similar to the public value. Let me put it another way. The government highly values these manufacturing facilities being in the United States for the economic and national security reasons I laid out above, right? But private shareholders don't value them as much. But there are levers that we can pull to help, you know, make them look more attractive. And I think the biggest under discussed lever was the investment tax credit, right? The investment tax credit is a 25% tax credit for firms that invest in manufacturing in the United States. I think there's a world where the future of industrial policy, I'm putting quotes

• 29:50Speaker 04

  around that, really comes and says, hey, the focus should be on Tax credits that give firms certainty on what their cost structure and return structure is going to look like for capital investments made in the United States. And maybe the disbursement funding that's subject to review by bureaucrats is a smaller pot that is really geared towards firms that have capital shortcomings or capital concerns, right? So I think you could plausibly make the claim that the Intels and TSMCs of the world don't necessarily need cash from the government, because what they're optimizing for is like an NPV function on their capital investments, and tax credits can solve all of that. In fact, can happen with less government intervention.

• 30:34Speaker 04

  But there are smaller firms who really do need cash infusions in order to bring, you know, to bridge the valley of death that we've been talking about for decades in this country, but never really had an approach to solve. And I think there's a slimmed-down version of industrial policy in the future that really focuses on, hey, tax credits can equalize our cost structure and make investments attractive, where, you know, we take, target smaller amounts of funding to critical technologies that we want to make sure happen in the United States.

• 31:00Tracy Alloway?

  So on this note, I mean, one of the discussions that inevitably pops up when you're doing this type of policy is public versus private, and the sort of crowding in or crowding out effect on private capital. I imagine that part of the intent of the CHIPS Act was to encourage private investors to get excited about not only, you know, the importance of manufacturing here in the U.S., but also the potential returns, to your point about the tax credit. Did you see a change in behavior on the part of private investors? Did you ever talk to them about, you know, what their concerns were and what they wanted to see from this program?

• 31:43Tracy Alloway?

  And were you successful, I guess, in making CHIPS manufacturing cool again?

• 31:48Speaker 04

  I think we were. I think the Investment Office led by Todd Fisher did a lot of outreach to the investment community broadly to help them understand not just our approach, but how we were working with firms to make these investments more attractive in the United States. And I think there's a broad recognition that being able to build industrial capacity in the US has benefits beyond just the balance sheet. That being said, I do think it's an ongoing discussion with the investment community on how do we build certainty in these government programs. So I think the biggest thing that the CHIPS Program

• 32:29Speaker 04

  Office did was it gave firms confidence in what their returns would look like if they invested in the US because they had a tax credit and award dollars that would come to them. And they could go to their investors and say, hey, look, there is a cost disadvantage, but we feel confident that we'll be able to reduce it with the public dollars that are coming in. And I really think the biggest lever that the government can pull is giving firms certainty when they're making 20 to 100 billion dollar investments, because they don't want to be caught on the wrong side by a policy change that now gets them underwater on a facility that's half done. And the sunk costs of building a facility and getting it half-equipped are really large. And so I think that is

• 33:14Speaker 04

  the challenge for a lot of these firms and for investors. They want to be able to say, hey, is what we're modeling really going to hold in the long term from a cost structure basis for us to feel comfortable in what the returns are going to be?

• 33:27Joe Weisenthal?

  I just have one last question myself is, what was accomplished? We don't know what the future is, or maybe you can give some insight into what is going on at CHIPS today in April 2025. But you said at the beginning about what was accomplished during CHIPS, and I'm aware that projects have been started and some have been completed, et cetera. But what did we get from all of these efforts? And should we be happy with it?

• 33:51Speaker 04

  So the top line number that, you know, we used while the Biden administration was still around was $450 billion in announced investment. And you started to see this with the data from the census showed that we were making more investments in electronics facilities, construction spend in 2023 and 2024 than we had in the last two decades combined.

• 34:13Joe Weisenthal?

  What about like actual like production? What I care about is actual things that go into computers, cars and.

• 34:20Speaker 04

  Hundred percent. So we got to recognize too, right? That these are not going to happen overnight. These facilities aren't going to work overnight. The bill was passed in August of 2022, right? So within a couple of years, you had, you know, 400, like I said, $450 billion of investments announced. And I think the biggest thing is that firms have to feel comfortable moving forward with those plans. So let's take TSMC as an example. TSMC, by the end of the Biden administration, has started pumping chips out for Apple and AMD out of its facility in Arizona. And as it continues to move forward with the second and third facilities, that ecosystem is going to mature to the point where the cost differentials versus Taiwan are going to be reduced. The scale is going to bring more suppliers onshore.

• 35:03Speaker 04

  So they're going to have more of their chems and their gases and their, you know, consumable materials sourced from the United States. And as that happens, you start to, you know, build out a broader ecosystem. Because, you know, we heard all the time from suppliers who were saying, hey, we're building a facility in the United States to service all the fabs that are coming online because we can now justify the investment based off of the number of downstream investments that have been made. And as they build out their facilities, then their suppliers are going to come here. So I think there's going to be an ecosystem maturation that's going to continue, hopefully, through the rest of the decade. That's going to bring not just, you know, front-end fabrication facilities, but their suppliers' facilities and then their suppliers' suppliers'

• 35:47Speaker 04

  facilities. And now you talk about getting the sort of industrial ecosystems that really had atrophied in the United States. And when you start to go, you know, N plus two in terms of the supplier level, you're no longer just serving the semiconductor industry. You're building fabricated machine parts that go into semiconductor manufacturing equipment. And also going to say airplanes or automobiles. And you now, you know, buttress the entire industrial ecosystem, even though you're starting from just building semiconductor manufacturing plants. Right? So I think that is what the long term is going to look like. But we have to, you know, and this is where I have to come back to the point on, we have to also be honest about where we were, right? We weren't building these fabs. There's a reason it took so long. And it's not going to happen overnight.

• 36:32Speaker 04

  And if we're not willing to maintain the investments and the programs that we have, I think a lot of firms are going to say, hey, the uncertainty isn't worth it for me to continue to invest. Because I can't go to my shareholders and say, this investment has a solid return. They're going to look at it and they're going to discount it with all that uncertainty and pressure me to not make these investments or to reduce the investments I make and focus on places where the returns are much more solid. I think that's a situation that we absolutely should avoid. And you even hear that from the Trump administration, where, for example, J D Vance, at a speech at the American Dynamism Conference, talked about making adjustments to tax credits for firms in terms of bonus depreciation and the R and D tax credit. Those are very much in line with making these investments

• 37:17Speaker 04

  less risky for firms in the United States. So if the Trump administration continues down that vein, I think you'll see firms feel confident that they can expand these investments and build out these ecosystems to a size and scale that's globally competitive. Right? And then you tap into the broader tech stack that we have here, where now the smartest engineers from Nvidia, Apple and AMD don't have to fly to Taiwan. They can fly to Arizona to make sure that they're getting their designs taped out correctly. And they're working with universities all across the United States on future designs and technologies. And then you get an industrial ecosystem that really leverages our capabilities. Right? One last point on this one. I think a lot of people made this criticism when the CHIPS Act was passed,

• 38:00Speaker 04

  that the United States should have just continued to invest in R and D. And that's what we should leverage. We should leverage our R and D capabilities. But here's another trivia question for the two of you.

• 38:10Joe Weisenthal?

  When was the first? Chris and I are writing a trivia quiz right now. So actually, we're going to use these and just, we're putting on a trivia event. So we're going to use your questions and turn them into questions. All right, keep going.

• 38:21Speaker 04

  I'll send you some. When was the first EUV machine installed in the United States?

• 38:26Tracy Alloway?

  Oh.

• 38:28Speaker 04

  It was 2006 at SUNY Albany, which is the Albany Anatech Complex in upstate New York.

• 38:35Speaker 04

  We didn't have high-volume manufacturing with an EUV machine until December of 2024 out of TSMC. Eighteen years, right? So I think the critics who said we should double down on R and D actually failed to grapple with the fact that the R and D first approach was empirically failing us. We invented EUV technology through our DOD National Labs in partnership with ASML. We installed the first alpha tools in both Europe and the United States. And then, I mean, the United States was a half-decade behind East Asia in bringing EUV manufacturing to scale. Right? So that formula wasn't working.

• 39:19Speaker 04

  And one of the shortages that TSMC talked about was that they didn't have enough workers who knew how to install and bring up EUV machines. So you can see how this sort of cascades, the ecosystem atrophies. And then when firms come and try to do foreign direct investment, they come and say, well, you don't have the skills that we need, even though we can point to all the R and D investments. And I think the problem was we were sort of making these R and D investments in a vacuum and kind of hoping that they'd get sucked into an industrial ecosystem that, you know, despite what a lot of economists say about America still having a very high value add for manufacturing, you look on the ground and there are tons of anecdotes that the manufacturing ecosystem has atrophied. And we have to make investments in order to bring it back up to be globally competitive.

• 40:01Speaker 04

  And I think an anecdote exactly like the delay in bringing EUV manufacturing to scale in the US exemplifies why the old approach wasn't working. And we can debate like what the right ways are and how industrial policy should be structured and what tax credits, et cetera, need to be done and trade reforms need to be done. But I don't think you can debate whether or not the old, you know, let's call it pre-2020 approach, was actually maintaining America's industrial competitiveness because it wasn't.

• 40:31Tracy Alloway?

  I have just one more question, and that is, what's next for the CHIPS program office itself? Because, I mean, under the Trump administration, fiscal spending doesn't really seem to be very popular, to put it mildly. And there's obviously a bun fight over who gets to control the pocketbook of America, whether it's Congress or the president. At the same time, we have DOGE, which is implementing sweeping changes on the government itself, you know, entire agencies going away and stuff like that. And then finally, the other thing happening, which we should definitely ask about, is tariffs, right? And maybe tariffs end up being good for domestic manufacturing, like semiconductors.

• 41:13Tracy Alloway?

  But I can imagine that there are also still either components or materials that CHIPS manufacturing actually needs to import. So I guess my question is, how are you weighing all these different things that are going on right now? What do they mean for the actual CHIPS Act? And for manufacturing?

• 41:32Speaker 04

  So let me give you one, one small anecdote to show you how firms are trying to understand what's happening. Right? I was talking to a supplier that wants to build a facility outside of Arizona. Right? They're exemplifying that ecosystem development that I talked about that's coming out of TSMC's investment. And I was on a call with them in late March, and they basically said, we don't understand what's happening. We don't know what our cost structure is going to look like. And, you know, our project is undergoing change constantly because our cost structure is undergoing change. So, you know, for a lot of these firms, before they're willing to make bets that, you know, in some of these smaller firms can be like, you know, life or death sized bets for the firm,

• 42:16Speaker 04

  they really want to have an understanding of what the policy framework is going to look like. And I think we have to sort of get through the period of, you know, a new headline rocking markets every day for it to shake out, to understand how it'll affect the long term decisions a lot for a lot of these firms. You know, the sense I got from talking to that firm and from other firms was that they're going to kind of wait it out and see. They're going to try and buy as much time as they can to see where things reach a steady state before reevaluating their investment plans. I think. On the flip side, however, there is a bipartisan agreement on the need to bring industrial manufacturing back to the United States, right? So I think the question is going to be on the methods by which we do it. So that, you know, I go back and you say, is it through tax incentives?

• 43:00Speaker 04

  Is it through trade policy? Is it through industrial policy? I think all of those tools interact with each other. Obviously, different administrations have different approaches. So I don't know where we'll end up with that. The last thing I'll say is the methods that we developed in the CHIPS program office for trying to get firms comfortable with making investments in the United States and working to accelerate their investments by working with stakeholders across, you know, environment, workforce, and other policy objectives. I think that is actually going to continue. If you look at the Investment Accelerator Executive Order that was announced by President Trump a few weeks back, the sorts of activities that he's saying, the white glove service, I think that was pioneered in the CHIPS program office where we worked with firms to get through

• 43:44Speaker 04

  the labor issues, to get through the environmental issues and permitting questions, to make sure that these projects could move forward. It's why I've said repeatedly that there were no CHIPS Act construction projects that were held up by NIBA review. And I think they're going to take that recipe that was developed and try to scale it across multiple sectors. You know, certainly going to be different contextual challenges, but if they do that, I think it's going to be a vote in favor of the work that we were doing at the policy level to make sure manufacturing investments in the United States are viable for firms. And that's going to have to be complemented with a, you know, approach to make them financially viable. I don't know, and I don't know that any of us can say what the Trump administration is going to finalize its policy mix on. And I think firms are going to wait to see what that policy mix looks like from the

• 44:29Speaker 04

  Trump administration before, you know, placing further large bets. So if there's a lot of policy uncertainty, you may see some companies come out and say, hey, we're going to do price increases and we're going to maybe pause equipment purchases until we really know what the fiscal impact of tariffs or other, you know, new trade negotiations are going to be for our project.

• 44:49Joe Weisenthal?

  Hassan Khan, thank you so much for coming back on Odd Lots and sharing with us lessons that you learned during your stint in the public sector. Thank you for your service. I learned a lot, so appreciate you coming back on.

• 45:01Speaker 04

  Joe, Tracy, always a pleasure. And the last thing I'll say is,

• 45:05Joe Weisenthal?

  Yeah.

• 45:05Speaker 04

  I think the CHIPS was an experiment in what industrial policy could look like. The scoreboard, the early returns look good, but I think the real measure of whether it was successful, we'll know by the end of the Trump administration if these other projects come online.

• 45:21Joe Weisenthal?

  All right. Well, we'll have you back.

• 45:23Tracy Alloway?

  Have you back on.

• 45:37Joe Weisenthal?

  Tracy, that was really good. It's cool that one of our past guests like started this whole other career between the last time we talked to him.

• 45:43Tracy Alloway?

  Yeah.

• 45:43Joe Weisenthal?

  Which was like in maybe early 2021, then went and got this job. And then we've been doing this a long time. And someone had like a whole chunk of their career that they could fill us in on between times that we talked to them.

• 45:54Tracy Alloway?

  Yeah, that's kind of crazy. So we feel old.

• 45:56Joe Weisenthal?

  Yes.

• 45:57Tracy Alloway?

  On the plus side, we get an inside look.

• 45:59Joe Weisenthal?

  Yeah.

• 45:59Tracy Alloway?

  At the CHIPS program office, which is pretty cool. I do take Hassan's point about, I guess, like building up the muscle of manufacturing and his point that, well, we, we had been doing it a certain way, which is basically all through private capital for many, many years, and it hasn't resulted in the purpose that we now want, which is actually building factories to produce these things. And so you really need some sort of catalyst to get stuff going, to get people excited about it.

• 46:30Joe Weisenthal?

  Yeah.

• 46:30Tracy Alloway?

  Maybe change the calculation in terms of profit margins. And the result is the CHIPS Act.

• 46:36Joe Weisenthal?

  I'm so depressed about the 2010s. And like, seriously, just like the way we let everything hollow out, you know, we talk about it with housing and sawmills and all of this stuff that we just like, didn't do when we could have. And then the cost that imposes on us, or we haven't like built a fab in forever and we forgot. I do think it's interesting, like this question of, you know, even with TSMC's second fab, there, you know, you don't see any of those same headlines that you saw with the first one. That is encouraging. Maybe you have a sort of template to quickly navigate the state and local issues, some of the questions around. You know, the quote stakeholders, et cetera, which every system has stakeholders. The US is not unique in that. I mean, obviously, you know, every system has to have a way.

• 47:20Joe Weisenthal?

  I think what's important, you know, and some of the, I remember we did a conversation about nuclear construction in China and it's like they have their own, you know, it's not like there aren't environmentalists in China, et cetera. What they have is like a system for allocating, like who wins and what the priorities are, et cetera. And

• 47:36Tracy Alloway?

  Also top down leadership.

• 47:37Joe Weisenthal?

  Yeah, there are many, yeah, there's a much more sort of straightforward system in that respect. But, uh, no, I thought that was interesting. And, you know, I am hopeful that Hasan wasn't totally dooming.

• 47:47Tracy Alloway?

  You know what they say about factories, Joe?

• 47:49Joe Weisenthal?

  No.

• 47:50Tracy Alloway?

  The best time to build a factory was 20 years ago.

• 47:53Joe Weisenthal?

  Oh, yeah.

• 47:53Tracy Alloway?

  The second best time to build a factory is today.

• 47:56Joe Weisenthal?

  All right. Well, you know, I wonder, I wonder, we're recording this April 8th. I wonder if there's a single new factory green broken ground today, right now. I kind of doubt it.

• 48:04Tracy Alloway?

  Hmm. Yeah. All right. Shall we leave it there?

• 48:06Joe Weisenthal?

  Let's leave it there.

• 48:07Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 48:13Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow Hasan Khan. He's at Hasan Khan. Follow our producers, Carmen Rodriguez at Carmen Armin Dashel Bennett at Dashbot and Kel Brooks at Kel Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots. We have all of our episodes in a daily newsletter and you can chat about all of these topics, including semiconductors 24/7 in our Discord, discord.gg/oddlots.

• 48:39Tracy Alloway?

  And if you enjoy when we talk about industrial policy and remind everyone that the CHIPS Act actually exists, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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