Pros/Cons: CHIPS and Science Act will boost manufacturing here, curb offshoring, improve lives – Duluth News Tribune

The CHIPS and Science Act is an innovative and important industrial policy. It makes targeted investments in critical industries to strengthen America’s manufacturing base, protect workers, and strengthen U.S. national and economic security. This will help reverse the decade-long trend of jobs and supply chains being moved overseas and contribute to inclusive growth.

The law, signed by President Joe Biden after passing both houses of Congress with bipartisan support, has two motivating ideas. The first is the understanding that economic competitiveness, especially in advanced manufacturing, often requires systemic government support. Support is needed because “public goods” problems are endemic. The second is the recognition that the United States does not have reliable access to critical semiconductor manufacturing capacity, which creates economic and national security risks.

Advanced manufacturing is based on scientific discoveries, translation of discoveries into prototype products and manufacturing processes, adequate quality control standards and tests, and a well-trained workforce. Because private actors cannot capture all the benefits of investing in these premises—it is difficult, for example, to keep scientific ideas secret or prevent well-trained workers from leaving for other jobs—the level of private investment in each is insufficient. . The CHIPS and Science Act includes initiatives to correct these market failures and allows US manufacturers to develop technologies and products that would otherwise be unavailable. In addition, it is designed to increase economic development in various regions and make access to higher-paid employment more inclusive.

The Act provides significant support for basic and applied scientific research in frontier areas such as artificial intelligence, quantum computing, communications, energy and materials science. It funds 20 regional technology centers dedicated to helping companies access discoveries and prototype new products. State governments, universities and other non-profit organizations will receive funding to help small businesses upgrade their technology capabilities, expand manufacturing ecosystems and create job opportunities. STEM education will be expanded to reduce barriers to the employment and advancement of women and minorities. Standards and testing will receive much needed support.

Risks to economic and national security are also highlighted in the law. The ongoing slowdown in domestic car production caused by chip shortages illustrates the economic risks. National security risks include the need for the Department of Defense to source critical components of national defense electronic systems from locations in Asia.

With the existing global division of labor in semiconductor manufacturing, both risks are significant. The United States is dominant in semiconductor design but has a relatively small and declining share of chip manufacturing. Taiwan holds a dominant position in manufacturing, operating leading chip “foundries” that manufacture to customer specifications. The assembly, testing and packaging of semiconductors into finished components is done primarily by contract manufacturers in Taiwan and China. This means that important elements of the semiconductor supply chain are subject to events in other countries and, in the case of companies in Taiwan and China, to Chinese government intervention.

Foreign government interventions have had a strong impact on the geography of semiconductor manufacturing. Taiwan, for example, provides subsidies for land, construction and production equipment that reduce production costs by 25% to 30%. China has given one firm, Yangtze Memory Technology, $24 billion in subsidies and committed $100 billion to support 60 new manufacturing facilities.

To change the manufacturing map and reduce risk, the Act authorizes the Department of Commerce to provide $39 billion in financial assistance to build, expand, or modernize domestic facilities and equipment for semiconductor manufacturing, assembly, and packaging, as well as for research and development. This support, along with the 25% investment tax credit in the law, provides a significant incentive to locate and expand manufacturing in the United States. Also, since funds and credits will be withdrawn if a firm invests in advanced manufacturing in countries like China within 10 years, strategic gains will not be subject to rapid reversals.

In short, the CHIPS and Science Act will produce remarkably broad and important benefits. American manufacturing will be more productive and competitive. This will create opportunities for higher-paying employment, and expanded access to STEM education will mean that these gains will be more widely shared. The functioning of the economy will be less at risk from unexpected global events and less dependent on anti-democratic states. These results are a reminder of the power of well-designed economic policy to improve the lives of all Americans.

Mark Jarsulich is a senior fellow and chief economist at the Center for American Progress (americanprogress.org), a liberal public policy research and advocacy organization in Washington, DC

Mark Jarsulich

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