Why the Chips Act Signals a Return to ‘Industrial Policy’ | WSJ
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
🌅 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.
💡 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
💡Closed captioning
💡MRI machine
💡Microchips
💡Industrial policy
💡Semiconductor production
💡HEPA filter
💡Cold War
💡Space Race
💡National security
💡Bipartisan support
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.
Transcripts
(cheerful music)
- [Narrator] This is just a typical morning.
I'm eating some cereal with lactose-free milk
as I watched some videos on the internet
using closed captioning,
while looking up directions to my MRI appointment.
Okay, maybe not really typical
but just about everything here,
the milk, the TV, the graphics cards, the internet,
the closed captioning, the GPS, the MRI machine
were made possible because of government investments.
- It's probably the case that every technology used today,
at some point there was like government funding involved.
- [Narrator] And the latest technology
that the US government is getting involved in
is manufacturing microchips.
- Folks, we need to make these chips here in America.
- It's law.
- President Biden just signed a bill into law today
boosting domestic semiconductor production.
- There are some big companies
that are set to benefit.
- If it's a good idea to make the semiconductors here,
why do we need the government to help us?
- [Narrator] Here's why the US government
is giving private companies billions of dollars
and why many economists are calling the Chips Act
a return to industrial policy.
- Industrial policy is actually quite a simple term.
It's a set of policies that try to affect the outcome
of some particular industry or industries.
- [Narrator] Industrial policy
can be done through things like tariffs
that make US made products cheaper than foreign ones,
or through tax incentives like getting money back
if you put solar panels on your house,
or what has been less popular in recent years,
direct investments.
Let's go back, way back to Alexander Hamilton.
In 1790, Hamilton proposed tariffs on imported goods
in order to encourage his fellow countrymen
to buy more American products.
- [Speaker] This is the immense plant which gave birth
to the atomic bomb and brought the world to a new crossroad.
- [Narrator] Fast forward to the 20th Century,
to prevent the spread of radioactive contaminants
used during the Manhattan Project,
the US government funded the development of the HEPA filter
which is used in many air purifiers sold today.
World War II also required enormous investment
in radio technology, ship building and jet engines.
- The defense department was largely
the main buyer of many of these technologies.
The commercial market was quite small,
the defense market was quite big.
And so they could really drive
a lot of the movement in industry.
- [Narrator] In the 1960s,
the US government spent more money
on research and development than all other governments,
all foreign private companies
and all US private companies combined.
Why?
The Cold War and the Space Race?
- What did the space program give us?
It gave us Tang
- [Speaker] From Gemini to the Shuttle to Earth families,
- [Both] Bye, mom.
- [Speaker] Great mornings have taken off with Tang.
- Yeah, it gave us Tang,
but it also gave a gazillion other things.
It wasn't talked about as industrial policy.
It was talked about as space policy
or defense policy or health policy,
but it was a defacto industrial policy.
- [Speaker] And liftoff.
- [Narrator] A defacto industrial policy
with many unforeseen benefits.
This robotic prosthetic leg
is powered by small, powerful motors,
originally designed for a robotic arm
on the International Space Station.
Like many of these technologies, semiconductors originated
from research and development programs
funded by the US taxpayer.
- The birth of semiconductors in the United States
had a lot to do with the fact that the Department of Defense
and the space program were the first
big early customers for semiconductors.
- [Narrator] Since 2006, China has prioritized
catching up to the west technologically.
But doing that requires semiconductors.
- China has ramped up its investment in Chips.
- [Narrator] Senator Mark Warner, who is the chairman
of the Senate Select Committee on Intelligence
has long been warning
about the growing threat posed by China.
- China has been able to throw literally, you know,
two, three, four times as much money at trying to build up
their semiconductor chip capacity as the United States.
- [Narrator] This is where the Chips Act comes in.
The legislation offers $53 billion in direct investment
plus a separate tax incentive program
to reinvigorate the US chip industry.
- So, what the Chips bill did was say,
we're gonna take 52 billion,
but we're going to take about 40 billion of that
and try to get the semiconductor factories
that are called Fabs,
get the Fabs to locate here in America
- [Narrator] Today, the US still dominates
the most lucrative links in the semiconductor supply chain
including the design of chips.
But the fabrication of chips
has increasingly moved to China, South Korea, and Taiwan.
- Over the last 20 years,
a lot of that industry has migrated to East Asia
where land and labor are cheaper
and there are a lot of subsidies available
- [Narrator] Because of this,
the US share of global chip making
has shrunk from 37% in 1990 to 12% in 2020.
China went from zero to about 15% in the same time.
- If we don't do this, I don't think there'll be another
chip manufacturing facility built in America.
- Senator Warner sees this as a national security issue.
- Over the last particularly 15 or 20 years,
what we've seen is that national security
is no longer who has the most military hardware
but also who controls what technology domains.
- [Narrator] The US now buys more than 90%
of its advanced chips from Taiwan,
an island China sees as its territory.
Any conflict in Taiwan
could dramatically disrupt global chip supplies.
- We all saw what happened during the pandemic
when chip factories shut down overseas.
We can never let that happen again.
- We have never before been
in this kind of a Cold War type conflict
with a power that was also a worthy economic peer.
And I think it is awakened, in the United States,
an awareness that we cannot simply allow
the private market to allow vital technologies
and capabilities to entirely migrate to a country
that we are in an adversarial situation with.
- So our competitors are pouring
tens of billion dollars into boosting their own supply
of these essential semiconductors,
and the United States needs to keep up and to compete.
The vast majority of our colleagues
agree that this was an important and critical task.
- [Narrator] When was passed,
the Chips Act received rare bipartisan support.
The yays are 64, the nays are 33.
- There is broad bipartisan agreement
that China is the challenge of our time,
and that in these areas of technology
we can't allow America to fall behind.
- [Narrator] Critics of industrial policy
accuse it of picking winners
rather than letting the free market determine
which companies succeed.
Some of the most famous industrial policy failures
include investment targeted at a single company.
At former President Donald Trump's urging,
in 2017, Taiwan's Foxconn Technology Group promised to build
a flat panel display factory in Wisconsin.
- This is a great day for American workers
and for everyone who believes
in the concept and the label, Made in the USA.
- But five years later, and that factory remains unbuilt.
Critics of industrial policy also point to Solyndra
- When it's completed in a few months,
Solyndra expects to hire 1,000 workers
to manufacture solar panels
and sell them across America and around the world.
(audience applauding)
- [Narrator] But in 2011,
the solar manufacturer went bankrupt
after it defaulted on $535 million in federal loans.
But proponents of the Chips Act say,
it's not about picking specific firms
like Intel or Taiwan Semiconductor
- Good industrial policy funds a variety of firms,
big, small, even foreign,
long as they're doing the work in the US
and they're not our adversaries.
- [Narrator] The ability to apply for this money
is drawing major investment from these firms right now.
Both Intel and TSMC are spending billions
to build new Fabs in the US.
- I think one thing we're gonna learn
is that industrial policy is expensive
and we have large government deficits.
And so, I think one of the things that will put the breaks
on the Rush to industrial policy is the fact that
you'll have to persuade, you know,
Congress to vote for this money and that's not easy to do.
The Republican senators, for example,
who gave their support to the Chips Act,
they did so because they saw this
as a narrow exception to their general mistrust
of the government being able to spend money
better than the free market.
And I think that there will not be
many other industries that meet that test.
(cheerful music)
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