Pro/Con: CHIPS and SCIENCE Act will boost manufacturing, stop offshoring, improve lives here – Duluth News Tribune

The Chips and Science Act is an innovative and important industrial policy. It makes targeted investments in critical industries to strengthen America’s manufacturing base, protect workers, and strengthen America’s national and economic security. This will help reverse the decades-long trend of employment and supply-chain offshoring and contribute to inclusive growth.

The legislation, signed by President Joe Biden, after passing both chambers of Congress with bipartisan support, has two compelling ideas. The first is an understanding that economic competition, especially in advanced manufacturing, often requires systematic government support. Support is needed because “public goods” problems are endemic. The 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 is based on scientific discovery, translating innovations into prototype products and manufacturing processes, adequate standards and tests to control quality, and a well-trained workforce. Because private actors cannot capture all the benefits of investment under these preconditions—it is difficult, for example, to keep scientific ideas secret or prevent well-trained workers from moving to other jobs—the level of private investment in each of them is insufficient. . The CHIPS and SCIENCE Act includes initiatives to address these market failures and allows American manufacturers to develop technologies and products that would otherwise be out of reach. Furthermore, it is designed to increase economic growth in diverse sectors and make access to high-wage jobs more inclusive.

The law provides substantial support for basic and applied scientific research in frontier areas such as artificial intelligence, quantum computing, communications, energy, and materials science. It funds 20 regional technology centers dedicated to helping companies access innovations and prototype new products. State governments, universities, and other nonprofit organizations will receive funding to help small firms upgrade their technological capabilities, expand product ecosystems, and create job opportunities. STEM education will be expanded to lower barriers to the recruitment and advancement of women and minorities. Standards and testing will receive much needed support.

Risks to economic and national security are also central to the law. A continued slowdown in domestic auto production due to chip shortages illustrates the economic risks. National security risks include the need for the Department of Defense to source critical components of national defense electronic systems from locations in Asia.

Under the existing global division of labor in semiconductor manufacturing, both risks are substantial. The United States is dominant in semiconductor design but has a relatively small and declining share of chip manufacturing. Taiwan occupies a dominant position in manufacturing, operating leading-edge chip “foundries” that manufacture to customer specifications. Assembly, testing, and packaging of semiconductors are primarily done by contract manufacturers in Taiwan and China. This means that important elements of the semiconductor supply chain are subject to events in other countries and, in the case of companies in Taiwan and China, to Chinese government intervention.

Foreign government intervention has greatly affected the geography of semiconductor production. For example, Taiwan provides subsidies for land, construction and construction equipment that reduce construction costs by 25% to 30%. China has provided one firm, Yangtze Memory Technology, with $24 billion in subsidies and earmarked $100 billion for 60 new manufacturing facilities.

To change the manufacturing landscape and reduce risk, the legislation authorizes the Commerce Department to provide $39 billion in financial assistance to build, expand or modernize domestic facilities and equipment for semiconductor manufacturing, assembly and packaging, and research and development. This support, along with the 25% investment tax credit in the law, provides a significant incentive to site and expand production in the United States. Furthermore, if a firm invests in advanced manufacturing in countries such as China within 10 years, the funds and credits will be returned, strategic gains will not be subject to rapid reversal.

In short, the CHIPS and SCIENCE Act will produce remarkably broad and significant benefits. American manufacturing will be more productive and competitive. This will create opportunities for higher-paying jobs, and wider access to STEM education means these benefits will be more inclusively shared. The functioning of the economy will be less vulnerable to unpredictable global events and 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.

Mark Jarsulik 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.

Mark Jarsulik

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