Chips Ahoy! Don't Look Now, but Industrial Policy Is Doing Its Job
And more from this week...
Today marks two years since President Joe Biden signed into the law the CHIPS and Science Act, the landmark industrial policy that targeted more than $50 billion in support to firms re-establishing leading-edge semiconductor production capacity in the United States. Two years isn’t enough time to begin producing chips, but the deals are signed and construction underway, and an anniversary is always a good time to take a look at how things are going.
ONE THING TO READ THIS WEEK
The New York Times had an interesting look at TSMC’s progress in Arizona: What Works in Taiwan Doesn’t Always in Arizona, a Chipmaking Giant Learns
It’s interesting in part because it’s a classic of the genre: searching desperately for a negative angle on a push to resurrect American semiconductor manufacturing that seems to be going too much the way it was supposed to. Wouldn’t want a positive story about $65 billion in greenfield investment flowing into three state-of-the-art fabs. So instead it opens with the fact that TSMC first announced its plans in 2020 and “four years later, the company has yet to start selling semiconductors made in Arizona.” How long would it usually take to go from project announcement to the world’s most technologically complex products rolling off the line? Doesn’t say. When will it start selling American chips? Oh, first half of next year. Test runs are already under way. OK then.
“Bringing the company’s complex manufacturing process to America has been a bigger challenge than it expected,” according to the Times. But the article cites only the mundane challenges of a firm learning to do business in a new country, with no one saying it has gone any differently than expected. When it comes to recruiting skilled workers, “the company faces similar challenges in Japan and Germany.” Apparently, they had to give managers, gasp, communications training.
This issue of skilled workers is what’s most interesting, as it highlights a key rationale for industrial policy and illustrates a success in progress. Industrial expertise is not something bought off the shelf, it comes embedded deep within an ecosystem of relationships between educational institutions and firms; experienced workers and new hires; and researchers, engineers, and technicians. What a nation can make efficiently tomorrow depends heavily on what it makes today, which is one reason why saying it doesn’t matter what we make in America is so wrong-headed. Indeed, few of the nonsensical missteps of economic policymakers are more infuriating than the waving away of concerns as production moved overseas, followed by lectures that of course it cannot come back because we don’t have the expertise any longer.
The kinds of incentives offered by the CHIPS Act to restart investment in domestic capacity are necessary because firms are being asked to place a bet on an underdeveloped workforce and, indeed, help to redevelop it. One of the benefits of restarting that investment is that it initiates a virtuous cycle in which the demand for skilled labor helps to establish the pathways for developing it, supported by the firms that know what is needed. As those pathways come online, the presence of skilled labor in turn makes further investment more attractive. As expertise takes root once again, public support becomes less necessary.
As the Times reports, “nearby colleges and universities have ramped up their instruction in fields like electrical engineering. TSMC has collaborated with community colleges and universities through apprenticeships, internships, research projects and career fairs.” TSMC is funding student research projects. Clean rooms for training are being built, including one at a public high school system that offers vocational training. One community college offers an intensive two-week program that has graduated nearly 1,000 students:
“We have a generation of students whose parents have never once stepped foot into an advanced manufacturing factory,” said Scott Spurgeon, the [high school’s] superintendent. “Their concept of that is still much like the old mom-and-pop manufacturing where you show up every day and come out with dirty clothes and dirty hands.”
Economic models account for none of this, which is why they consistently conclude that industrial policy is “inefficient,” and why they are wrong. Will every investment be successful and every firm thrive? Of course not. For one thing, they’re in competition with each other. The question is whether the U.S. will re-establish a foothold in a vital technology and manufacturing process that it pioneered, with the scale needed for the private sector to fuel further growth. Thus far the signs point to yes.
BONUS LINK: With the announcement on Tuesday that SK hynix plans to build an advanced facility in Indiana, “the United States will have preliminary agreements with all five of the world’s leading-edge logic, memory, and advanced packaging providers. No other economy in the world has more than two of these companies producing leading-edge chips on its shores.”
THIS WEEK AT AMERICAN COMPASS
The Compass Point is from Chris Griswold, with a comprehensive assessment of CHIPS Act progress and lessons learned for future industrial policy: Chipping Away
Large corporate tax cuts and targeted subsidies to critical industries are both policy tools that Congress might use to spur investment and expansion of domestic productive capacity. Indeed, they are both quintessential examples of “supply-side” policy, notwithstanding the view of many market fundamentalists that the former counts while the latter is merely socialist central planning. … Two years after passage of the Tax Cuts and Jobs Act (TCJA), economists eagerly pored over the investment data to find the positive impact of their plan. Two years after passage of the CHIPS Act, they can do the same here. Which supply-side policy has more effectively spurred domestic investment?
Also on The Commons:
Vivek’s Pivot Back to Neoliberalism: Mark DiPlacido takes a look at Vivek Ramaswamy’s recent speech at the National Conservatism conference and struggles to make out any differences between “national libertarianism” and Old Right orthodoxy.
The Family Policy Pivot: Brad Wilcox proposes a positive new direction for Senator JD Vance’s focus on the family.
Banning TikTok Is Constitutional: Joel Thayer explains the ongoing litigation over the TikTok ban and the case for its constitutionality.
And, on the American Compass Podcast this week, Senator Todd Young joins me to discuss the legislative battles of the CHIPS Act.
WHAT ELSE SHOULD YOU BE READING?
The Cato Institute just released the results of an extensive public opinion survey that it conducted back in February. The questions, frankly, are a lot more interesting than the answers, reflecting as they do the peculiar misunderstanding of economics that seems to fuel so much enthusiasm for free trade. Cato Institute 2024 Globalization & Trade National Survey
“Would you rather businesses in the United States,” they asked, “manufacture and make everything that we need within this country,” or “focus on what they make best and buy from companies in other countries what they make best?” Autarky or comparative advantage? What a charming Economics 101 exercise. Of course, neither of these options describes reality, where the production of things America made best (semiconductors, say) moved overseas thanks to foreign industrial policies, and found nothing else to make best instead.
Strikingly, when worded this way, Americans actually choose autarky by 58 to 42%. But don’t worry, Cato finds that people with post-graduate degrees prefer their abstract hypothetical of comparative advantage. “Attaining more education may change minds and turn people against autarky,” they suggest. Or maybe it just leaves them disconnected from the real world.
Of course, reality has left us with an annual $1 trillion trade deficit, which 62% of Americans say is a “bad thing” compared to 13% who say it’s a “good thing.” But the Cato Institute disagrees, and tried informing respondents that “money from the $1 trillion trade deficit was always reinvested back into the U.S. economy,” which indeed persuaded them it was a good thing, because “reinvested” sounds like resources actually going into the American economy to benefit the American people.
In fact, the deficit is only reinvested in the sense that it is financed by handing over American equity, real estate, and debt instruments that commit us to repay in the future. Strangely, Cato did not add a question to that effect. I wonder if people would still have rated it a “good thing”? But then again, I’m interested in what they think about what’s happening in the world, not what words I can use to confuse them.
Politico has a great profile of Ambassador Robert Lighthizer, U.S. Trade Representative in the first Trump administration and a top candidate for a prominent economic policy position should there be a Trump II. It’s chock full of great anecdotes about the kind of person you’d like to think serves in our government. Some do: Trump’s trade guru plots an even more disruptive second term
I recently had the chance to speak to a group of young French conservatives and, while I was supposed to be telling them about American politics, I couldn’t help asking a lot about what on Earth is happening in France. From what I gather, the Leftists, the establishment neoliberals, and the conservative populists each represent a sufficient share of the population to deny any other segment a majority, and none really wants to work with any other. Germany is facing something similar. It’s an interesting lens through which to understand American politics as well, with similar blocs shoved awkwardly into our two-party system. See if it sounds familiar: Looming political crises await France and Germany
When I first started writing about non-college pathways in 2018, I posited that, for the cost of sending someone to college, we could offer a subsidized apprenticeship such that “he could arrive at age 20 with job experience, an industry-recognized credential, and an additional $30,000 from the government in a savings account.” I may have been too conservative. Via the Wall Street Journal, meet Louie Leonardo:
an HVAC apprentice with the Steamfitters Local 420, which represents HVAC technicians in the area. He attends eight hours of class at the union’s training center every other week, paid for by the union. He spends the rest of his time working for Herman Goldner, making between $24 and $32 an hour, depending on the job. With overtime, he pulls in $70,000 a year. In three-and-a-half more years, when Leonardo finishes his apprenticeship, he expects to earn $132,000 a year. After completing another four years of night school, he’ll make at least $175,000 a year.
He Skipped College to Become a Repairman. He’s On His Way to $175,000 a Year.
Enjoy the weekend!
As we keep losing our middle class, we can actually see what this causes. The middle class in any society throughout history does just about all of the heavy lifting. Without them, you go Rome. Yes, please invade us, has to be better than what we have now.
The poor, nothing from them usually. The rich, nothing usually much from them either.
Keep up the great work here. The republican party needs it. They are pretty much devoid of any real solutions. The no tax, no party. No to everything! lol I got mine, the heck with you all!
I’m always a little behind on these but does Brad Wilcox not understand how or why federal land is distributed the way it is? By that I generally mean it is not next to either large towns or cities so building a house on what used to be national forest land won’t do anything…it might be affordable because no one is going to live in the middle of nowhere. Additionally, why would you need “millions of acres” to build 500,000 new “affordable” homes? How big are these housing lots or are they intended to be small homesteads? Finally, the issue is not a lack of land in and around existing towns and cities…there is plenty of that. It’s the lack of affordable housing being built on the land that is there because of either the demographics of the city or onerous local regulation. I was enjoying his writing until that moronic policy proposal that I audibly scoffed at…made me question his logic overall.