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U.S. Commerce Secretary on those supply chain bottlenecks

Yahoo Finance’s Andy Serwer is joined by Commerce Secretary Gina Raimondo at the Milken 2021 Conference for a wide-ranging conversation on supply chain, negotiations with Congress, and other issues.

Video transcript

- We're going to kick it over to you, Andy. So we're over at the Milken Institute Global Conference. Andy.

GINA RAIMONDO: [INAUDIBLE] who run the supply chain. I would say I don't have a crystal ball. So I am not going to even pretend that I can give you a date.

I do think we are making progress every day. Last week's announcement that we're moving to 24/7 operations at the two biggest ports will absolutely start to show some improvement. Fundamentally, the problem here is, you know, we've never lived through anything like this.

You've been covering business a long time. There's no time, I can remember, that we on purpose shut the entire economy down, told to everyone who worked in a manufacturing operation to go home for months, shut all the lines down, and then try to turn it back on again on a dime. So I think that, you know, for the coming months, we are going to see some struggles here, but I do-- I mean, already the lumber prices have come down.

You're starting to see building materials prices come down. As more people get vaccinated and go back into the workforce, the labor supply will increase. And I think it'll be incremental improvement every step of the way.

ANDY SERWER: When you talk to business leaders, CEOs, what are those conversations like on this topic? What do they expect from government? What do they need from government?

GINA RAIMONDO: Yes. Great, great question, because, as you correctly identified, this is primarily on the private sector to work through their, their ordering, and their supply chains, and their management. They're expecting us to make investments in infrastructure, which we are trying to do and get Congress to pass the infrastructure package.

You know, they expect us to make investments in better roads, better bridges, safer roads, technologically enabled ports. That will make a huge difference. They're expecting us to make investments so every American and every small business has broadband. You know, all these things will make it easier and faster to do business.

And I think they're expecting us to be a partner to be available to them as a partner to support whenever and wherever we can, which is exactly what we're trying to do. So in the supply chain work, we have, I have convened numerous times CEOs in my office to increase transit transparency, encourage suppliers and consumers to share information with one another. A lot of the lack of information has eroded trust.

You know, suppliers wonder who's hoarding, who stockpiling. Consumers wonder our business is really pushing to the maximum limit of supply. So we we'll enable that transparency, push wherever we can, as we just did to get the ports open 24/7, and just be a partner to business as they work through this.

ANDY SERWER: The major delays in electronics and chips is something that you and I have discussed before. What does this look like in the coming months, even beyond the shortage of new cars? Should Americans expect a holiday season without video game, consoles, and laptops under their trees?

GINA RAIMONDO: As a mother of teenagers, I would say I would love that vision of a video game free event, but, no, I don't think that's going to happen. Look, there may be delays obviously. The semiconductor situation is going to take a long time to fix. You know, this is one I feel confident saying.

It's not going to be fixed in a month or two or six or 12 months. I think we'll see great improvement over the next 6 to 12 months as we increase transparency in the supply chain and as we just catch up. You know, for example, just COVID has closed several factories in Malaysia recently that feed into the semiconductor supply chain.

So we still are seeing that kind of disruption. We will move through that. The long-term, though, this requires a long-term fix, which is we need to make more semiconductors in America. You and I have discussed this.

It's a national security, you know, significant national security problem that we don't make any leading edge, cutting edge microchips in America. And 7% of them are made in Taiwan. So the only solution for that is to make investments-- you know, federal government incentives for companies to create great manufacturing facilities in America, and that'll take years.

ANDY SERWER: And you've proposed that Congress pass that $52 billion Chips Act, which would address that shortage of manufacturing domestically. Secretary Raimondo, I think you are saying that the cutting edge supply is pretty low. But even overall, we only produce 12% of the world's chips as opposed to 40% not that long ago. What are the chances of that bill passing before the midterms?

GINA RAIMONDO: High. I believe high. It passed through the Senate with a big vote, bipartisan vote. It's now in the House. And we are pressing to make sure it's passed before the end of this year, not before the midterm, before the end of this year. And that, that money that's $50 billion, which would come here to the Commerce Department, and we would invest that in public private partnerships to incentivize the creation of more semiconductor fabrication facilities in America.

It's really a stunning thing. And if you think about it, the semiconductor industry was invented in America. You know, the whole industry was started here. And not that long ago, as you said, we made enough chips in America to fulfill our needs.

We produce 40% of the world's chips, and now it's 12% and none of the cutting edge chips, which are necessary for computing, high-end computing, artificial intelligence. So this is a pretty urgent need. And I hope Congress gets it done by the end of this year so we can get to work.

ANDY SERWER: Shifting gears, I want to ask you about the reconciliation package. It sounded like yesterday the president was talking about a price tag of around $2 trillion for a compromise, well below obviously $3.5 trillion. So that means cuts, and lawmakers are hard at work, I hope, looking at that. I know you're in conversations with them about that what programs are most important to you and to the business community. What should stay, no matter what?

GINA RAIMONDO: Again, that is-- I learned as the governor that you don't necessarily tell the legislature how to do their business. So I'm not going to do that here. I will say the president has-- the president believes they all need to be there. He's also willing to compromise.

And as you said, $2 trillion seems to be a number we're circling in on. I'll tell you what I hear from business and what I think is essential to improve America's competitiveness. I hear a lot about workforce. And you and I have talked about this in the past.

There's a need among businesses, small and large, to have employees trained in a different set of skills, digital skills, data skills, technical skills, cyber skills. And if we don't get to the business of doing that training, we will fall further behind other countries. So, you know, the president's package calls for huge investments in apprenticeships and sector-based job training.

I think that's important, president's calling for big investments in child care. Women cannot go to work without childcare. And we cannot thrive as an economy, unless women are fully participating in the workforce.

So that means pre-K, universal pre-K, you shouldn't have to be rich to pay a lot of money to send your kid to pre-K. So it's pre-K, child tax credit, investments in child care. We need a whole infrastructure of affordable, accessible, high quality child care in order for women and men to be, you know, fully productive in the labor force.

You talked about inflation. You want inflation to go down, get more people to work. Supply, you know, we need supply of labor and goods. Invest in the care economy.

And then climate, you know, climate is the existential threat, obviously that we all face. We need to get to the business of getting serious about making these investments. Otherwise, none of this will matter.

ANDY SERWER: I want to ask you about the linkage between the reconciliation package and taxes, because slimming down has implications on taxes you would think, including corporate taxes. Will those be scaled back? And I think you've said, Secretary, that business leaders are OK with more taxes in private, but in public groups, like the Chamber of Commerce and the Business Roundtable have remained publicly opposed to those tax increases. How do you say this see this playing out?

GINA RAIMONDO: Yes. Well, I think like the whole package there will be compromise. You know, the president suggested the corporate tax go up to 28%. Surely, there will be compromise coming down from that number. Precisely where it lands is being negotiated, as you say, literally as we speak.

I have heard from a number of business leaders that they could handle some increase in the corporate tax rate. You know, there's concern, not that 28 is too high. I've heard many say 25, 26 is absolutely in the realm of what they can live with.

Secondly, I've heard from almost unanimously-- this is interesting-- almost unanimously from successful business people have said, they would not oppose increases in income taxes on high earners. They understand that we need the revenue to make investments in infrastructure and in child care. And they acknowledge that increases in their own personal taxes would not-- you know, would help improve our competitiveness.

So we'll see. It's a negotiation, taxes. Somehow in this country we've gotten religion around tax policy. And it's a really area fraught with challenges.

ANDY SERWER: One of those third rails almost, huh?

GINA RAIMONDO: Yeah. Yeah. It's, it's almost religious fervor. And, you know, look it, you don't want tax-- I'm a commerce person. I used to run a business.

You don't want taxes uncompetitively high, no question. You want businesses to be able to put some of their profits into research and development. We also had about 60 large profitable businesses in America last year that paid nothing in taxes, you know.

You have people making hundreds of millions of a year paying a lot less, you know, rate in taxes than middle class person. So at some point, we have to come to our senses, but more than any of this, putting aside the ideological arguments, we need the money to make these investments. Like every business leader I talked to says invest to make sure Americans have broadband. OK. We agree, that takes money.

Improve our roads and dilapidated bridges. We agree that takes money. Improve our airports, ports, railways, public transportation. Agreed. That takes money. So, you know, we're just trying to do the right thing to make these investments.

ANDY SERWER: One other specific point on the package that may or may not be threatened is free community college moneys. And I'm wondering where you stand on that, and that one in particular, just a small drill down on that?

GINA RAIMONDO: So I don't know exactly where that stands in the sausage making. I don't know. We'll see where it shakes out.

I can tell you this. I know it works. And I know it works, as I saw it work. About four years ago, when I was the governor of Rhode Island, I worked with our legislature to put through a plan to provide every Rhode Island student two years tuition-free community college.

And all the arguments-- there was a lot of opposition at the time that the president faces now. We got it done. Fast forward a few years, we've seen a five-fold increase in the on-time graduation rate of students of color. We've seen a tripling of the graduation rate of students.

We've seen a much closer relationship between the community college and businesses whereby the students are graduating debt free and a job. The investment is actually quite small in terms of dollars, but the benefit to companies and businesses in the labor force and students is enormous. And also, you know, if everyone seems to be talking about equity, and people are in favor of equity, tuition free community college is a humongous investment for equity, because students who drop out are disproportionately students of color.

They're smart. They want to graduate, but they're juggling three jobs and trying to get through, get through college. So I don't know if it will happen, but I do know if it happens, it will work and be good for the American economy and the American people.

ANDY SERWER: Shifting gears I read in a profile about you in AP just the other day about of bull of a watch. Are you wearing that? And can you tell that story?

GINA RAIMONDO: I don't have a watch on today OK.

But I own three Bulletins.

ANDY SERWER: And that's a story that you wear the watch frequently, because of your father?

GINA RAIMONDO: Yeah. My dad worked at Bulletin Watch company his whole career, 28 years. He had so much pride working there, so much pride, and then the jobs left. They all went to China.

And it was brutal for him, my family, and all of his friends. I have such clear memories as a little girl watching my dad trot off to work in the morning with his lunch bag that my mom made him and get in the car in his carpool. And all the guys worked in the factory. My dad was a metallurgist.

Somebody the custodian. Somebody was the security guard, you know. And it's like, as a kid, there was so much security in that.

To my mind, as a kid, like there was a job at that place for everybody, until it went away. In fact, actually once upon a time in the '80s and early '90s, Rhode Island was filled with jewelry manufacturers, Tiffany, Speigel, Boliva, and then all the small businesses, electroplating shops, tooling shops that fed into that. And so Rhode Island, like so many places around America, was really-- their economy was gutted when manufacturing fled our shores to China.

So that's a big part of the reason I took this job to play a small role in the revitalization of American manufacturing. And I wear the watch as a tribute to my dad, but really to all hardworking men and women who honestly are not looking for a handout. They're just looking for a decent job and a shot to do a good job.

ANDY SERWER: Maybe then it's a good time for me to ask you about the US China relationship then. And you've been sharply critical of China's unfair trade practices. And your administration has opted to keep the tariffs in place for now at least, but you've also expressed desire to strengthen business ties with China. How do you reconcile both those perspectives, Secretary?

GINA RAIMONDO: Just exactly, as you said. I mean, we want we want a robust commercial relationship with China. We want our companies to be able to do business in and with China and Chinese companies. However, we must protect our national security, non-negotiable.

And so we have to be careful not to do anything that would in any way ever harm our national security, but also the Chinese have to play by the rules. American companies are the best in the world. American entrepreneurs are the best in the world. We need a level playing field.

We need China to respect our intellectual property, hold up their end of the bargain, this so-called phase one agreement where the Chinese committed to a certain number of purchases. They're not even close to holding up their end of the bargain. I don't think any serious person thinks they do respect our IP.

They're putting up kind of barriers for our exports all the time making it harder for our companies to compete. So I think that we want to do business, but there needs to be a level playing field. And they need to play by the rules.

ANDY SERWER: I have a follow-up question to that. But before I ask it, I want to tell studio audience here that they can submit questions to me here to ask the Secretary by scanning the QR code. So go ahead and submit questions.

My follow-up question, Secretary Raimondo, is this. Your department just today announced a new rule to slow down to export of hacking tools to places like China and Russia. This was a rule in the works for a while, because of concerns about how it inadvertently hampered cybersecurity collaboration. What were the conversations like with businesses in finding that balance? And how effective do you expect it to be in the years ahead confronting Russia and China?

GINA RAIMONDO: I expect it to be effective, but like anything else, it's one tool in our toolbox. So we have a number-- the way I think about our competition with China and to a lesser extent Russia is that, you know, we have an offensive game and a defensive game. The offensive game I think is much much more important, like investing in America.

So we can compete. So we have a skilled workforce, cutting-edge technology, best in the world infrastructure. Economic equality or certainly less inequality than we have now. That's our offense. And that's the president's Build Back Better agenda.

Then on defense, we have rules like you just referenced, export controls to deny China and Russia of certain of [INAUDIBLE] key technology, investment screening. That stuff's important. And I do think it will make a difference and protect American companies. But on balance, I think it's the offense, that is where we need to be focused.

ANDY SERWER: Here's a question from the audience for you. What do you see as the best way to increase the number of diverse entrepreneurs in America?

GINA RAIMONDO: Great question. And whoever you are, I would love to hear from you if you have ideas. So I do-- I think it starts in school.

So when I was the governor, we brought about an initiative so every kid, in every public school, in every grade could take computer science. You need to introduce, everyone, girls, kids of color, kids in inner cities, kids who live on tribal lands in rural areas to technology, computer science, entrepreneurialism as early as possible. I think added on to that is opportunities for young people to do internships, and start companies, and be exposed to entrepreneurs as early as possible in school.

And then on top of that, I think we-- and this is something I'm very passionate about is business needs to come together with schools, job training, community college, colleges just so people understand from the very earliest ages and at every level is a reason you get these skills to get a job or maybe start a company. So I think that's important. Separately there is an initiative that's now in front of Congress that the president supports to set up regional tech hubs all around the country.

And the Department of Commerce would implement that. And that I think it's extremely important. It's, you know, money in communities outside of Silicon Valley Boston, LA, et cetera, you know, in middle America to stimulate entrepreneurship, to get great ideas out of colleges and universities, and turn them into companies. I think that is, you know, very important to get outside of the main cities.

ANDY SERWER: All right. We are going to have to wrap things up with that. Some great ideas from you, Secretary Raimondo. Thank you so much for joining us.

And we look forward to talking you again. Please join me in thanking US Commerce Secretary Gina Raimondo. Thank you so much.

GINA RAIMONDO: Thank you.