Free Trade

America's Semiconductor Industry Doesn't Need $52 Billion in New Subsidies To Stay Ahead of China

Industrial policy is the wrong answer to a problem that mostly doesn't exist.

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Spooked by a recent but temporary shortage of semiconductors and by China's plans to spend the equivalent of about $150 billion to bolster its own computer chip industry, the Senate is now considering a proposal to throw $52 billion in new subsidies at American semiconductor manufacturers to spur domestic production.

It's an idea that dovetails nicely with President Joe Biden's pivot toward China as the post-pandemic villain that will justify future expansions of government, as well as with the emerging nationalist economics and anti-China sentiment on the political right.

But what it really amounts to is a massive handout to a successful industry that doesn't need government aid, delivered under the guise of a national security argument that doesn't stand up to scrutiny. Rather than countering a perceived threat from China, lawmakers risk bogging down one of the most innovative and successful parts of the American economy with an industrial policy that will force chipmakers to care more about what makes Washington happy than what is best for their own businesses.

That perceived competition with China is fundamental to the United States Innovation and Competition Act of 2021, an omnibus bill that encompasses Senate Majority Leader Chuck Schumer's (D–N.Y.) Endless Frontier Act and several other proposals from lawmakers on both sides of the aisle. The very first page of a fact sheet released last week by Senate Democrats points out that America's share of global semiconductor manufacturing has fallen from 37 percent in 1990 to just 12 percent last year. Government action is necessary "to preserve our competitive edge," the document argues, before going on to warn that nothing less than America's "economic and national security" could be at risk if Congress doesn't hand over $52 billion in taxpayer cash to a handful of successful, deep-pocketed chipmaking companies.

Companies that, by the way, admit they don't need the cash to be competitive. Intel, one of the world's biggest chipmaking companies, is in the process of building a $20 billion fabrication facility in Arizona. In March, CEO Pat Gelsinger said the project "would not depend on a penny of government support or state support." (Though he immediately followed that comment by saying that "of course…we want incentives" and it appears that Congress is prepared to dutifully provide them.)

If there is some sort of problem with American semiconductor manufacturing—and there's really not, as we'll see shortly—it certainly isn't a lack of money. The New York Times reported earlier this month that equity investors have "plowed more than $12 billion into 407 chip-related companies" during 2020, which is more than double what they invested in 2019. Revenue for global chip manufacturers was up 10 percent in 2020, despite a pandemic-induced slowdown in demand, the Times reported, and NXP Semiconductors, which makes chips for automobiles and industrial equipment, saw revenue climb by 27 percent.

Those numbers don't suggest an industry in dire need of government aid.

Concerns about America's share of global semiconductor manufacturing are similarly misplaced. According to the Semiconductor Industry Association, a trade group, American-based firms control 47 percent of the global share of the semiconductor industry—a far cry from congressional concerns about the U.S. losing its competitive edge.

The trick that lawmakers are trying to pull here is to focus on where semiconductors are made. But this doesn't really matter. It's true that a smaller share is manufactured in the U.S. today than 30 years ago, but that's the result of natural shifts in the market, not evidence of a collapse in American technological prowess.

Indeed, American companies are still at the forefront of semiconductor development—earlier this month, American-based IBM announced a breakthrough in the development of the world's first two-nanometer chip.

"It is true that America has slipped to a 12 percent market share in semiconductor manufacturing, but it doesn't follow that firms need government help not to slip further," wrote T.J. Rodgers, CEO of Cypress Semiconductor Corporation and a former chairman of the Semiconductor Industry Association, in The Wall Street Journal this week. "Around 60 years after the commercialization of the integrated circuit, most chips have become commodities with little strategic value, and their manufacturing has been pushed offshore by relentless demand for lower cost."

Ah, but what about the recent supply chain issues that left automakers and tech companies without access to the semiconductors they need? "It is not an exaggeration to say at the moment that we have a crisis in our supply chain," Commerce Secretary Gina Raimondo told the Senate Appropriations Committee in April.

Except, well, it kind of is. It takes a long time to make semiconductors—up to 26 weeks, in some cases—and production is still ramping up again in the wake of last year's disruptive pandemic. This isn't a nationalist issue in which some evil foreigners are cutting off America's share of semiconductors, but a market-based issue that will be resolved as chipmakers increase production capacity to catch up to increasing demand.

But what about China? Yes, the Chinese government is investing heavily in semiconductor-making technology, but it remains far behind America in terms of technological know-how. A recent Nikkei report shows that China mostly manufactures nothing smaller than 14-nanometer chips, which are several generations behind the most advanced chips being made elsewhere—remember, IBM just announced plans for a two-nanometer chip. Closing that gap will be difficult now that America has banned the sale of semiconductor-manufacturing equipment to China (and enforced that ban even when the sale involved other countries).

If there is one major worry for the global supply chain of semiconductors, it is the island of Taiwan. The majority of the world's semiconductors are made in Taiwan, which is home to the Taiwan Semiconductor Manufacturing Company, by far the world's largest chipmaker. There are obviously many complicated geopolitical issues involving Taiwan that America and the world's semiconductor industry will have to navigate in the coming years—but it is downright foolish to believe that $52 billion in subsidies will make a meaningful impact in that complex situation, or in a global market that was worth $425 billion last year alone.

No, the United States Innovation and Competition Act of 2021 won't meaningfully change the fact that most of the world's semiconductors will continue to be produced in one of the world's biggest geopolitical hot spots. It won't do anything to reconfigure global supply chains that major chipmakers and semiconductor consumers aren't already doing—probably by copying the strategies that Toyota used to successfully weather the recent semiconductor shortage. It won't provide a needed boost to American companies' research and development efforts, which are already running at an all-time high. And it won't do much to stop companies from trying to find the cheapest places to manufacture their goods, whether those goods are T-shirts or the world's most advanced computer chips.

All it will do is shovel $52 billion of taxpayer money (some of it probably borrowed from China, ironically enough) to successful businesses flush with cash.

"We must invest in R&D, innovation, and manufacturing to ensure the U.S. continues to lead the world in science and technology," says Schumer. But private companies are already doing that in record amounts, and America is the world's leader in science and technology, no matter what the China hawks might want you to believe.

The semiconductor industry doesn't need a $52 billion stimulus package to keep doing what it is doing. It mostly just needs the federal government to stay out of the way.

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  1. We can’t trust a profit driven industry who knows how to make chips make more chips without the guiding hand of government.

    1. Liar.

      Cant because why?

      When you start off with hateful personal attacks and show that you know nothing about the topic, it proves youre a Troll.

      1. Your sarcasm detection meter requires adjustment. Or maybe the batteries in it died.

        1. It might be something more. Starting a post with “liar” then going on to criticize starting with personal attacks is a sign.

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  2. But as we were told this morning, this idea is totally congruent with the New And Improved Team Red.

    https://reason.com/2021/05/27/study-mask-mandates-didnt-help-slow-spread-of-covid-19/#comment-8923775

    The New Team Red is now totally in favor of “reindustrialization”. As long as it favors right-wing constituencies, I suppose. And of course Team Blue will favor it, as long as it favors left-wing constituencies. Environmentally safe and labor union friendly! (Although how one would build an environmentally safe semiconductor factory, I don’t know. But I’m sure AOC will be right on it.)

    So expect this idea to sail through Congress easily, along with lots of other bad industrial policy ideas. Because it’s all about Rah Rah Murica (from Team Red) and Look For the Union Label (from Team Blue).

    1. Its not about re-industrialization. Thats capitalist market tech stuff

      This is about Team Blue getting CONTROL.

      Its doing so “their political way” instead of Free Market.

      Thats how Commies roll!

      And, BTW, this is also happening in EUROPE right now.

      Ahem…

      Know how Hitler came to power?

      Using Germanys manufacturing capacity AND concurrent economic crises.

    2. Although you’re clearly a leftie troll you should know that democrats left their union constituents a long time ago. Oh they like the union money all right, but they disconnected from actual working people as did the union leadership.

      1. See the pipe fitters union.

    3. We’re libertarians, not Republicans.

      1. It doesn’t matter from chemmjeff radical stateists point of view anyone that isn’t a progressive is a far righty. He lives in a world of false dicotomy and strawmen

      2. And I wasn’t claiming that libertarians did or should support such a thing. But Team Red increasingly does. Maybe people like Ken should think about that before they cite Duverger’s Law again.

        1. We know Team Red does. But you keep trying to conflate libertarians with Republicans.

  3. But how else will government send money to their crony friends?

    1. The goings on now in this topic, and Chinas recent lies about how Communism has advanced China, reminds me of the book “Money Mischief” by Friedman.

      He said that in the 1930s, there was an economic crisis in China and the Commies promised to bail people out if theyd vote Commie.

      They did and they did, by CRASHING THE CURRENCY

      Just like Slow Joe and his Ho are doing.

      1. Communism DID advance China. What they don’t tell you is that it advanced less than it would have with a liberty regime. The only benefit Communism brought to the table was ending the warlord era, but they were part of the warlord era problems.

        In other words, the Chinese were beating themselves with many hammers, and when they reduced the hammer count to 1, it felt better. But 0 would have been even better.

      2. Wait a sec — you claim yourself to be an EE expert to prioritize your expertise over Boehm, and then pontificate on economic matters?

        1. C’mon, everyone here is an expert at economics

          1. Yeah, and EE stands for Economics Expert.

    2. The Fed will have to buy stonks like everyone else…

  4. We have a semiconductor industry?

    1. Oh yes. Just uninformed persons such as yourself that know nothing about engineering or Tech dont have a clue.

      1. Sheesh. Talk about personal attacks…..

      2. Oh yes. Just uninformed persons such as yourself that know nothing about economics or sarcasm dont have a clue.

      3. When you start off with hateful personal attacks and show that you know nothing about the topic, it proves youre a Troll.

    2. Yup. And I work in that supply chain. Boehm is right. We don’t need no $52B from daddy gov. Business is booming. It’s almost embarrassing.

      1. I like to think of the government more like mommy than daddy. You think what she’s doing is in your best interest but really she’s just an enabler.

  5. Even a blind squirrel will find an acorn every once in a while = Boehm stating a 52-billion dollar subsidy is not needed.

    Maybe Boehm will get one more thing right next week, and start a trend.

    1. I dunno, Reason writers were pretty right-on in condemning Trump’s “temporary” subsidies to farmers to sweeten his trade war as subsidies that will never go away. And they haven’t.

  6. America’s semiconductor industry, like all American industries, needs one crucial thing to thrive: unlimited, unrestricted immigration. Because foreign-born workers are consistently more cost-effective than native-born ones. In fact Reason.com’s benefactor Charles Koch rose from humble beginnings and built his business empire largely based on this key insight.

    #OpenBordersWillFixEverything

    1. Youre a politically motivated Liar and thats evident in your repeating a stupid meme.

      Nothing technical in your comment.

      Semiconductor facilities, electronic manufacturing facilities are largely robotic. They can be staffed by Midwest US people that have historically done that kind of work

      Liar Liar Pants on fire

      1. Ok Tony.

    2. Thanks OBL! Good post. I was wondering what your take might be on this topic!

  7. “China’s plans to spend the equivalent of about $150 billion to bolster its own computer chip industry”

    No, they plan to spent 105B to bolster OUR semiconductor industry.

    They wouldnt have any if it werent for us, our investments and our technology.

    Dont buy the BS about China turning out lots of qualified engineers etc.

    They cant engineer their way out of a Wet Paper Bag.

    Its OUR technology, not theirs. We gave it to them.

    Reason? CHEAP to build mostly robotic facilities in China.

    Land = Cheap.

    The big Semi companies started in whats now the Left Coast = Silicone valley and North up to Seattle.

    They need to LEAVE those areas and relocate in the Mid-West US
    where the Electronics industry, historically, have located due to inexpensive land etc and good Labor to hire from.

    They have to leave Californication and Seattle.

    THAT is the problem.

    Remember, before you fall for the “high tech China” scam:

    1. TAIWAN is hi tech. S Korea, Japan are high tech.
    Mainland China is still struggling to exit the Stone Age.
    Thats COMMUNISM for you.

    2. China just bought their FIRST naval destroyer (was it?) second hand from Russia….

    Mainland China pretend to be advanced, but they are not as much as they pretend to be.

    1. PS Signed, EE that knows about this sort of thing, not a politically motivated idiot like OpenBordersLiberal-tarian

      1. OBL is a parody account, you’re an idiot, and lighten the fuck up.

        PS, Signed, MSEE PE with 30 years of experience. Stop the appeals to authority.

      2. There is no one more ignorant than a self-proclaimed expert.

        “Expert” comes from “X” for the unknown, and “spurt” for a drip under pressure.

    2. It’s not cheap land. FFS why would you think land is expensive in the US but cheap in China?

      They’re looking to build a fan outside Phoenix – because you can get land cheap there? No, land is a neglible percentage of the cost of building a fan.

      Which a self-proclaomed EE should know.

      It’s the cheap labor.

  8. If I was Taiwan I would booby trap the island with nuclear power plants rigged to explode (or something similarly destructive) in the event the authoritarians in China ever successfully invaded.

    1. If you was Taiwan, you’d be off-balance and probably capsize worse than Guam.

      1. Haha. Nice.

    2. All you did was prove you don’t know jack shit about nuclear power, lard ass strudel.

    3. Pod, you’re such a disease.

    4. Why? I thought you supported collectivization.

  9. Just deregulate the economy, that will help with the added bonus that other industries that Congress isn’t think about at this moment will also benefit and Congress won’t have to come up with another cockamamie scheme to “fix” those industries’ problems later on. Oh and we’ll all be wealthier for it.

  10. Bolster the semiconductor industry, while removing our capacity to obtain the necessary raw materials that are needed. How’s Biden working out for you UMW?

  11. And yet there is a global microchip shortage.

    So what’s going on now isn’t working.

  12. Why does Schumer HATE the environment!! Even a moron with limited brain function knows semiconductor foundries emit tons of toxic pollutants and require billions of gallons of water. There is a reason these foundries are located in places that don’t care about the environment.

  13. Where’s MY $52B? I wanna stimmie!!

  14. Completely aside from the wisdom of the proposed policy (which I’m not particularly thrilled with), I find the basic premise of the article either incredibly dishonest or an indicator of disqualifying lack of knowledge of the industry you are purporting to “inform” your readers about. Total value of chips sold by a particular company is not the concern that this policy is attempting to address. Yes, American companies sold a very large percentage of the chips. American companies MADE a tiny, tiny fraction of the chips sold. The vast majority of chips (~90%) that are listed in this reckoning as “American” are made by contracted foundries in Taiwan for American companies. That actually is a valid strategic concern.

    1. So the answer is taxpayer funded subsidies to already profitable corporations?

  15. Democratic Crony Socialism strikes again!!!!!!!!!!!!!!!!!
    As it compulsively does while pointing fingers everywhere else.
    Projection 100%

  16. premise of the article either incredibly dishonest or an indicator of disqualifying lack of knowledge of the industry you are purporting to “inform” your readers about. Total value of chips sold by a particular company is not the concern that this policy is attempting to address. Yes, American companies sold a very large percentage of the chips. American companies MADE a tiny, tiny fraction of the chips sold. The vast majority of chips (~90%) that are listed in this reckoning as “American” are made by
    https://wapexclusive.com , contracted foundries in Taiwan for American companies. That actually is a valid strategic concern.

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