Pro/Con: CHIPS and Science Act here to increase production, curb offshoring, improve lives – Duluth News Tribune

CHIPS and the Science Act is an innovative and important industry policy. It makes targeted investments in critical industries to strengthen America’s manufacturing base, protect workers, and strengthen U.S. national and economic security. It will help reverse the decades-old business and supply chain offshoring trend and contribute to inclusive growth.

The law, signed by President Joe Biden after passing both houses of Congress with bipartisan support, has two motivating ideas. The first is the understanding that economic competitiveness, especially in advanced manufacturing, often requires systematic government support. Support is needed as “public domain” issues are common. Second is the recognition that the United States lacks reliable access to critical semiconductor manufacturing capacity, which creates economic and national security risks.

Advanced manufacturing relies on scientific discoveries, the translation of discoveries into prototype products and manufacturing processes, adequate standards and testing to control quality, and a well-trained workforce. Because private actors do not reap the full benefits of investing in these prerequisites (for example, it is difficult to keep scientific ideas secret or prevent well-trained workers from leaving for another job), the level of private investment in each is insufficient. . CHIPS and the Science Act include attempts to correct these market failures and allow US manufacturers to develop technologies and products that would otherwise be out of reach. It is also designed to boost economic development in various regions and make access to higher-paid employment more inclusive.

Law provides significant support for fundamental and applied scientific research in leading fields such as artificial intelligence, quantum computing, communications, energy and materials science. It funds 20 regional technology centers dedicated to helping companies access discoveries and prototype new products. State governments, universities and other nonprofits will receive funding to help small firms upgrade their technological capabilities, expand their manufacturing ecosystems and create employment opportunities. STEM education will be expanded to reduce barriers to the recruitment and advancement of women and minorities. Standards and tests will receive much needed support.

Risks to economic and national security are also a focus of the law. The ongoing slowdown in domestic automobile production due to chip shortages demonstrates economic risks. National security risks include the need for the Department of Defense to procure critical components of national defense electronic systems from locations in Asia.

Under the current global division of labor in semiconductor manufacturing, both risks are significant. The United States is dominant in semiconductor design, but has a relatively small and declining share in chip manufacturing. Taiwan occupies a dominant position in manufacturing, operating pioneering chip “foundries” that manufacture to customer specifications. The assembly, testing and packaging of semiconductors into finished components is mainly done by contract manufacturers in Taiwan and China. This means that key elements of the semiconductor supply chain are subject to events in other countries and, in the case of companies in Taiwan and China, Chinese government intervention.

Foreign government interventions have greatly influenced the geography of semiconductor manufacturing. Taiwan, for example, provides subsidies for land, construction and manufacturing equipment that reduce production costs by 25 to 30%. China provided $24 billion in subsidies to a single firm, Yangtze Memory Technology, and allocated $100 billion in support for 60 new manufacturing facilities.

To change the production map and mitigate risk, the law authorizes the Department of Commerce to provide $39 billion in financial assistance to build, expand or modernize local facilities and equipment for semiconductor manufacturing, assembly and packaging, and research and development. This support, together with the 25% investment tax credit in law, provides a significant incentive to establish and expand production in the United States. Also, if a firm invests in advanced manufacturing in countries like China within 10 years, strategic gains will not be subject to rapid returns, as funds and loans will be withdrawn.

In short, CHIPS and the Science Act will provide remarkably broad and significant benefits. American production will be more productive and competitive. This will create opportunities for higher paying employment and expanded access to STEM education will mean these gains will be shared more inclusively. The functioning of the economy will be less at risk from unexpected global events and will become less dependent on anti-democratic countries. These results are a reminder of the power of well-designed economic policy to improve the lives of all Americans.

Marc Jarsulic is a senior fellow and chief economist at the Center for American Progress (americanprogress.org), a liberal public policy research and advocacy organization in Washington, DC.

Marc Jarsulic

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