US Commerce Secretary Gina Raimondo said Thursday India and the United States (US) have been working very “closely” and are holding formal talks on semiconductor cooperation.

The US wants to coordinate with its allies, including India and Europe, so that a “subsidy race” and a “glut” in the semiconductor sector can be avoided in the future.

Amid the global semiconductor chip crisis, countries are developing strategies to build resilient supply chains so they are not affected by disruptions such as pandemics or geopolitical tensions. For example, the US signed the CHIPS Act last year to boost domestic semiconductor manufacturing. Similarly, in December 2021, India announced a Production-Linked Incentive (PLI) scheme for the development of semiconductor and display manufacturing ecosystems.

Raimondo said the world, including the US, is overly dependent on Taiwan for semiconductors. “We don’t make enough semiconductors and we get them all either just from Taiwan or just packaged in Malaysia, and that exposes us to incredible disruptions…93 percent of the world’s most advanced semiconductors are made in Taiwan. It’s not stable or resilient in any way,” she said at a fireside chat hosted by Jesus and Mary College.

Raimondo is in New Delhi until March 10 for a four-day visit to improve trade and trade ties between the two nations. The India-US trade dialogue comes on Friday after a three-year hiatus that will focus on supply chain resilience and diversification, as well as emerging areas.

The India-US CEO Forum is also held on Friday, with key focus areas such as increasing supply chain resilience, improving energy security and reducing overall greenhouse gas emissions, promoting inclusive digital trade and facilitating economic recovery after the Pandemic, especially for small businesses.

There are also synergies between both nations in terms of semiconductor design and technology. “How do we strategize and plan purposefully? For example, India is home to a large pool of semiconductor design talent. The US is the world leader in semiconductor design, we have synergies there. That being said, this semiconductor supply chain is incredibly complex and includes rare earths, critical minerals, chemicals, silicon and actual manufacturing,” Raimondo said.

One of the challenges, she pointed out, is that India still has fairly high tariffs on certain components that go into semiconductors or other electronic parts, making it difficult to manufacture.

FTA and IPEF

Raimondo said a trade deal with India is off the table and that the Indo-Pacific Economic Framework (IPEF) would be more economically effective than a Free Trade Agreement (FTA).

“The US Congress has said that there is no political interest in a free trade agreement with India… My challenge is that IPEF could prove more economically effective than a free trade agreement in many ways. The FTA has been an economic agreement between two countries for the last 50 years,” she said, adding that IPEF would be a modern equivalent of a FTA.

“If we get it right, it will… that will unlock the creation of more jobs in both countries. We’re going to see a big supply chain, job creation and private investment,” she said.

Raimondo said the US is moving at an “unprecedented pace” with IPEF and hopes to finalize agreements on all four IPEF pillars by the end of the year.

No fewer than 14 countries, including India and the US, are members of the IPEF, which was launched jointly by the US and other partner countries from the Indo-Pacific region on the sidelines of the Quad Summit in Tokyo last May. It is seen as an economic initiative to counter China’s influence in South and Southeast Asian countries.

IPEF has four pillars – Trade, Supply Chains, Tax and Anti-Corruption, and Clean Energy. Thirteen of IPEF’s 14 member nations decided to join the three pillars, with the exception of India, due to the lack of a broad consensus on issues related to labour, environment, digital trade and public procurement.