Why the CHIPS Act Exists and What It Can Mean for the US

The United States has authorized $280 billion in taxpayer dollars to subsidize wealthy computer chip companies and invest in technology research to keep America strong and innovative.

President Biden signed the bill on Tuesday, officially known as the CHIPS and Science Act of 2022, calling it “an investment in America itself.”

If this law does what many government and private industry supporters hope, the US will have more control over the future of critical computer chips and a cover if China becomes more hostile to Taiwan, a US ally. The bill also aims to keep America on the cutting edge of technology by putting more government support into research.

Here’s why the law exists and what it can and cannot do to help America:

The dream of US-made chips:

The law authorizes more than $52 billion to help companies pay for building or expanding U.S. computer chip factories and for employee research and training. Basically, US taxpayers pay computer chip companies to make their products here and not in Germany or South Korea, for example.

Why? US officials are concerned that a relatively small percentage of the world’s computer chips are manufactured in the United States and contain virtually none of the most advanced chips used in military equipment and smartphones.

The first concern is not necessarily valid. Many computer chips are simple, such as those used for computer memory or brains in devices, and the US probably doesn’t need to make more of them. The production of many consumer goods such as T-shirts and TV sets is outsourced to other countries.

But for two main reasons, proponents of the law say the US should use government money to make it financially worthwhile for both US and foreign companies to make more computer chips in the US.

First, proponents say it’s important for America to maintain expertise in designing and building advanced computer chips. We do not have the same national interest in maintaining the know-how in T-shirts. Building computer chip factories costs a ton and is more expensive in the US than in other countries, partly due to subsidies from other governments. This new law allows the US to level the playing field.

The second reason is the potential vulnerability of Taiwan, home to Taiwan Semiconductor Manufacturing Company, which makes chips to order for many companies, including Apple. If you have a smartphone or shop online, it’s probably TSMC chips. If China continues to escalate its military clashes with Taiwan, the supply of most of the world’s advanced computer chips could be at risk.

Supporting a little more chip production in the US probably won’t dent much of TSMC’s grip on the more advanced chips. The small US market share in the production of advanced computer chips is partly the result of the struggle of the country’s leading chipmaker, Intel. A government law doesn’t change that.

But more executives and government officials believe the benefits of encouraging more chip production in America are worth the risks of wasting taxpayers’ money on chip companies.

Most of the law deals with basic research – for better or for worse.

There is about $200 billion for programs focused on American inventions.

Funds are pouring in to create 20 regional technology centers for government-backed developments in areas such as chips, energy technologies and biotechnology. Taxpayers’ money is being poured into other government agencies to train Americans for next-generation jobs and for scientific and technical research that isn’t immediately rewarded.

The editors of the Wall Street Journal recently described this part of the law as a wasteful expansion of federal bureaucracy and a likely fruitless partnership between government and major industry.

That could be true, although there is a long history of government being essential to American innovation. We might not have computer chips, the Internet, or Covid-19 vaccines without collaboration between big government and big business. Of course, more government spending doesn’t necessarily translate into more innovation, as China notes with its own government-backed computer chip initiative.

What this law won’t do.

Despite what some business leaders and officials have said, putting government money into computer chips is unlikely to solve shortages of products like cars.

Automakers have struggled to make as many vehicles as Americans want to buy. That’s partly because they can’t buy enough chips for features like navigation and braking systems. But building more chips in America doesn’t solve that. This problem was caused by a surge in consumer spending on physical products, factory closures related to the coronavirus and the failure of manufacturers to adapt to the new reality.

Scott Lincicome, an economist at the Cato Institute, a libertarian think tank, gave me infant formula as an example. American factories make almost all the baby food consumed in this country. That didn’t stop—and may have contributed to—the bare formula store shelves in the US this year.

Some computer chip companies and lawmakers have also recently emphasized that expanding chip manufacturing in the United States will create more high-paying jobs. Economists have long warned about the effectiveness of helping the public pay for jobs in some industries.

Like the climate, tax and health care bill that Congress is expected to pass this week, the chips bill is ambitious and may not show its merits for many years to come. But at a time when the federal government is locked into many national priorities, elected officials have actually done something that may prove momentous.

Before we go…

• A former Twitter employee has been convicted of helping the Saudi government: My colleagues Kalley Huang and Kate Conger reported that a jury had convicted the former employee of charges related to handing over dissidents’ private information to Saudi officials in exchange for money and a luxury watch.

• The app too important to block: The Russian government doesn’t like YouTube giving its people access to unvarnished views of the war in Ukraine. But The Wall Street Journal reports that Russia is concerned that blocking YouTube, as it has done with other sites like Facebook, will provoke a public response. (A subscription is required.)

• Tourism with a political motive: Some people who make travel videos online go to Syria to make videos that cover up the country’s brutal civil war and polish the Syrian regime’s reputation, The Washington Post reported. (A subscription may be required.)

Hug for this

This cat doesn’t care what the rules are. It shall sit on the freezer.

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