President Biden yesterday doubled the money expected to support semiconductor production. In 2020, Congress approved allocation of close to $25 billion. The president’s “infrastructure” plan — which is much more than infrastructure — includes $50 billion. What will we get — competitive domestic manufacturing with a secure supply of needed equipment and material? Or assembly plants dependent on imports from unreliable countries, while our private sector supports chip-making overseas?
As a good start, eliminate the possibility of taxpayers
being conned. There’s no requirement to take this money. If a firm accepts it,
it can’t then expand overseas semiconductor output in any way competing with US
operations. During last year’s process, well-intentioned members of Congress
insisted government shouldn’t tell companies what to do. Exactly right, until
government hands out $50 billion. The money is to boost production here.
Don’t like strings? Walking away is free.
That should be easy. The hard part concerns companies investing in foreign chip-making and not taking US subsidies. This is done by setting up one’s own subsidiary (direct investment) or supporting someone else (direct or portfolio investment). The stock of American direct investment in semiconductors and electronic components overseas was $64 billion at the end of 2019.
We don’t have an equivalent for portfolio investment. It’s apparently not important to know where $2.47 trillion dollars in US investment passing through the Cayman Islands, for example, is headed. Taxpayers can be forgiven for wondering about the value of $50 billion here if American investors pour much more than that into competing foreign semiconductors. If chips or advanced chips are important enough to raise taxes or borrow, the public should at least be informed about is happening globally.
A more subtle issue is one being confronted in many areas of US policy: supply chains. $50 billion that
helps produce chips using domestic equipment and materials or that from only
reliable international partners is entirely different from $50 billion
creating jobs that can easily be ruined by predatory rivals.
There’s again an easy and a hard part. Easy: China shouldn’t be allowed to participate in any meaningful way in supply chains connected to the semiconductor subsidies. This includes helping make equipment then used in the chains or supplying materials chain participants need. The Biden administration can’t constantly justify industrial policy as helping us compete with China, then be casual about whether the spending ends up benefiting the PRC.
That supply chains are complicated is illustrated in this case by Taiwan. With companies like ASE and MediaTek, Taiwan is vital to chip chains. While Taiwan works hard to be a reliable American partner, its largest semiconductor firm, Taiwan Semiconductor Manufacturing Corp. (TSMC), sees over 17 percent of sales from mainland China. TSMC and Taiwan as a whole can be coerced commercially and even militarily by Beijing. The US should be creating genuinely independent supply.
Industrial policy has unavoidable drawbacks. Minimizing
those always requires actions to make sure money isn’t wasted. While $50
billion isn’t what it used to be, something like the following is called for:
1) Subsidized firms can’t simultaneously spend more on competing projects overseas.
2) The US government should publicly document corporate
sector investment in foreign semiconductor industries.
3) China should not be allowed to participate in
subsidized supply chains.
4) Firms should submit plans to increase the security of their chains over time.
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