Industrial policy is back in vogue in America, on a grand scale. Applications have opened to companies for a share of the $39bn funding earmarked by last year’s $280bn US Chips and Science Act to build an advanced semiconductor manufacturing capability. Along with the $370bn subsidies for clean energy in the Inflation Reduction Act, the chips project is emblematic of the Biden administration’s approach. Putting the US back among the leaders in top-end chipmaking is likened to a new moonshot. But the White House is freighting it with additional policy aims that endanger the project’s chances of success.One rule of industrial policy is to use it sparingly. Governments in advanced economies have no business intervening widely to support “winners”. Achieving national security goals is one area where a state-led strategy and funding can sometimes be justified — and the White House has a defensible case that reducing US reliance on foreign-made microchips is vital.
The US share of global microchip manufacturing capacity has fallen from 37 per cent in 1990 to 12 per cent today. More importantly Taiwan, mostly via Taiwan Semiconductor Manufacturing Company or TSMC, produces more than 90 per cent of the world’s leading-edge chips, crucial for defence applications and technologies such as cloud computing, fast communications networks and artificial intelligence. Chinese action against Taiwan — no longer such a remote possibility — could cripple chunks of US industry.
A second rule is to set precise goals and stick to them. The chips plan aims to expand manufacturing of advanced logic chips the US doesn’t produce, creating at least two “clusters” including a supplier ecosystem and research and development facilities. But the administration has tacked on a list of conditions for companies receiving funding. They cannot expand advanced chip capacity in China for 10 years, or use funds for share buybacks or dividends. They must share returns above agreed levels with the government, pay union wages for construction and ensure access to affordable childcare.