Opinion: Reducing globalization is a smart move

The invoice which aims to restore U.S. leadership in the manufacture of advanced semiconductors, the cutting-edge computer chips in everything from smartphones to airplanes, was backed by a bipartisan vote (64 to 33). It provides semiconductor producers with more than $70 billion to build new chip factories, called foundries, in the United States.

The legislation also authorizes a $200 billion increase in funding over the next decade for scientific research to spur technological innovation. The bill is now going through the House of Representatives, which is expected to pass it shortly.

Since the end of the Cold War, American policymakers have generally promoted globalization, arguing that it does not matter where the goods are made. Other countries were determined to attract the manufacturers and the investment and the jobs they brought with them, and we didn’t do much to stop them from leaving, so they left.
The United States has lost millions of good manufacturing jobssaw entire industries drain and rack up trillions of dollars in trade debt as we increased the imports we bought from the rest of the world Faster than the exports we resold.

Even in high-tech products, which should have been our strength, our advantage quickly faded. In 1992, the United States had a trade surplus of nearly $60 billion manufacturing these products for the world (adjusted for inflation). In 2020, we had a deficit of $188 billion, according to the US Department of Commerce.

Semiconductors are the prime example. American laboratories developed the transistor and the integrated circuit in the middle of the 20th century and discovered how to print them on silicon, giving rise to Silicon Valley. Industry leader, Intelpushed the boundaries of smaller, faster chips and dominated the market for smaller, faster chips.
But then Taiwan and South Korea began to make huge investments and provide generous subsidies to their own semiconductor companies – Taiwan Semiconductor Manufacturing Company (TSMC). Analysts believe that, thanks mainly to these policies, building a state-of-the-art smelter in the United States can be expensive 50% more than in these East Asian countries.
Meanwhile, as capital spending increased overseas, Intel opted to make relatively drop in investments than its competitors, preferring return money to shareholders.
Unsurprisingly, Intel no longer sets the standard. Advances in chip manufacturing require ever smaller transistors to be etched onto silicon wafers. TSMC can produce chips with transistors just 5 nanometers (nm) wide, while Intel is stuck at 10 nm and will not reach 7nm until next year.
Pat Gelsinger, who took over as Intel CEO last year, said “we made a few missteps” and that “strategy had gotten a little confused about what role we’re going to play in long-term manufacturing…now we’re looking at that with clarity, with urgency clarity.”
Meanwhile, TSMC may soon be 3nm away. Last month, Samsung began production of its own 3nm chips.
Globally, the United States’ share of semiconductor manufacturing has fallen two-thirds since 1990, at 12%, and continues to decline. Already overtaken by other Asian competitors, the next threat comes from China, which has made huge investments in the industry under its “Made in China 2025“strategy to achieve global leadership in key technologies.
According to the Semiconductor Industry Association, “In 2019, every six new [foundries] that opened globally were outside the United States, with four being built in China, which is investing significant public funds in these new facilities. »

Better late than never, American policymakers have realized the threat of losing global leadership in such vital technology, especially if an adversary like China takes the reins from the United States. Shortages of chips emerging during the Covid-19 pandemic have further underscored the risks of relying on foreign supplies.

Senate passes bipartisan bill investing $52 billion in U.S. semiconductor production
Sounding the alarm bells last year, the National Security Commission on Artificial Intelligence reported“Put simply: America’s advanced chip supply chain is under threat without concerted government action. Rebuilding domestic chip manufacturing will be expensive, but now is the time to act. The United States should engage in a strategy to stay at least two generations ahead of China in advanced microelectronics and commit the funding and incentives to maintain multiple sources of advanced microelectronics manufacturing in the United States.”

The CHIPS Act does just that.

Opponents have expressed concern that funds from the program could end up in China – it “subsidizes the building of semiconductor factories in China”. warns Kevin Roberts, president of the curator Heritage Foundation. But that reflects a serious misunderstanding of how the bill works. The companies only receive public funds under an agreement with the federal government to build national smelters. There is no new incentive to invest in China.

One might fear that a company still makes separate investments abroad, but of course this is an option that such a company already has today. And the bill includes so-called safeguards that prevent recipients of federal funds from expanding their operations in China.

To receive funds, a company must accept that investments in China are limited only to technologies that are several generations outdated. Whereas some reviews I think this restriction should be even stricter and only allow work on even more obsolete chips, the CHIPS law represents an improvement in both directions. This would create greater-than-ever public incentives for building domestic smelters, and greater-than-ever legal restrictions for building Chinese smelters.

The critics are right in this regard: America needs to be even tougher on China. This is not an argument against passing CHIPS – an inflection point marks when a curve begins to change direction, not a complete reversal all at once. But it highlights an opportunity for further progress over the coming year, limiting the technologies companies can send to China and the investments they can make there.

Republicans have been most vocal raising criticism that companies may be investing in China, marking a shift from their historical reluctance to interfere with corporate investment and free trade. Let’s hope they mean what they say, and if their party wins power in Congress in November’s midterm elections, the CHIPS Act will be just the first act.

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