U.S. Commerce Secretary on chip shortage: ‘We have no room for error’

Gina Raimondo, U.S. Commerce Secretary, joins Yahoo Finance Live to discuss the effects of the chip shortage on the nation, the CHIPS Act, and a new study on semiconductor demand and supply.

Video transcript

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JULIE HYMAN: Well, we know there is a severe chip shortage that has been affecting companies around the globe and in particular here in the United States. The Commerce Department out with a survey that puts a little bit more data around that. There are only five days right now of inventory of key chips versus 40 days back in 2019.

Let's talk a little bit about how the US government is trying to address that. US Commerce Secretary Gina Raimondo is with us right now. Secretary Raimondo, thank you so much for being with us. What really stood out to you from the survey that helped you better understand exactly what this problem looks like and how long it's going to last?

GINA RAIMONDO: Thank you and good morning. The survey really confirmed for us, in very great detail and in alarming detail, what we already knew. Every American knows we're struggling with a chip shortage. It's why you can't get your appliances in on-time when you're redoing your house.

It's why car prices are so much higher. It's why it's hard to find a new car or used car. The answer is not enough chips. So we all know this.

What we learned in this exhaustive study is that chip demand is up 20% relative to where it was a couple of years ago. And the factories making the chips are producing at their maximum limit. They're at more than 90% capacity. So the only solution is to build more facilities in the United States of America to make chips.

And the five days of inventory that you referenced, that's an alarming statistic. And what it tells you is that we have no room for error. You know if there's a storm or a COVID outbreak which takes a manufacturing facility anywhere in the world in the supply chain offline, that could cause massive disruptions here at home. So it just added a great deal of urgency to getting the Chips Act passed in the Congress so we can get to work making more chips in America.

BRIAN SOZZI: Secretary, this morning, we spoke with Ford CEO Jim Farley. And we asked him about the chip shortage. We'd love to get your reaction to what he told us about this.

JIM FARLEY: We have the chip crisis going on at the same time, probably the biggest supply shock I've seen in my career. So all of it is happening at the same time. But I think the real encouraging thing is that Ford can develop great products where we do really naturally well. And we're being handsomely rewarded for focusing on our strengths.

BRIAN SOZZI: Secretary, so what is the message to CEOs like Farley? Should they be hoarding the chips they could find? Should they be cutting back production? How could they navigate this situation?

GINA RAIMONDO: Yes. So first of all, the word I heard was crisis. And I don't think that's an exaggeration. It is a crisis.

Chips are unique in their importance. There are chips in everything you use, phones, cars, medical equipment. So it's a unique product. And the shortage is a crisis.

Secondly, we need to make more chips in America. I think they should not be hoarding. There's no purpose in hoarding. That just distorts the market further and creates even more disruption. I will give credit to GM and Ford. They have actually reached out to semiconductor companies.

In the case of Ford, they did a partnership with GlobalFoundries. They're trying to be creative, forging these partnerships with the chip-makers. But really, at the end of the day, we need to make more chips.

I'll give you a concrete example, and it relates to Jim Farley. The average electric vehicle, which of course, is the future, takes 2,000 chips in one car. The average traditional, non-electric vehicle is maybe 600 or 700 chips. So the demand is just going to continue to be off the charts.

And short-term solutions, like hoarding, like stockpiling, they don't get you anywhere. What we need is to make more chips in America.

JULIE HYMAN: And I know that you've been working very hard on that. Congress has been working on it as well. The Senate passed a bill that had some measures to increase semiconductor production in the US. The House, working on something similar. What are the chances at this point of passage?

I mean, we talk about crisis. We talk about the sort of acuity of the need right now. This is a longer-term solution, to your point. Does that mean that there's not going to be enough of urgency and a push to actually get this through?

GINA RAIMONDO: I think there is urgency. I have spoken to dozens of lawmakers this year in the new year, Republicans and Democrats, House and Senate. There is urgency. There is broad bipartisan agreement and recognition that this is a problem that needs solving. And we need action right away.

I am hopeful that the House will have this bill on the floor next week when they return and that they will swiftly move to passage so that we can hash out the differences as between the House and the Senate. There are differences. This is hard work, of course. But the fundamentals of this bill have broad bipartisan support.

And you hear it yourself. You hear retired generals, national security folks saying this must happen. It's untenable that we purchase the vast majority of the most sophisticated chips from Taiwan, from one company in Taiwan. Many, many generals and leaders in the military have been ringing the alarm bell on that.

By the same token, you have CEOs of every major company in America saying their business depends on chips. So this is definitely not a Democrat issue, a Republican issue. It reminds me a lot of the bipartisan infrastructure package. Yes, there were differences. But what the sides agree on, I believe, outweighs what they disagree on.

BRIAN SOZZI: Secretary, how much is the chip supply shortage, from your vantage point, impacting the US labor market? Because when you talk to folks like Farley, his contention is that not having a bill like this passed is hurting the creation of new jobs but also hurting the impact of jobs of the future, especially in the tech space.

GINA RAIMONDO: There's no question that that is true. By the way, jobs of today. Both Farley and Mary Barra, many auto companies, have had to lay off or furlough thousands of workers because they couldn't get their hands on enough chips. I can't even estimate how many cars and trucks right now in the United States of America are partially assembled and can't be fully assembled because of chips. And so that means workers are put out of work.

Not to mention, as you say, the potential job creation. I was in Ohio on Friday. Intel announced a new manufacturing facility for chips in Ohio. That one facility they estimate will create over 10,000 jobs. So the job creation element of this package, of substantially enhancing manufacturing in America, is gigantic.

JULIE HYMAN: Secretary, as you alluded to, there is bipartisan support for these types of measures, that type of US manufacturing, not as much for the president's Build Back Better package, the next tranche of aid for the economy. And I know a number of CEOs, including Jim Farley, are set to meet at the White House today. I believe you'll be at that meeting as well.

What's going to be the message of the administration? And are you hopeful that getting these business leaders on board can also help get-- well, maybe it's a bridge too far to say Republicans on board-- but maybe some of the intransigent Democrats on board, at least?

GINA RAIMONDO: I hope so. I hope that the members of Congress will listen to these business leaders. As you just put up on the screen, this is a range of business leaders across industry, software, tech, financial services, industrials, automakers. And they all believe what we know and what the president knows, is that the investments which the president is proposing in Build Back Better are good for the economy, will create jobs, will enable people to go back to work, will expand the labor force, and will ultimately enhance American productivity.

I give these CEOs a lot of credit. They're coming forward and saying, pass Build Back Better because we, our businesses need these investments, whether it's investments in child care so women can work and be productive or investments in climate, which creates jobs and saves the planet, or investments in job training, which will enable the workforce of the future, these are investments which are good for business and good for workers.

And so often, I hear Build Back Better mis-categorized as a, quote, unquote, "social spending bill." Well, you don't often get a dozen or half a dozen leading CEOs behind, quote, unquote, a "social spending bill." What you're going to hear today is, this is good for the economy. So let's get it done. And let's build and enhance the productive capacity of our economy and create jobs while we do it.

JULIE HYMAN: Secretary Raimondo, and I know you've talked in the past about its help in making the US more competitive as well. So I'm sure that will be part of the discussion. Thanks so much for being here. Good to talk to you, Secretary Gina Raimondo, the US Secretary of Commerce. Thanks so much.