Table of Contents
A former CHIPS office director reveals how America rebuilt its semiconductor manufacturing muscle after a decade of industrial atrophy.
Key Takeaways
- The US hadn't built a leading-edge semiconductor fab from 2013 until TSMC's Arizona facility came online in late 2024, causing critical manufacturing skills to atrophy
- CHIPS program generated $450 billion in announced private investment, more electronics facility construction spending in 2023-2024 than the previous two decades combined
- Leading-edge fabs received $28-29 billion across Intel, TSMC, Samsung, and Micron, with strategic focus on building complete supply chain ecosystems
- "Everything bagel" policy requirements like workforce diversity and childcare represented only $10 million of $39 billion total funding, contrary to abundance movement criticism
- Application process took approximately one quarter from full submission to preliminary announcement, with subsequent deals accelerating using established templates
- Investment tax credits (25% for US manufacturing) emerged as potentially more effective than direct funding for large corporations with sufficient capital
- Environmental and labor stakeholder tensions created delays, but second facilities at existing sites showed dramatically reduced friction as ecosystems matured
- EUV lithography technology invented in US took 18 years to reach high-volume manufacturing, demonstrating failure of R&D-only approach to industrial competitiveness
- Private investors gained confidence in US manufacturing returns due to policy certainty from tax credits and award funding structures
Timeline Overview
- 00:00–18:45 — Memory-Holing the Manufacturing Boom: Discussion of how 2022-2023 re-industrialization efforts have been forgotten, politicization of semiconductor manufacturing, introduction to Husten Khan from CHIPS program office
- 18:45–32:20 — Economic Security Strategy: Khan's role in CHIPS office, Vision for Success paper from February 2023, deal-by-deal analysis process, balancing immediate impact vs long-term capabilities
- 32:20–45:35 — Everything Bagel Mythology: Reality of workforce diversity and childcare requirements, statutory vs optional provisions, community investment commitments, actual negotiation bottlenecks
- 45:35–58:10 — Application Process Deep Dive: Statement of interest to full application timeline, pre-app feedback system, due diligence negotiations, template development for subsequent deals
- 58:10–70:25 — Competitive Advantages and Disadvantages: US design leadership vs manufacturing atrophy, regulatory permitting challenges, construction skills gaps, university system strengths
- 70:25–82:40 — Capitalist Incentives vs Public Goals: Shareholder pressure on capital investments, investment tax credit effectiveness, crowding in private capital, policy certainty importance
- 82:40–95:00 — Results and Future Outlook: $450 billion investment announcements, TSMC production for Apple and AMD, ecosystem supplier development, Trump administration policy uncertainty
The Great Manufacturing Memory Hole: How America Forgot Its Industrial Renaissance
One of the most striking aspects of contemporary American political discourse is the complete erasure of the Biden administration's manufacturing achievements from public memory, despite generating the largest industrial investment boom in decades. Joe Weisenthal and Tracy Aloway opened their conversation by expressing frustration with how discussions of American re-industrialization ignore the massive factory construction and investment that dominated headlines throughout 2022 and 2023.
- Battery and semiconductor factories were announced almost daily during 2022-2023, representing the largest sustained manufacturing investment program since World War II
- Even semiconductor manufacturing became politicized along culture war lines, with Trump calling the CHIPS Act "horrible policy" primarily because it was associated with Biden
- Manufacturing influencers and policy advocates act as if industrial policy represents a completely new approach rather than building on existing programs with proven results
- The discourse treats American manufacturing decline as inevitable rather than acknowledging recent success in reversing decades of industrial atrophy
- Construction spending on electronics facilities in 2023-2024 exceeded the previous two decades combined, representing a measurable industrial renaissance that has been systematically ignored
- Political incentives favor criticizing the status quo over acknowledging progress, creating systematic under-appreciation of policy successes across multiple administrations
This memory-holing phenomenon reveals how political narratives can override objective economic reality, making it difficult to build on successful policies when their achievements are systematically erased from public discourse.
Economic Security Architecture: How CHIPS Targeted Strategic Vulnerabilities
Husten Khan's role as director of economic security involved both portfolio-level strategy development and individual project analysis to ensure investments addressed America's specific competitive vulnerabilities in semiconductor manufacturing and supply chain resilience.
- The CHIPS program office published a "Vision for Success" paper in February 2023 that laid out detailed strategic roadmaps across different semiconductor categories, though few policy commentators actually read this foundational document
- Deal-by-deal analysis evaluated each proposed project's contribution to US economic security through multiple criteria including technological advancement, supply chain gap-filling, and resilience improvements
- Strategic allocation targeted the vast majority of funding ($28-29 billion) toward leading-edge facilities from Intel, TSMC, Samsung, and Micron because these expensive fabs create downstream supply chain development
- Legacy node investments received statutory minimum $2 billion requirement, with additional dozens of smaller investments in RF, power semiconductors, and other "unsexy" but critical components
- The ChatGPT launch in November 2022 shifted national conversation from supply chain shortages to AI supremacy, forcing real-time strategy adjustments within months of bill passage
- Portfolio approach recognized that building complete semiconductor ecosystems requires investments across the entire value chain rather than focusing exclusively on headline-grabbing advanced nodes
This strategic framework demonstrated sophisticated understanding of how industrial ecosystems develop, prioritizing investments that would catalyze broader supply chain reconstruction rather than isolated manufacturing capabilities.
Everything Bagel Debunked: The Reality of Policy Requirements
Critics of Biden-era industrial policy frequently cite "everything bagel" requirements like workforce diversity and childcare as major obstacles to factory construction, but Khan's insider perspective reveals these criticisms as largely overblown compared to actual negotiation challenges.
- Workforce diversity and community investment language came from statutory Congressional requirements rather than administrative overreach, codifying commitments companies had already made to local communities
- Childcare funding represented approximately $10 million across $39 billion in total CHIPS funding, never becoming a significant negotiation point or deal-breaker in any project discussions
- Many semiconductor companies were already investing in on-site childcare facilities because workforce recruitment required addressing practical barriers to employment, particularly for Hispanic workers
- Wall Street Journal reporting documented companies discovering that childcare represented their most effective recruitment tool for expanding workforces in competitive labor markets
- Regional solutions facilitated by government funding often proved more effective than company-by-company approaches, demonstrating how public coordination could improve private sector outcomes
- Real negotiation bottlenecks involved environmental permitting and labor relations rather than diversity requirements, with top leadership needed to prioritize factory construction over stakeholder appeasement
The persistence of "everything bagel" criticism despite minimal actual impact suggests these complaints serve political rather than analytical purposes, distracting from substantive policy design questions.
Application Speed: From Interest to Announcement in One Quarter
The CHIPS program office developed a streamlined application process that moved from initial company interest to preliminary funding announcements in approximately three months, contradicting narratives about bureaucratic delay in government industrial policy implementation.
- Statement of interest required only one-to-two paragraph submissions through Salesforce portal, minimizing initial administrative burden while identifying serious applicants
- Pre-application process provided companies with simplified submission requirements and preliminary feedback on scoring rubric performance, though responses remained non-binding
- Full applications began arriving in late summer/early fall 2023, with first preliminary announcement (BAE Systems) completed by end of 2023, demonstrating quarter-length turnaround times
- Due diligence negotiations for direct funding agreements extended through 2024, primarily focused on unprecedented questions about government-private sector commitments at massive scale
- Template development accelerated subsequent deals dramatically once initial frameworks were established, with second, third, and fourth agreements happening in rapid succession
- Private equity-style process included preliminary announcements subject to due diligence rather than final approvals, allowing momentum maintenance while completing complex legal frameworks
This timeline performance contradicted expectations about government inefficiency while revealing how institutional learning could accelerate complex negotiations once precedents were established.
Manufacturing Muscle Memory: Why America Forgot How to Build Fabs
The most striking revelation from Khan's analysis was discovering that America hadn't built a leading-edge semiconductor fabrication facility between 2013 and TSMC's Arizona facility in late 2024, causing comprehensive atrophy of manufacturing capabilities across multiple sectors.
- The eleven-year gap in advanced fab construction created skills shortages not just among construction workers but throughout regulatory apparatus, permitting systems, and industrial support networks
- State and local regulators hadn't seen facilities of this complexity and scale for over a decade, requiring extensive education processes about environmental impacts and safety requirements
- Construction delays frequently stemmed from permitting processes handled at state and local levels where institutional knowledge had completely disappeared
- The "gym analogy" applied perfectly: stopping industrial activity for a decade created systemic weakness that required painful rebuilding efforts before normal capacity could be restored
- TSMC's second Arizona fab showed dramatically reduced friction compared to the first facility, demonstrating how ecosystem learning accelerated once institutional muscle memory was rebuilt
- Equipment installation skills became critical bottlenecks, with TSMC reporting insufficient workers trained on EUV lithography machines that hadn't been used in US high-volume manufacturing
This industrial amnesia explains why early CHIPS projects encountered unexpected delays while later phases at the same sites proceeded much more smoothly as communities and regulators relearned forgotten capabilities.
Shareholder Capitalism vs National Security: Reconciling Private and Public Returns
The fundamental tension between shareholder value maximization and national security objectives required sophisticated policy design to align private incentives with public goals, particularly given the lower profit margins of manufacturing compared to design and intellectual property.
- Texas Instruments faced activist investor pressure to reduce capital investments precisely while engaging in aggressive US fab expansion, highlighting structural conflicts between short-term returns and strategic investments
- Intel's historical focus on dividends and stock buybacks contributed to falling behind the leading edge, demonstrating how shareholder value optimization could undermine competitive positioning
- Investment tax credits (25% for US manufacturing) emerged as potentially more effective than direct government funding because they provided certainty about cost structures and returns without bureaucratic review
- Private shareholders systematically undervalue manufacturing facilities compared to government assessments of their economic and national security benefits, requiring policy intervention to equalize returns
- Future industrial policy could focus primarily on tax incentives for large corporations with sufficient capital while reserving direct funding for smaller companies with capital constraints
- NPV optimization by private companies could be addressed through tax policy rather than cash disbursements, reducing government intervention while achieving strategic objectives
This analysis suggested that policy design should account for fundamental differences in how private and public actors evaluate long-term strategic investments.
Crowding In Capital: Making Semiconductor Manufacturing Cool Again
The CHIPS program office actively worked to change private investor perceptions of US manufacturing opportunities, moving beyond individual company decisions to transform broader capital allocation patterns across the investment community.
- Todd Fischer's investment office conducted extensive outreach to help investors understand both program mechanics and improved return profiles for US manufacturing investments
- Tax credits and award funding allowed companies to provide investors with concrete evidence that cost disadvantages could be overcome through public-private partnerships
- Policy certainty became the critical factor for $20-100 billion investment decisions, as companies couldn't afford to be caught underwater on half-completed facilities due to unexpected policy changes
- Sunk costs of partially equipped fabrication facilities create massive risks that require government commitment credibility to justify initial capital allocation decisions
- Broader recognition emerged that industrial capacity building in the US provides benefits beyond financial returns, including supply chain resilience and strategic autonomy
- Private equity-style due diligence processes helped investors understand risk mitigation strategies while maintaining appropriate levels of government oversight and accountability
The success of this investor engagement demonstrated how well-designed industrial policy could crowd in rather than crowd out private capital by addressing legitimate concerns about policy consistency and return predictability.
Results and Ecosystem Development: $450 Billion in Manufacturing Renaissance
The quantifiable achievements of the CHIPS program office exceeded most expectations for government industrial policy effectiveness, generating private investment commitments that dwarfed the public funding while creating foundation for long-term ecosystem development.
- $450 billion in announced private investment represented the largest industrial mobilization since World War II, with electronics facility construction spending in 2023-2024 exceeding the previous two decades combined
- TSMC began producing chips for Apple and AMD from its Arizona facility by the end of the Biden administration, demonstrating rapid transition from construction to operational production
- Supplier ecosystem development accelerated as companies justified US facility investments based on downstream demand from multiple fab operators, creating self-reinforcing growth patterns
- Chemical, gas, and consumable material suppliers increasingly sourced from US facilities as fab density reached economically viable thresholds for domestic supply chain development
- Second and third-tier suppliers benefited from industrial ecosystem reconstruction that extended beyond semiconductors into aerospace, automotive, and other advanced manufacturing sectors
- EUV lithography high-volume manufacturing finally reached the US in December 2024, eighteen years after first installation, demonstrating successful transition from R&D to production scale
These concrete achievements provided measurable evidence that industrial policy could successfully rebuild manufacturing capabilities that had been systematically neglected for over a decade.
Policy Uncertainty and Future Risks: Trump Administration Challenges
The transition to the Trump administration created immediate uncertainty for companies with major capital commitments, highlighting how policy instability can undermine long-term industrial investment regardless of underlying economic logic.
- Arizona semiconductor supplier reported constant project changes due to uncertain cost structures, demonstrating how policy volatility affects real business planning for ecosystem development
- Companies are adopting wait-and-see approaches to new investments until policy frameworks stabilize, potentially slowing ecosystem maturation that requires sustained momentum
- Bipartisan agreement on manufacturing reshoring provides foundation for policy continuity, but specific implementation mechanisms remain uncertain across different administrative approaches
- Investment accelerator executive order from Trump administration incorporated "white glove service" approaches pioneered by CHIPS office, suggesting potential continuity in operational methods
- Tax credit approaches favored by JD Vance align with Khan's analysis about reducing government intervention while maintaining investment incentives through fiscal policy
- Firms require confidence in long-term policy frameworks before committing to projects that can represent existential bets for smaller companies in the semiconductor supply chain
The challenge of maintaining industrial momentum across political transitions highlights the importance of designing policies that can survive changes in administration while achieving strategic objectives.
Conclusion: Industrial Policy That Actually Worked
The CHIPS Act implementation represents a rare example of successful American industrial policy that generated measurable results within its intended timeframe, contradicting both progressive skepticism about private sector cooperation and conservative criticism of government economic intervention. Husten Khan's insider account reveals sophisticated policy design that aligned private incentives with public objectives while navigating complex stakeholder relationships and institutional learning curves.
The $450 billion in private investment commitments and rapid transition to operational production demonstrate that well-executed industrial policy can rebuild manufacturing capabilities that market forces alone had allowed to atrophy. However, the Trump administration transition creates immediate risks to continued progress, as policy uncertainty threatens to undermine business confidence precisely when sustained momentum is needed to complete ecosystem development.
Practical Implications
- For Industrial Policy Advocates: Study CHIPS Act implementation as template for successful government-private sector partnership, focusing on investment tax credits and policy certainty rather than direct funding for large corporations
- For Semiconductor Companies: Accelerate US investment commitments while policy frameworks remain favorable, recognizing that ecosystem development requires sustained participation from multiple industry players
- For Investors: Evaluate manufacturing opportunities based on underlying industrial logic rather than political narratives, understanding that policy uncertainty creates both risks and opportunities for patient capital
- For State and Local Governments: Develop institutional capacity for advanced manufacturing permitting and regulation, building on lessons learned from initial CHIPS projects to attract additional investment
- For Trump Administration: Maintain bipartisan manufacturing momentum through tax policy continuity while streamlining regulatory processes that have proven successful in accelerating industrial development
- For Congress: Recognize that industrial policy success requires sustained commitment across multiple election cycles, designing frameworks that can survive political transitions
- For Economic Analysts: Acknowledge measurable manufacturing renaissance rather than memory-holing successful policies, building analytical frameworks that can evaluate industrial policy effectiveness objectively
- For Supply Chain Managers: Plan long-term sourcing strategies based on emerging US industrial ecosystems rather than exclusively overseas dependencies, understanding that reshoring creates new competitive dynamics
