U.S. Secretary of Commerce Penny Pritzker Delivers Major Policy Address on Semiconductors at Center for Strategic and International Studies

Nov022016

AS PREPARED FOR DELIVERY
Wednesday, November 2, 2016

Today, U.S. Secretary of Commerce Penny Pritzker delivered an address at the Center for Strategic and International Studies (CSIS) Semiconductors and the Future of the Tech Economy event. Secretary Pritzker highlighted the critical importance of the semiconductor sector to U.S. innovation and economic growth, and underscored the Obama Administration’s commitment to sustaining conditions for the industry’s competitiveness.

During her remarks, Secretary Pritzker emphasized the centrality of semiconductors to the nation’s economy. The U.S. semiconductor industry directly employs more than 250,000 workers and is the third largest source of U.S. manufactured exports. The global semiconductor industry, however, is beginning to face tremendous uncertainty and challenges, particularly as the pace of innovation slows and other countries implement policies that distort the market. She cited state-driven inference by China as a potential threat to the global semiconductor industry, reaffirming the Obama Administration’s commitment to enforcing global trade rules.

Secretary Pritzker also laid out the Obama Administration’s efforts to support the private sector as they tackle these challenges. On Monday, the President’s Council of Advisors on Science and Technology (PCAST) announced the creation of a high-level working group to examine the challenges face semiconductor technology. The group will release a report before the end of the Administration that outlines their findings and provides the next President with a blueprint for action.

Remarks as Prepared for Delivery

Thank you, Dr. Hamre, for your kind introduction. I also want to thank CSIS for organizing this event. Today’s topic is a serious one. It gets at the very heart of the world’s fast-changing digital economy and the future of American leadership in innovation.

A decade ago, less than a fifth of the global population had Internet access. Today, nearly 3.5 billion people are online. And by the end of the decade, five billion people will be connected. Digital technologies have quickly become a driving force of economic competiveness, entrepreneurship, and innovation in the 21st century. And none of it would be possible without the American semiconductor industry.

These tiny microchips have given rise to technology that our parents and grandparents could not begin to imagine. Cars that drive themselves. Clothing that can read your vital signs. Computers in our pockets that keep us online wherever we go. Semiconductors smaller than the size of a fingernail have put the whole of human knowledge at our fingertips anywhere and everywhere. When the first transistor was built in New Jersey nearly 70 years ago, few could have predicted how this technology would transform the world.
 
From enabling instantaneous global communication to revolutionizing modern avionics and from generating economic growth to transforming our national security infrastructure, the semiconductor has become one of our world’s most important technologies and the basis of America’s most critical industries. Through hard work, extensive R&D, extraordinary investment, and a relentless commitment to innovation, U.S. firms have become the world’s leading semiconductor companies. And our leadership in this industry continues to this day.
             
According to the SIA, the U.S. semiconductor industry now directly employs a quarter-of-a-million high-skilled workers and indirectly supports over a million more.  It is the third largest source of U.S. manufactured exports. Of course, many other U.S. industries depend on our leadership in this field. Last year alone, U.S. firms sold half of the world’s semiconductors. And many of the chips produced elsewhere licensed U.S. made designs.
 
No industry reinvests more revenue in research and development – driving innovation and job creation across many sectors of our economy. And American-made and American-designed semiconductors are poised to power the next generation of technology, from artificial intelligence to mobile communications to the Internet of Things. But we cannot take our leadership in this industry for granted.
 
Over the last year, I have met with a number of semiconductor industry leaders and heard directly from them about the uncertainty and challenges we face. To start, semiconductor technology is pushing up against the boundaries of Moore’s Law – slowing the rapid pace of innovation that has defined this industry for the past half century. And if tackling questions of quantum physics were not enough, American companies face existential threats in the form of unfair trade and industrial practices from some of their competitors.
 
The Obama Administration recognizes the enormity and complexity of these challenges. It is imperative that semiconductor technology remains a central feature of American ingenuity and a driver of our economic growth. We cannot afford to cede our leadership.
 
Let me be clear: we will not allow any nation to dominate this industry and impede innovation through unfair trade practices and massive, non-market-based state intervention.
 
In today’s global economy, the pace of overall innovation has never been faster, and the competition has never been more fierce. When the playing field is level, American innovators can compete and win. One of the problems facing the semiconductor industry is that the competition is often neither free nor fair. Instead, our competitors too often seek to rig the game in their favor. 
 
In 2014, the Chinese Government announced that it would spend $150 billion to expand the share of Chinese-made integrated circuits in its market from 9 percent to 70 percent by 2025. To put that figure into perspective, $150 billion is roughly half of all worldwide semiconductor sales last year. In addition, we are seeing new attempts by China to acquire companies and technology based on their government’s interests – not commercial objectives. And we have witnessed attempts to restrict access to China’s domestic market.
 
Let me state the obvious: this unprecedented state-driven interference would distort the market and undermine the innovation ecosystem. The world has seen the effects of this type of targeted, government-led interference before. In aluminum, steel, and green technology, China has invested its government’s resources to displace foreign companies in its domestic market. The result has been overcapacity in the global marketplace that has artificially reduced prices, cost jobs in both the U.S. and around the world, and caused significant damage to those industries globally. 
 
Right now, we are working hard to address unfair trade competition in steel and other industries. But given the incredible pace of innovation in the digital economy, it is imperative we take steps immediately to prevent a similar situation from unfolding in the semiconductor sector.
           
Semiconductor technology has advanced beyond our wildest dreams because of international contributions and the rise of a truly global supply chain. This industry requires an open, global system of trade to support innovation. No one in this ecosystem can succeed alone.
 
Consider, for example: a microchip designed in California using intellectual property licensed from a company in the United Kingdom could be manufactured in Texas, tested and packaged at a plant in China, and assembled into its final electronic end product in Vietnam. People are employed – and value is added – at every step of this global supply chain. This system works, because everyone plays by the rules.
 
We welcome China’s role as a responsible competitor in the global semiconductor industry.  The United States continues to benefit from products and services that we allow to freely and fairly enter our market, including those from China. But we expect reciprocal and fair treatment for all global companies in the Chinese market and in other markets, in accordance with global trading rules. China’s effort to move up the value chain should be the result of healthy competition and free and fair trade, not state-directed investments aimed at distorting global markets. In addition, no government should require technology transfer, joint-venture, or localization as a quid-pro-quo for market access.           
 
As I mentioned earlier, unfair trade practices are not the only challenge facing the global semiconductor industry. Companies are also confronting a slowdown in the development of cheaper, smaller, and more powerful chips.
 
But let’s be clear: behavior that distorts the market and unfairly disrupts global supply chains is not the answer. The answer is a renewed focus on innovation and scientific discovery. Now is the time for investment, research, and experimentation. Market manipulation will undermine that effort.
 
The Obama Administration recognizes that the role of government is to enable industry – not to direct the private sector. Yet given the enormity of the challenges facing the semiconductor industry, our government is engaging on a number of fronts.
 
First, this Administration asked the President’s Council of Advisors on Science and Technology – or PCAST – to examine these challenges. On Monday, PCAST announced the creation of a high-level working group that brings together the best and the brightest in America’s private sector and research universities. Led by John Holdren, Director of the White House Office of Science and Technology Policy, and Paul Otellini, former Intel President and CEO, this group of experts and leaders is tasked with enhancing the federal government’s understanding of the challenges facing the semiconductor industry and recommending ways to strengthen the industry’s long-term competitiveness. The PCAST working group will release a report before the end of the Administration that outlines their findings – ensuring that our next president is prepared to strengthen this critical industry and its contributions to the global economy from their first day in office.
 
Second, we have increased our technical collaboration with industry to speed up the development of new innovations. Through our network of Manufacturing USA institutes – run by the Department of Commerce – we are breaking down silos between the private sector and academia to help create new semiconductor technologies and ensure pre-competitive R&D meets industry needs. For example, at the PowerAmerica institute in Raleigh, North Carolina, scientists are making wide bandgap semiconductor technologies more cost-competitive, so that they can drive future innovation in everything from electric vehicles to wind turbines. And the AIM Photonics Institute in Rochester, New York is pioneering new chips that run on light instead of electricity, and could exponentially increase how much data we can transfer per second.
 
Third, we are using our government’s analytical tools to ensure our actions are guided by actual data. For example, the Commerce Department’s Bureau of Industry and Security in conjunction with industry is currently conducting an in-depth study of the semiconductor supply chain, so that we have a more realistic assessment of this industry as we develop policy solutions.
 
Finally, we are pressing other governments not to implement policies that distort global markets or force transfer of technology or intellectual property as a condition for participation. The U.S. Government will make clear to China’s leaders at every opportunity that we will not accept a $150 billion industrial policy designed to appropriate this industry.
 
Even as this Administration comes to a close, we remain laser-focused on creating the conditions that will allow the semiconductor industry to thrive. We realize that the solutions needed will not all be implemented by the end of the Obama Administration. We are committed to giving the next Administration a blueprint for action – but we cannot do it alone.
 
Each of you here today is critical to developing this important blueprint. We need your constant input. But let me be clear: we need to hear from more than just semiconductor companies. If you have a stake in the future of this industry – if you use semiconductor technology in your business or operations – we want to hear from you. I urge you to both provide your feedback to the PCAST working group and reach out to our team at the Department of Commerce. Travis Mosier, our semiconductor sector lead from the International Trade Administration, is here today and can serve as your point of contact.
 
Let me close today with a reminder: the semiconductor industry has faced challenges before and emerged stronger and more innovative. In today’s world – when virtually every sector of our economy relies on technology to conduct business – the stakes are too high for us to cede our leadership. This Administration is tackling the challenges facing this industry now and preparing for the next Administration to continue this work into the future. I personally promise that I will use every day left in my tenure as Secretary of Commerce to ensure America remains the world leader in semiconductor innovation. Thank you very much.

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Last updated: 2016-11-02 14:14

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