The Government Is Subsidizing Microchip Firms—While Making It More Expensive To Produce Microchips

Let’s call it the “Biden way”: When our president can’t get his policies through Congress, he tries to impose them in other ways. Just look at his student loan forgiveness plan, which faced a stiff Supreme Court challenge this week, and his imposition of stricter “Buy American” provisions to the infrastructure-spending bill. Now, he wants to reshape corporate America by attaching the big string of “high-quality” child care to, of all things, semiconductor subsidies.

This strategy, while popular with other presidents, has only one redeeming aspect: It beautifully illustrates how politics diverts industrial policy and similar attempts to direct the economy away from their stated goals. See, politicians say they want to subsidize this and that to improve manufacturing or bolster national security, but invariably sabotage themselves by weighing the policies down with rules and requirements that have nothing to do with the plans.

It is certainly true with last year’s “bipartisan” CHIPS Act, which provides $52 billion to revive American microchip manufacturing. Now, President Joe Biden’s Commerce Department has announced that companies getting the subsidies will have to do (and not do) a bunch of other things if they want the money.

Specifically, subsidized firms must provide “high-quality childcare for plant workers.” They can even divert some of the subsidies to build child care centers and hire providers—activities that do little to increase the supply of microchips. Companies will also be required to do all sorts of financial disclosures and share part of any unanticipated profits with the government. Preference for funding will be given to companies that promise not to buy back stock. The New York Times cleverly named this approach the “Chips and Strings.”

These strings will significantly undermine chip manufacturing by increasing production costs. For instance, when the administration say