Politicians Use Subsidies To Squeeze Semiconductor Manufacturers

It’s no secret that rising international tensions and snarled supply chains are fracturing the world, threatening to curtail an all-too-brief period of relatively free trade and the prosperity it brought. With political priorities competing with ones of efficiency, governments are increasing their control over production and commerce. That includes the Biden administration, which is subsidizing private companies to move the manufacturing of microchips to the U.S.—and then using its leverage to extract concessions and take a big skim of the profits. That means greater expense for you and me.

“Rebuilding America’s leadership in the semiconductor industry is a down payment on our future as a global leader,” U.S. Secretary of Commerce Gina Raimondo boasted shortly after the passage of the CHIPS Act last summer. “CHIPS for America, will ensure continued US leadership in the industries that underpin our national security and economic competitiveness.”

That’s a fancy way of saying the government will subsidize chipmakers to the tune of tens of billions of dollars to manufacture computer chips in the United States instead of in countries, like Taiwan, that are potentially at risk from China. That’s not a baseless concern given that China’s government is threatening “confrontation and conflict” with the United States and clearly wants to absorb Taiwan (though U.S. officials are not without fault in building these tensions).

Private Investment for Private Companies

But if moving production to the U.S. makes sense, chipmakers should do it themselves—and they are. Companies announced plans to expand manufacturing capacity long before the CHIPS Act passed.

“Samsung Electronics Co.’s planned $17 billion chip factory in Texas is expected to crank out top-end semiconductors that are essential to 5G cellular networks, self-driving cars and artificial intelligence,” The Wall Street Journal reported in November 2021. “It follows hefty bets on U.S. soil by Intel Corp., Taiwan Semiconductor Manufacturing Co. [TSMC] and Texas Instruments Inc.”

Moreover, as Christine McDaniel and Weifeng Zhong of George Mason University’s Mercatus Center pointed out, there are ways to encourage manufacturing that don’t require subsidies. Red tape and government contract requirements are big impediments to opening multi-billion-dollar factories.

“First, we should streamline regulatory burdens on building manufacturing plants,” they suggested. “Second, stop forcing ties between a subsidized private sector and labor unions… Third, scale back on trade policies,