Chip shortage is ‘life-threatening for Americans,’ U.S. Commerce Secretary says

U.S. Commerce Secretary Gina Raimondo joins Yahoo Finance Live to discuss the Fed’s FOMC meeting, the global chip shortage, climate change, and the outlook for inflation.

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- Good to talk to you. Let's start with what has been playing out in the markets. We heard Jay Powell yesterday say very clearly that inflation is just too high. I mean, you could argue that's sort of stating the obvious here, but I know a lot of companies looking at this saying, well, what does this mean from a business investment standpoint? I wonder what conversations you're having with some of these companies and what they're saying about maybe potentially rethinking some of their investments.

GINA RAIMONDO: Yes, good morning. Thank you for having me. So in my conversations so far, I think that there is, I think, gratitude that the Fed took the significant action that they did. I think it's an understatement to say inflation's too high, and the steps Chairman Powell has taken are significant, and they show that the Fed really understands that they need to take serious action.

So I have not heard the concerns that you just said. I think by and large, when I talk to CEOs, they say their businesses are growing. Productivity is up. Growth is up. Earnings are up.

The concern is inflation, and folks have been waiting for this action from the Fed and I think the significant action is a step in the right direction.

- In many ways, Secretary, Brian and I were saying, the concern here is that the Fed alone can't control these price pressures that have been building. You're talking about supply chain constraints, geopolitical tensions stemming from Russia and Ukraine. I mean, how is the administration looking at the next step that it can take to try and curb prices, given that this really isn't just about the Fed mandate at this point?

GINA RAIMONDO: Yes. Yes. It is certainly true, as you say, that the Fed isn't the only lever, although it is by far the biggest lever. And during the pandemic, the beginning of the pandemic, the Fed had unprecedented expansionary monetary policy. So I do-- they have the strongest tools, and they're using them, and I hope that we will see an impact. As it relates to supply chain bottlenecks, you're exactly right. We are still working through that and only exacerbated, of course, by Putin's aggression in Ukraine. We're starting to see some benefits. The congestion at ports is down. We're training more truck drivers. We're seeing goods moving a bit more.

But certainly the semiconductor crisis, and it is that, remains, which is why we're pushing Congress to pass the Chips Act, which will allow us to up semiconductor manufacturing in the US. I think COVID wreaked havoc in our supply chains. Demand is still through the roof. Supply hasn't caught up, and in the administration, we're just going industry by industry doing everything we can to punch through and alleviate these bottlenecks.

BRIAN CHEUNG: Secretary, it's Brian Cheung here. I want to expand on the chip spit. That's a very big focus for the domestic economy here in the United States. The understanding is that there were some procedural votes had in the Senate on Wednesday that would kind of iron out the conference between the House and the Senate on a bill that could address semiconductors and the way that America produces and fosters that industry. What's the update on your front? What is your role in trying to build up, essentially, the infrastructure of American chip manufacturing?

GINA RAIMONDO: Yes, thank you. So the Commerce Department is taking the lead role in this, which is appropriate, because we hear from businesses every day. I would say this isn't the top of every CEO that I talk to's list, and particularly the defense contractors, I might add. This isn't just about inflation. Actually, it's primarily about our national security. You need chips to make military equipment. There's hundreds of chips in every satellite, every javelin launching system. So you are correct. The House and the Senate have taken procedural votes. They're getting the conference underway. We have a little bit of momentum. I will say I think they're moving too slowly, though, because there's broad bipartisan support for this. The country needs it, the military needs it, and I think it's time for them to step on the gas and do what's right for America. We'll deal with inflation, it'll create jobs, and it will secure our security.

- So the priority here being national security, but Secretary, I've heard you say before about how inflationary even this shortage alone can be. We've heard the president talk about onshoring manufacturing, bringing it back to the US. And yet, there are some who say, look, that's only going to increase costs. You look at some studies, and they do range, the price of bringing manufacturing back could add anywhere from 35% to 60% to the cost of chips. So how do you keep those prices in check while still trying to prioritize onshoring in the US?

GINA RAIMONDO: Yes. So look, no one is saying-- I'm not saying, the president's not saying-- that everything should be made in America. There are certain products that won't be made in America. But for semiconductors, which are highly technical, highly sophisticated, and necessary for our national security, we need more made in America. Right now, what is driving inflation is the shortage of chips. They just aren't enough. It's basic supply and demand. Demand is up 20% for chips relative to pre-pandemic, and supply is not. So it's hard to argue that increasing domestic supply of chips wouldn't reduce prices and chips.

I talked to a group of CEOs just the other day in the medical device field. This isn't just about cars. These are life saving equipments in hospitals. They can't get chips, so they're going on to the spot market to buy chips. They're paying 500 times per chip what they were paying a year ago. So that's inflationary. In that case, that's life threatening for Americans, and that's why I don't have a lot of patience for Congress foot dragging, because there are lives at stake, and we have a solution that's before them.

BRIAN CHEUNG: Secretary, I wanted to ask about how all of this kind of fits within the administration's efforts on Build Back Better. It kind of fell through in a previous form, but still some chatter about the need for infrastructure investment, which includes chips but also many other things as well. A lot of Americans are probably looking at the government right now and saying, especially with the inflation right now, do we really have the fiscal room to be doing this in the first place? How is the administration, especially ahead of the midterms, thinking about that, which could include changes to the tax code as well?

GINA RAIMONDO: Yeah. Thank you. So I'd say a couple of things. First, let's remember that under President Biden's leadership, we've seen big cuts to the deficit. Historic cuts to the deficit. And that's a combination of a good economy, so revenues are up, and we're scaling back on our spending and winding down emergency spending.

The question that I think of is these are investments. So investing in infrastructure, investing in broadband, investing in climate change and getting to technologies that reduce carbon, this isn't the government, quote unquote, spending money. It's the government investing in things that will lead to more robust economic growth.

So I think that that's how I think about it. And we are continuing to work with Congress to make sure that we can get a package to do that. By the way, as it relates to climate, these are existential threats. We are behind, and we have to get to the business of making these investments.

- Finally, Secretary, I know the administration is undergoing a formal review of the Trump era taxes on Chinese goods. There's some question, I know, internal debate about just how inflationary those tariffs have been. As you consider where to move on it, to what extent do the inflation concerns right now outweigh those of the Chinese trade practices?

GINA RAIMONDO: Obviously both. The President Biden is directing us to do everything we can as an administration to bring down inflation. He's crystal clear, we have to look everywhere. And so we are evaluating these tariffs. I will say, though, hopefully a year from now, inflation will be under control. China and their anti-competitive, anti-American coercive market distorting practices will still be there. And so our review of what China is doing and how we react to it is primarily about that, which is what is the best strategy for America to protect Americans protect American businesses, and our workers, and of course, continue to allow commerce and trade with China?

BRIAN CHEUNG: US Commerce Secretary Gina Raimondo. Thank you so much for joining us this morning. Appreciate it.