Should the US subsidize chip manufacturing? San Diego business leaders are sounding silent

US lawmakers this summer approved about $76 billion in government subsidies for US semiconductor manufacturing.

The investment should limit US reliance on chips in Asian countries, and more funding could come from the Biden administration.

Critics who study the industry question whether American money will make much of a difference. The concern is that the new chip factories will take years to build and may not be able to offer the industry’s most advanced manufacturing technology when they start operating. There is also a significant skills shortage.

US spending sounds like a lot, but it may not move the needle. An analysis by Boston Consulting predicts that $900 to $1.23 trillion in spending will be needed to create self-sufficient semiconductor supply chains worldwide. For the US alone, that’s $350 to $420 billion.

White House officials have argued that the money spent on chip production improves national security, but experts say the US is unlikely to break its dependence on Taiwan despite the significant investment. Reuters recently reported that China is considering a $144 billion support package for its chip industry.

Q: Should the US subsidize chip manufacturing?

David Ely, San Diego State University

THAT: Strong US chip production has spillover effects that benefit other sectors. A reliable domestic source of chips will encourage investment and innovation throughout the economy. National security interests are served by a strong domestic chip manufacturing sector. State subsidies can be conditioned by the companies’ significant investments. U.S. subsidies can also level the playing field to allow U.S. companies to compete with foreign competitors that receive government support.

Ray Major, SANDAG

THAT: If COVID has taught us anything, it’s that an over-reliance on foreign manufacturing and a stable supply chain is potentially disastrous for a national economy. From a strategic perspective, the federal government should focus on key industries such as semiconductor and pharmaceutical manufacturing to ensure that a sufficient percentage of their production is done in the United States. Further efforts should be made to diversify production outside of Asia and encourage production of key components in Mexico and other more friendly countries.

Caroline Freund, UC San Diego School of Global Policy and Strategy

NOT: The US has never had a good industrial policy. Offering too little (making chips is very expensive) too late (the cycle shifts from excess demand to excess supply) is not strategic. The US leads the way in technology because we get talent from around the world, the best ideas find funding, and the general investment climate is good. To maintain leadership, let’s channel scarce public funds into education, research and development without trying to pick winners.

Haney Hong, San Diego County Taxpayers Assoc.

THAT: Normally I wouldn’t want taxpayer dollars going to private companies and creating market disruptions, but our competitors like China are pumping money into this themselves. Some say silicon is the new oil. When semiconductors and computer chips are such a ubiquitous part of our lives, including our national defense, we have a public interest in maintaining some basic industrial base to help us when we have no one to rely on but ourselves.

Kelly Cunningham, San Diego Institute for Economic Research

NOT: The federal government does not need to subsidize multi-billion dollar corporations that make huge profits. The US could reduce trade barriers and domestic costs imposed on manufacturing, but there is little justification for encouraging production of outdated chip-making technologies. Intel has indicated that the worst of the chip shortage has already narrowed in 2022 and will disappear in 2023. The government has little foresight about emerging technologies or predicting upcoming market demand, while bearing little responsibility for making such decisions.

Lynn Reaser, economist

THAT: The US share of global production has fallen from 37 percent in 1990 to 12 percent today. For years, the Taiwanese have continuously developed increasingly efficient chips so that today they control 90 percent of the high-tech chip space. Government subsidies of $76 billion may help, but no one should expect the Taiwanese to lose their dominance anytime soon.

Phil Blair, Manpower

THAT: It’s about self-defense. Chips are an essential component of almost every product, both personal and military. But especially in high-tech military equipment. We need to be as self-sufficient as possible by producing the most innovative chips in the continental US. The fact that other countries are increasing their subsidies only makes it more urgent.

Gary London, London Moeder Advisors

THAT: I am not in a position to know whether the government’s investment in chip manufacturing will affect our competitive position in that industry or our national security. But if chip production wants to diversify, why not target Central American countries? The border crisis was caused by the lack of economic opportunities for mostly low-skilled people. They could certainly be taught to make chips. If the government can support it, I’m in favor of it.

Alan Gin, University of San Diego

THAT: Semiconductors will be an important industry for the foreseeable future, both for economic and national security reasons. Because of the importance of technology, chips are vital in everything from high-tech devices to cars and weapons. It is vital that the US has a strong semiconductor industry and more subsidies may be needed. These subsidies are necessary because the market cannot cope with external influences related to national security issues.

Bob Rauch, RA Rauch & Associates

NOT: While the most advanced chips are imported from Asia, Intel, TSMC and Samsung are planning future investments in the production of advanced/legacy chips in the US, with or without subsidies. These companies do not need incentives from taxpayers or the state. Furthermore, subsidies will not alleviate the current chip shortage. The economic and national security justifications for throwing billions of taxpayer dollars at domestic chipmakers are weak; now we have to question all the costs because we have thrown trillions into this market.

Kirti Gupta, Qualcomm

I’m not participating this week.

James Hamilton, UC San Diego

NOT: The chip shortage is the result of a boom and bust cycle due to uncertainty about how long current conditions will last and how long it will take to meet demand. The subsidies depend on where the political winds are currently blowing, which only adds to the uncertainty. If national security is an issue, I prefer to use regulations or tariffs coordinated with other interested states as a way to solve the problem.

Austin Neudecker, Weave Growth

THAT: Semiconductors are vital components of strategic and everyday objects. Amid a volatile geopolitical landscape, 85 percent of leading chips are manufactured in Taiwan. Although companies are slowly diversifying their sources and manufacturers are investing in domestic production, these are expensive and time-consuming projects. We can encourage development and use subsidy eligibility requirements to align our security and economic interests with the private sector. The rate of progress in robotics, artificial intelligence, etc. will only increase.

Chris Van Gorder, Scripps Health

THAT: Given the importance of semiconductors in every technology from military, defense, medicine and even green technologies, we need to become more independent as a country. Economic stimulus alone may not eliminate the United States’ reliance on chips made in Taiwan and elsewhere, but doing nothing increases our country’s vulnerability to China’s increasing aggression toward Taiwan and its own investments in chip manufacturing capacity.

Norm Miller, University of San Diego

THAT: We learned lessons about critical manufacturing supply chains during COVID. This is a small step toward less dependence on a single supplier, for a critical input into our manufacturing sector, and one that China may one day try to control. We have almost no production capacity compared to our insatiable demand. It will take years and much more money to initiate the establishment of this critical sector of the economy, but it is a step in the right direction.

Jamie Moraga, Franklin Revere

THAT: The US should subsidize chip manufacturing if there is a strategic plan with identified metrics and expected ROI to demonstrate success. The CHIPS and Science Act passed by policymakers last year provides over $52 billion in federal funding for semiconductor research and development, manufacturing and workforce development. If this federal funding can successfully reduce U.S. dependence on foreign chips, ease supply chain problems, bring manufacturing companies and jobs back to the U.S., and protect U.S. national security, then it has been worth it.

Have an idea for an EconoMeter question? Email me at [email protected]. Follow me on Twitter: @PhillipMolnar

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