Why the Chips Act Signals a Return to ‘Industrial Policy’ | WSJ

The Wall Street Journal

27 Mar 202308:30

Summary

TLDRThe video discusses the importance of the US government's involvement in technology development through initiatives like the Chips Act. It highlights how past government investments in areas like semiconductors, space exploration, and defense fueled innovation. With growing competition from China in semiconductor manufacturing, the US government is now investing billions to boost domestic production, seeing it as a matter of national security. Despite criticisms of industrial policy, proponents argue that it’s crucial for maintaining technological leadership and economic competitiveness in the face of global challenges.

Takeaways

🥛 The script begins with a narrator enjoying a typical morning with products like lactose-free milk, highlighting how government investments have played a role in everyday technologies.
🏭 The US government is currently focusing on boosting domestic semiconductor production, which is crucial for various technologies.
💼 There's a historical precedent for government involvement in industry, dating back to Alexander Hamilton's提倡 of tariffs to support American-made products.
🚀 Government-funded research during the 20th century, like the Manhattan Project and the Space Race, led to innovations with broad applications, such as the HEPA filter and Tang.
🌐 The US government was the leading investor in R&D during the 1960s, driven by the Cold War and Space Race, which indirectly supported industrial development.
📈 The Chips Act represents a modern form of industrial policy, aiming to revitalize the US semiconductor industry with significant direct investment and tax incentives.
💹 The US semiconductor industry has seen a decline in global market share due to cheaper labor and land in East Asia, as well as subsidies available there.
🌎 China's technological advancement and investment in semiconductors pose a challenge to the US, prompting the need for the Chips Act to maintain competitiveness.
🏛️ The Chips Act is seen as a national security measure, as reliance on foreign chip manufacturing, especially from potential adversaries, poses risks.
🤝 The Act received bipartisan support, indicating a consensus on the importance of maintaining technological leadership in the face of global competition.
🚫 Critics argue that industrial policy can lead to government 'picking winners' and may not be as efficient as market-driven outcomes, citing past failures like Solyndra.

Q & A

What is the main focus of the video?
-The video focuses on the role of government investments in advancing various technologies, with an emphasis on the US government's involvement in the semiconductor industry through the Chips Act.
What is industrial policy, as described in the video?
-Industrial policy refers to a set of policies that aim to influence the outcome of specific industries. It can involve tariffs, tax incentives, or direct investments to promote domestic industries.
Why is the US government investing in semiconductor manufacturing?
-The US government is investing in semiconductor manufacturing to ensure that chip production remains in the US for national security reasons and to compete with countries like China, which have heavily invested in semiconductor technology.
What is the Chips Act, and what does it aim to achieve?
-The Chips Act is a US government initiative that offers $53 billion in direct investment and tax incentives to boost domestic semiconductor production. Its goal is to revitalize the US chip industry and reduce dependency on foreign chip manufacturers.
Why are semiconductors important for national security?
-Semiconductors are essential for modern technology, including military hardware. As the US relies on countries like Taiwan for more than 90% of its advanced chips, any conflict in Taiwan could disrupt chip supplies and pose a significant risk to national security.
How has the global semiconductor industry shifted over the years?
-Over the past 20 years, semiconductor manufacturing has shifted to East Asia, especially China, South Korea, and Taiwan, where land, labor, and government subsidies are more affordable. The US's share of global chip manufacturing has dropped from 37% in 1990 to 12% in 2020.
What are some examples of government-funded technologies mentioned in the video?
-Examples include the HEPA filter, developed during the Manhattan Project, and semiconductors, which were initially funded by US defense and space programs. These technologies were later adapted for widespread commercial use.
What criticisms exist against industrial policy, and what examples are given?
-Critics argue that industrial policy often involves 'picking winners,' where the government favors certain companies over others. Examples of failures include the Foxconn factory project in Wisconsin, which never materialized, and the Solyndra solar company, which went bankrupt after receiving federal loans.
Why did the Chips Act receive bipartisan support in the US Congress?
-The Chips Act received bipartisan support because both parties recognized the strategic importance of semiconductors for national security, especially in light of the growing competition with China.
What role did government investments play in the early development of semiconductors in the US?
-Government investments, particularly from the Department of Defense and the space program, were crucial in the early development of semiconductors. The government was one of the first major customers for semiconductor technology, helping to drive its innovation and commercialization.

Outlines

00:00

🌅 A Not-So-Typical Morning Powered by Government Investments

The narrator introduces a seemingly typical morning, where technologies like lactose-free milk, GPS, closed captioning, and MRI machines are all connected through government investments. The narrative shifts to the government's involvement in developing various technologies, emphasizing the impact of public funding. The focus is then on a recent government initiative: microchip manufacturing in the U.S., framed by President Biden’s signing of the CHIPS Act, which supports domestic semiconductor production.

05:02

💡 The Role of Industrial Policy in Technological Advancements

The concept of industrial policy is introduced, where government policies influence certain industries. Examples of industrial policy include tariffs, tax incentives, and direct investments. The video takes viewers back to Alexander Hamilton's proposal of tariffs in 1790 and moves forward to significant government-funded innovations such as HEPA filters, jet engines, and radio technology during World War II. These investments had unforeseen benefits, driving technological progress that continues to shape modern life, including semiconductors originally developed for defense purposes.

🚀 The Cold War, Space Race, and the Birth of Semiconductors

In the mid-20th century, the U.S. government outspent all other entities on research and development, driven by the Cold War and the Space Race. While space programs gave society consumer products like Tang, they also led to countless other innovations, including semiconductors, which had their origins in defense and space programs. The narrative highlights how public funding has historically bolstered major technological advancements, and these investments were industrial policy in action, even if not labeled as such.

🏭 China’s Semiconductor Surge and the U.S. Response

China has made significant strides in semiconductor technology over the past two decades, becoming a major player in the global market. The video highlights concerns from U.S. Senator Mark Warner about China's heavy investments and the national security risks this presents. In response, the CHIPS Act allocates $53 billion to reinvigorate domestic semiconductor production. This act aims to strengthen U.S. chip manufacturing through incentives to attract companies to build semiconductor fabs in America, reversing the industry’s migration to East Asia.

⚖️ The National Security Implications of Global Chip Dependencies

The U.S. dominance in chip design contrasts with its decreasing share in chip fabrication, which has moved to countries like Taiwan, South Korea, and China. Taiwan, in particular, produces 90% of advanced chips, posing a major risk to global supply chains in the event of a conflict with China. This situation became apparent during the pandemic, when chip shortages disrupted industries worldwide. The video emphasizes that national security now extends beyond military hardware to control over critical technology domains.

🇺🇸 Bipartisan Support for the CHIPS Act

The CHIPS Act received strong bipartisan support, passing with a vote of 64 to 33 in the Senate. Both parties recognize the importance of competing with China in key technological areas. However, critics argue that industrial policy can lead to failures, as seen in cases like the Foxconn factory in Wisconsin and Solyndra’s bankruptcy. Proponents of the CHIPS Act stress that the focus is on supporting a wide range of firms in the semiconductor sector, not picking individual winners.

💰 Industrial Policy: Expensive but Necessary for National Competitiveness

The final part of the video discusses the financial challenges of industrial policy. While the CHIPS Act represents a significant investment, it highlights broader concerns about government deficits. Republican senators backed the act due to its national security implications, but many are wary of expanding industrial policy into other sectors. The video concludes by pointing out that while industrial policy is costly, it is seen as essential to keep the U.S. competitive in critical technology industries.

Mindmap

Keywords

💡Lactose-free milk

Lactose-free milk is a dairy product that has had its lactose removed or reduced to make it suitable for people with lactose intolerance. In the video, it is used as an example of a product that might not have been as widely available without government investments in technology and health.

💡Closed captioning

Closed captioning refers to the text displayed on video content to provide the audio portion for viewers who are deaf or hard of hearing. It is mentioned in the script as an example of technology that has benefited from government support, enhancing accessibility in media consumption.

💡MRI machine

An MRI machine, or magnetic resonance imaging machine, is a medical device used to create detailed images of the inside of the body. The script implies that government investments have played a role in the development and accessibility of MRI technology.

💡Microchips

Microchips, also known as semiconductors or chips, are tiny electronic components used in various devices. The video discusses how the US government is investing in domestic microchip manufacturing to reduce reliance on foreign suppliers and maintain technological leadership.

💡Industrial policy

Industrial policy refers to government actions intended to shape a country's economic structure and aid the development of specific industries. The script explains how the Chips Act is a form of industrial policy aimed at bolstering the US semiconductor industry.

💡Semiconductor production

Semiconductor production involves the manufacturing of microchips. The video highlights the US government's recent efforts to increase domestic production to ensure national security and economic competitiveness.

💡HEPA filter

A HEPA filter is a type of air filter that can remove at least 99.97% of airborne particles. The script mentions that the US government funded the development of the HEPA filter during the Manhattan Project, illustrating the historical role of government in technological innovation.

💡Cold War

The Cold War was a period of geopolitical tension between the United States and the Soviet Union and their respective allies. The video discusses how the Cold War drove significant US government investment in research and development, including space exploration.

💡Space Race

The Space Race was a 20th-century competition between the US and the Soviet Union to achieve superior space exploration capabilities. The video notes that this competition led to many technological advancements, indirectly benefiting various industries.

💡National security

National security encompasses the measures taken by a government to protect its country and interests from threats. The script connects the Chips Act to national security by discussing the risks of relying on foreign chip suppliers and the importance of domestic production.

💡Bipartisan support

Bipartisan support indicates that members of both major political parties in the US agree on a particular policy or legislation. The video notes the rare bipartisan agreement on the Chips Act, highlighting the perceived urgency and importance of the issue.

Highlights

Government investments have played a crucial role in the development of various technologies.

US government is investing in microchip manufacturing to boost domestic production.

Industrial policy involves a set of policies aiming to affect the outcome of specific industries.

Alexander Hamilton proposed tariffs on imported goods to encourage buying American products in 1790.

US government funded the development of the HEPA filter during the Manhattan Project.

World War II led to significant government investment in radio technology, shipbuilding, and jet engines.

In the 1960s, the US government was the largest investor in research and development globally.

Semiconductors originated from research and development programs funded by the US taxpayer.

China has been increasing its investment in semiconductor chips to catch up technologically with the West.

The Chips Act offers $53 billion in direct investment to reinvigorate the US chip industry.

The US share of global chip making has shrunk from 37% in 1990 to 12% in 2020.

Senator Mark Warner warns about the growing threat posed by China in semiconductor chip capacity.

The US now buys more than 90% of its advanced chips from Taiwan, which could be a national security issue.

The Chips Act received rare bipartisan support in Congress.

Critics of industrial policy argue it picks winners rather than letting the free market decide.

Proponents of the Chips Act say it's not about picking specific firms but funding a variety of firms.

Intel and TSMC are investing billions to build new fabs in the US due to the Chips Act.

Industrial policy is expensive and requires persuading Congress to vote for funding.