Imagine a world without semiconductors. What would it look like? Well, you wouldn’t be able to use your cell phone or laptop. Your car would probably not be drivable. You wouldn’t be able to watch your favorite team live on television, in fact, you probably wouldn’t be watching TV at all. What do all of these products and so many more have in common? They all rely on semiconductor chips. Much of the technology used in the design and production of today’s semiconductor chips grew out of the 1960s U.S. space program. Today, the United States continues to be at the forefront of chip design, but Taiwan has become the global source of chips. If you’re thinking that this all seems like a typical product development scenario, you’d be right. It’s common for companies to maintain R&D at home and rely on low cost countries for production, but in the case of semiconductors, this strategy has government leaders worried. Senator Mark R. Warner of Virginia, for example, points out that that depending on Taiwan for a product that is so essential to everyday life, not to mention our military operations represents a significant threat to U.S. national security, especially when you consider that Taiwan is a country that Beijing views as part of China.
The CHIPS Act, which received bipartisan support, is set to change that. Under the CHIPS Act, the United States will make huge investments in home-based semiconductor development and production. With $50 billion on the table, the legislation has been a focus for U.S. companies looking to expand their domestic business. Since the CHIPs Act passed in 2022, more than 200 have applied to the program which will offer a combination of tax credits, funding, and other financial incentives. Now, in a sign that the United States isn’t the only country recognizing the threat posed by overreliance on foreign produced chips, the European Union (EU), the economic and political bloc that unites much of Europe, has introduced its own legislation designed to encourage domestic production. While the EU package isn’t quite as large as the CHIPS Act, it too will shift production away from Taiwan. Indeed, it seems that the status quo in global chip production is about to change in a big way.
Discussion Questions:
1. What is industrial policy? Senator Mark R. Warner, among others maintains that the CHIPS Act is essential to national security. Do you agree? Is it ok to use industrial policy in this way?
2. Discuss how the CHIPS Act will affect competition in the market. Does it favor certain companies? Do you agree with critics who argue that the legislation effectively means that government is picking which companies will succeed and which will struggle?
3. Reflect on the new legislation by the EU to promote its own domestic semiconductor production. What are the implications for U.S. competitors?
Sources: CNBC: https://www.cnbc.com/2023/04/14/commerce-secretary-raimondo-over-200-companies-seek-chips-act-funding.html, https://www.cnbc.com/2023/04/19/europe-approves-its-47-billion-answer-to-bidens-chips-act.html; CBS News: https://www.cbsnews.com/news/the-chips-act-rebuilding-americas-technological-infrastructure/; Bloomberg: https://www.bloomberg.com/news/articles/2022-06-09/biden-s-52-billion-chip-plan-sputters-as-lawmakers-eye-election; McKinsey: https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-chips-and-science-act-heres-whats-in-it; Photo by Vishnu Mohanan on Unsplash