Politicians of both major political parties and at all levels of government can usually agree on one thing: using tax dollars to subsidize select private companies is a good thing.
“Good” meaning “good for politicians, who get to look like friends of free enterprise, job creators, and so much more in the glowing press releases they issue for the folks back home. But subsidies are, in almost every case, very bad policy, and even worse economics. So it is with the tens of billions of dollars a bipartisan majority in Congress voted to hand over to the semiconductor industry.
This is good for jobs, supply chains, national security, and so much more right? Well, of course not. As Cato’s Scott Lincicome and Ilana Blumsack write:
There’s arguably never been a better time to be a chip manufacturer, as intense global demand for their products has translated into billions of dollars in revenue and profits. For example, leading chip manufacturer TSMC earned record profits this year, recording roughly $5 billion in profit each quarter. American national champion Intel, meanwhile, is also highly profitable and had almost $21 billion in free cash flow in 2020 – a 23.62% increase from the previous year. Instead of just sitting on this cash, chipmakers are investing around the world, including in the United States. For example, Samsung began operating a Texas manufacturing plant in 2016, is investing in a second Texas facility, and Intel and TSMC have each opened new facilities in Arizona. According to Harvard’s Willy Shih, these U.S. plans will proceed with or without federal subsidies because chipmakers want “to take advantage of the country’s skilled workforce and to be close to specialized US equipment manufacturers that churn out many of the tools needed to make cutting‐edge semiconductors.” (He also acknowledges that the companies’ subsidy demands are really just a cash‐grab.) On the R&D side, IBM recently revealed the world’s first 2 nanometer chips at its upstate New York facilities, and U.S. “fabless” semiconductor innovation remains world‐beating. Overall, Stevens Institute of Technology professor George Calhoun estimates that private investment in American chip manufacturing will total roughly $80 billion through 2024. These are simply not companies that need taxpayer subsidies – a fact even Intel’s own CEO has confirmed.
They offer six more reasons to oppose semiconductor subsidies at the link. One day, politicians might just come to the realization they are not very good at industrial policy, picking winners and losers, or tossing tax dollars around for less-than-optimal public benefit. Just don’t hold your breath waiting for it.
