Last Thursday, the U.S. Senate advanced a comprehensive legislative plan for the "Innovation and Competition Act" aimed at improving the competitiveness of the United States against Chinese technology. The Wall Street Journal published a social commentary on this, arguing that the "Innovation and Competition Act" has an impact on the US semiconductor industry. Implementing government subsidies will only waste taxpayers' money.
The article mentioned that competition with China will determine the direction of the American national fortune in the next few decades, and the bigwigs in the US Congress do not want to stand idly by. The recently promulgated 1,500-page "Innovation and Competition Act" made a bad start. It did not help the United States' innovation or competitiveness.
The article pointed out that, on the surface, the bill represents a cross-party consensus, but it actually reflects the stereotype and narrow political spectrum of typical congressional spending surges. One of the main sponsors of the bill, member of the House of Representatives Ro Khanna, said frankly: "Everyone knows that this bill will pass, so every lobbyist will want to increase the content of the bill as much as possible."
Wall Street considers Biden’s series of China Competition Acts to be old-fashioned political tricks.
The Wall Street Journal believes that revitalizing the US semiconductor industry is actually not so urgent. Due to economies of scale, computer chip manufacturing (rather than design) has actually been highly commoditized, with Samsung, TSMC and Intel occupying a leading position in manufacturing. Although the United States accounts for 12% of global chip manufacturing, American companies dominate in design (52%) and equipment (50%), leading China by several positions, and the United States is mainly private groups raising funds to develop the semiconductor industry.
What the US needs to worry about is China's Taiwan region. This region accounts for about 20% of global production capacity. The Trump administration has asked TSMC to build a new factory in Arizona. Strengthening defense in the Asia-Pacific region requires increased defense spending, but Biden’s budget actually cuts defense spending.
Industrial development policies are always inextricably linked with politics. American companies that follow free market principles rely on "invisible hands" to allocate capital to the most effective areas, but government subsidies will guide investment in the direction oriented by politicians. Majority leader Chuck Schumer has promised that the bill will bring chip manufacturing to the New York State area, which coincides with the ideas of Secretary of Commerce Gina Raimundo.
The bill also includes the use of $120 billion in advanced technology research, which will double the annual budget of the National Science Foundation (NSF). This may be helpful to increase investment in basic research, especially in defense technology. But most of the funds in the Senate bill will be used directly for applied research funded by private companies.
The allocation of funding to various scientific research institutions is also closely related to geopolitics. The bill will establish a new Technology and Innovation Council independent of the National Science Foundation to ensure fair distribution of funds and create domestic employment. But what really effectively stimulates research is ideas rather than job creation.
The article also pointed out that the allocation of funds for the bill did not use reasonable places, such as political correctness involving race. Some of the funding is also used for other projects, such as research on the issue of sexual harassment in the science and engineering (STEM) group, and "alternative solutions to the dynamics of rights, hierarchy, and dependence in academia," in an attempt to frighten China. A better orientation of the bill is to provide scholarships to undergraduates and graduate students studying artificial intelligence. However, only colleges and universities that are recognized as "diverse and non-traditional student groups" are eligible for funding. Will more Asian students make a school lose its subsidy?
Many Republicans support the bill because they believe that the United States needs to follow the Chinese model to deal with China. But the advantage of the United States has always been its capitalist system, which protects intellectual property rights and encourages private investment and innovation through market competition. This is how the United States responded to Japan's challenges in the 1980s and 1990s. In the past ten years, US companies’ R&D expenditures have almost doubled, and they are in a leading position in most advanced technology fields. In contrast, the Chinese model is more inclined to engage in government subsidies.
Three days later, the "Wall Street Journal" comment received a positive response from George Mason University professor Donald Boudreaux. He wrote an article and analyzed that it is a waste of time and money to spend money on the US semiconductor industry.
He believes that it is extremely absurd to throw 54 billion U.S. taxpayers' money on a US semiconductor industry that is said to be in trouble. American semiconductors are not in a crisis moment as it is supposed to be. Scott Linsicombe of the Cato institute recently summarized the U.S. semiconductor industry: "The U.S. is one of the world's top five semiconductor and related equipment exporters. In 2019, it exported nearly $47 billion in semiconductor products. Combined with the report of the American Semiconductor Industry Association (SIA), it can be concluded that the foundation of US semiconductor manufacturing is still solid.” The SIA report also pointed out that the US semiconductor industry has accounted for nearly half of the total global semiconductor sales since the late 1990s. Since this number has been very stable, the US semiconductor industry has always been a global leader in capital expenditures and R&D.
Donald Boudreaux concluded that subsidies are useless for a declining industry, while a booming industry does not require government subsidies.