This Is What President Biden's CHIPS Office Actually Did

0:00Your best restaurant location gets 5 star reviews. How do you make every location like your best location? Your best paper mill has been operating at peak productivity. How do you make every mill like your best mill? Your best data center has optimized every drop of water. How do you make every data center like your best data center? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

0:45In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. Bloomberg Audio Studios. Podcasts. Radio. News.

1:23Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Traci Alloway. Traci, I just wrote about this in our newsletter like five minutes ago, but it drives me nuts how on all of the talk about reindustrialization of America, everyone has just completely memory-holed like 2022 and 2023. 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.

2:03And that is the Trump administration. Trump, I think he said before that he thought it was a horrible policy. 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 U.S. ended up being politicized and a sort of culture war issue. It's just crazy to me. It's totally insane to me of all these like influencers and LARPers waiting to bring back physical manufacturing and national security, et cetera, as if this hasn't been a dominant thing in U.S. 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.

2:49It 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 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 re-industrialization that's going on, I find it infuriating or at the very least very annoying. Shall we fix that, Joe? Let's fix it. Well, we should talk about what actually happened, right?

3:26Because 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, etc. But we should learn a little bit more. We should talk about what the hopes actually are as well. Because, you know, yes, boost manufacturing in the U.S., create new jobs, spur some private investment, a sort of public-private idea. But there are a lot of different, like, threads that you can pull here in terms of the actual goals.

4:06Well, 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 if 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 were 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. Hassan, thank you so much for coming back on Odd Lots.

4:44Joe, 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. 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? 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.

5:26Prices 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. 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.

5:59And 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 various gaps in the supply chain, et cetera, et cetera. And that's why we did sort of a deal by deal analysis on those metrics.

6:31But it was really that twofold going not just strategically across the portfolio, but on a deal by deal basis. 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 and cars or whatever, lagging versus leading.

7:16How do you decide between those different proposals? 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 congressmen, why are you passing this bill? They would have said, well, we can't have these car shutdowns or you can't have car factories shutting down. Appliances are too expensive.

7:54And 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. 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 going to 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. And 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.

8:40And 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 were called legacy node chips. 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.

9:21And 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. It was about that$28 billion for the leading edge and made sure that we retained sufficient funding on the back end 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. All right. I have a question and you could just be totally honest, you know, give it to us.

9:57One 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 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 or project development in the U.S.?

10:40I 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.

11:18It essentially said, hey, you told the community that you're going to be investing in, you 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.

11:57Many of these firms are investing in childcare facilities for their workers anyways, and you see it. Like there's Wall Street Journal report a few months ago about a company that wanted to expand with 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.

12:32I 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, 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?

13:05You 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 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 context of like, what does it take for the factories in the U.S. to be globally competitive? 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 negotiation.

13:43So there is 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?

14:08Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

14:54In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit EasyCater.com slash podcast. 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? Okay. So the process, the way it worked, you first had to submit a, what's called a statement of interest.

15:35And 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, 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, and we'll help identify where we think on our scoring rubric, you need to make adjustments in order to score better.

16:21By 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.

16:56The 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.

17:31Right. There was a lot of not on the sort of everything bagel terms, but there was a lot of negotiation. And what does it mean if your company is sold? 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.

18:06There's already comfort with this format. Let's try and work off that. And you saw them happen in rapid succession. I want to go back to what you said or talked 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? You don't have to 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 the organized labor, especially in the private sector, is a big democratic constituents anymore, but Democratic Party certainly wants to be liked by organized labor.

18:47They certainly want people who concern about the environment. Talk to us about the reality of how these different impulses can collide with each other. So I think we have to take one step back and be honest about where we stand in terms of our manufacturing competitiveness. I think they're a 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 existing regulatory frameworks that can complicate some of these projects.

19:28Right. 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.

20:08But 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 tradeoffs 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.

20:50And that complicates the discussion on how are we going to get these things done quickly? 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, well, don't forget about us. So you mentioned a bunch of competitive disadvantages that the U.S. 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.

21:29You know, OK, so I think maybe not. No, I do. We do. Right. We have if you think about it, the world's most advanced firms who are all designing the best chips in the world, they're all based in the U.S. 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?

22:04No, this is good. What is it? What's the answer? 2013. 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.

22:37Well, 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, you know, it required an education process. 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 body kind of gets used to it.

23:08And 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 2 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 brought online, brought up to speed, brought up to, you know, a similar capacity to what they have on their overseas benchmarks. So I would look at it as like the first fabs are like a proof of concept.

23:46Can we do this? And it's really in the second, third, fourth fabs at these local projects that you'll start to see the ecosystems mature.

24:08For enterprise organizations, managing all your food needs is a tall order. But with Easy Cater, you get a single workplace food vendor with the tools and resources to make it easy, giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform, all while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side.

24:50The point is, you're engaged with your investments, and Public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. plus an industry-leading 3.8 % APY high-yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com. Paid for by Public Investing. All investing involves the risk of loss, including loss of principal.