The Chip Law..a promising initiative
President Joe Biden on Tuesday (August 9) signed into law a $52 billion subsidy for the semiconductor industry, launching what will be one of the largest industrial development programs run by the federal government. The long-awaited legislation will catalyze the construction of more than six large semiconductor manufacturing facilities in the United States, providing a safer supply of small components so critical to modern electronics that are essential to national security. The bill also authorizes tens of billions of dollars in federal research and development and support for regional technology startups, which the administration hopes will lead to business breakthroughs in new areas such as quantum computing and artificial intelligence.
Shortly before signing the legislation at a White House ceremony, Biden said, “Today is Builders’ Day. Today, America is doing.” The support comes amid a severe global shortage of computer chips that has crippled automakers and other manufacturers, forcing them to cut production. Federal funds will not solve this shortfall in the short term, but it will spur big construction projects for companies such as Intel, Taiwan Semiconductor Manufacturing Co., Micron, Samsung, Global Fundraisers and others that aim to build new, high-cost chip factories in the coming years.
The Commerce Department will become responsible for overseeing the support and is already in the process of hiring a new staff that could include a few dozen people, according to people familiar with the matter, who spoke on condition of anonymity to discuss initial plans. And the United States is not entirely new to industrial policy by which government intervenes in the economy to support sectors it believes are essential to national security and growth. Substantial federal spending on research and development in the post-World War II era, for example, helped the United States innovate the semiconductor industry. But industrial policy has not kept pace with developments in the past few decades, with conservatives criticizing it as a wasteful approach to picking winners and losers. But the growing technological competition with China has forced many US lawmakers, Republicans among them, to support greater government intervention.
“The adoption of the Chips and Science Act represents a watershed in US economic policy,” said Scott Kennedy, an expert on US-China competition at the Center for Strategic and International Studies. It is as if it is the beginning of a new era in which government support to enhance the competitiveness of industries – for reasons of business, national security, public health and the environment – is seen as more necessary and natural than in the past.” Danny Rodrik, professor of international political economy at Harvard University, called the law historically significant “because it is a sign that we have moved beyond market fundamentalism and because it shows that there is now bipartisan support for industrial policies.” He also believes that the legislation may “affect more than one goal at a time, i.e. strengthening industrialization, strengthening national security in the face of China, and creating good jobs.” Specifically, when it comes to jobs, his email said, the United States needs “different types of industrial policy to address our labor market and regional disparities.”
Micron became the latest of these companies. It announced early Tuesday that it would spend $40 billion on new chip-making facilities in the United States through the end of the decade. The company, based in Boise, Idaho, said the investment would create 5,000 high-tech jobs at Micron and would bring the US share of global manufacturing of so-called memory chips to 10%, up from 2% today. Memory chips store data and are vital to new technologies such as artificial intelligence, 5G communications and cloud computing.
Sanjay Mehrotra, Micron’s CEO, told The Washington Post that the investment depends on the company getting a portion of the $52 billion in support provided by the new Chips and Science Act. “This legislation enables us to make investments that we otherwise would not have made in the United States,” Mehrotra said. He added that the new facilities would manufacture “pioneering” chips. “Without the Chips Act, this production would not have taken place in the United States, perhaps even dropping 2% over time to a lower percentage,” he asserted. He stated that Micron is studying “different states” to be future locations for manufacturing facilities and will announce its decision in the coming weeks. He added that the company manufactures most of its chips and all of its most technologically advanced chips in Japan, Singapore and Taiwan.
Computer chips are the brains behind all modern electronic devices, but they have been in short supply for nearly two years amid high demand and few factories around the world. Few companies are willing to invest the billions of dollars needed to build factories that hold some of the most expensive manufacturing equipment in the industrialized world. The shortages have undermined all kinds of manufacturing that rely on computer chips — most notably auto production that has halted in the United States and other countries, causing a shortage of cars and driving up their prices.
The chip shortage has prompted countries around the world to direct billions of dollars in subsidies to manufacturers in the hope of opening more factories. The chips support not only consumer electronics but also a variety of military equipment, including F-35 fighter jets and Javelin missiles. Hence, chips are central to national security. Congress passed the US subsidy deal with rare bipartisan support late last month, after more than a year of wrangling that threatened to delay some factory-building projects.
Published by special arrangement with the Washington Post and Bloomberg News Service.
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