“Government favoritism in the form of subsidies, tariffs, and other interventions allocates resources (labor and capital) differently than the way resources are allocated by consumers spending their own money. Ordinarily, businesses—spending their investors’ money—compete for these consumer dollars. Industrial policy rests on the assumption that such market outcomes don’t adequately support higher causes such as national security. If that’s true, it’s all the justification industrial policy needs. Nothing needs to be said about jobs.”
“As Noah Smith reminded his readers in a recent blog post, “Most of the actual production work will be done by robots, because we are a rich country with very high labor costs and lots of abundant capital and technology. Automated manufacturing is what we specialize in, not labor-intensive manufacturing.””
“Be wary of those who push industrial policy as a means of job creation. It’s a short-sighted approach that distracts us from the more important question, which is whether hindering the market allocation of resources is truly justified for national security or other valid reasons.”
“The clean energy subsidies that undergird President Joe Biden’s climate agenda have just prompted one Norwegian manufacturer to choose Michigan, not Europe, as the site of a nearly $500 million factory that will produce the equipment needed to extract hydrogen from water. And other European-based companies are being tempted to follow suit, people involved in the continent’s hydrogen efforts say — making the universe’s most abundant substance the latest focus of the transatlantic trade battle on green energy.
The Norwegian firm, Nel, announced its decision in May, nine months after Congress approved Biden’s flagship climate law, the Inflation Reduction Act. The move takes 500 new jobs to the other side of the Atlantic, despite the European Union’s efforts to position itself as the obvious place for clean tech investment.”
The U.S. Defense Industrial Base Is Not Prepared for a Possible Conflict with China Seth G. Jones. CSIS. https://features.csis.org/preparing-the-US-industrial-base-to-deter-conflict-with-China/ Affordable Mass: The Need for a Cost-Effective PGM Mix for Great Power Conflict Mark A. Aunzinger. 2021 11. Mitchell Institute. https://mitchellaerospacepower.org/wp-content/uploads/2021/11/Affordable_Mass_Policy_Paper_31-FINAL.pdf Ukraine War
“subsidized firms must provide “high-quality childcare for plant workers.” They can even divert some of the subsidies to build child care centers and hire providers—activities that do little to increase the supply of microchips. Companies will also be required to do all sorts of financial disclosures and share part of any unanticipated profits with the government. Preference for funding will be given to companies that promise not to buy back stock. The New York Times cleverly named this approach the “Chips and Strings.”
These strings will significantly undermine chip manufacturing by increasing production costs. For instance, when the administration says high-quality child care, it really means more expensive child care because of requirements that caregivers be college-educated and such. Building those child care and chip factories will be subjected to Buy American and environmental requirements, Davis-Bacon pay requirements, and minority and women material sourcing requirements, along with pressure to be more open to the demands of labor unions.”
“On its face, the idea of increasing semiconductor manufacturing in the US seems like it would help address the global supply crunch for computer chips, which has made it harder to buy everything from cars and laptops to sex toys and medical devices during the pandemic. Senate Majority Leader Chuck Schumer (D-NY) has even suggested that the funding package could help fight inflation, presumably by making these goods cheaper.
But while it’s certainly fair to call the legislation a victory for bipartisanship, this plan is primarily focused on keeping up with China’s growing investment in its own domestic chip industry — not solving the present issues with the tech supply chain. The chip factories produced by this package won’t be complete for years, and the bulk of the funding won’t necessarily go toward basic chips, also known as legacy chips, which account for much of the ongoing shortage. And that shortage may be nearing its end anyway.”
“For nearly 90 years, the Export-Import Bank of the United States has subsidized foreign purchases of goods produced by politically connected American businesses. Now it will start loaning money to U.S. companies that do little or no business overseas.
In April, the Ex-Im Bank’s board of directors voted unanimously to launch a new “Make More in America” initiative aimed at subsidizing American manufacturers instead of their foreign customers. Rather than unwinding and abolishing the Ex-Im Bank, as some fiscal conservatives have been trying to do for years, this new program is likely to further entrench the bank’s role in federal industrial policy.
“This is worse than mission creep,” says Sen. Pat Toomey (R–Pa.), the top Republican on the Senate Banking Committee and a longtime skeptic of the Ex-Im Bank. “There is no reason that taxpayers should have to back domestic financing when we live in a highly developed market economy in which promising businesses have access to capital on competitive terms.”
Toomey submitted a series of questions to Ex-Im Bank President Reta Jo Lewis about the new program. The answers he received are telling.
In response to Toomey’s request for evidence that a new domestic loan program is needed, Lewis wrote that “it is difficult” to identify a financing shortage, noting that “U.S. capital markets are deep and liquid.” Where there are “gaps,” she said, they exist among “non-investment grade or unrated borrowers.”
Applicants for the new loans, Lewis said, “will need to demonstrate that the required financing is not otherwise available from the private sector.” In other words, these loans will go to projects that private capital markets have deemed too risky to finance.
The Ex-Im Bank’s low-interest loans to overseas buyers of American goods have long benefited companies like Boeing, which can undercut foreign competition with the U.S. government’s help. But there is little evidence that the Ex-Im Bank has actually boosted American exports.
From 2014 to 2018, the bank was effectively shut down when conservatives in Congress temporarily suspended its lending authority. American exports nevertheless grew from $2.3 trillion to a then-record $2.5 trillion during that period.
Former President Donald Trump signed a bill reauthorizing the bank in 2018. President Joe Biden now plans to expand its mandate. Having failed to prove its worth in the global marketplace, the Ex-Im Bank will waste taxpayer money here at home.”
“The current legislation has swelled to a total cost of more than $400 billion. The core of the bill is $76 billion in direct funding for domestic semiconductor manufacturing through a variety of grants and tax credits. The rest of the money, beyond doubling the budget of the notoriously silly spenders at the National Science Foundation, is predictably a billion here and a billion there for vaguely named programs with even more ambiguous purposes. For example, as the Wall Street Journal editorial board pointed out, “The Commerce Department gets $11 billion, most of which it intends to plow into creating 20 new ‘regional technology hubs,’ which will somehow expand ‘U.S. innovation capacity.'””
“Proponents of the legislation would have you believe that the U.S. is overly reliant on foreign, unreliable suppliers of semiconductors, particularly those under threat from China. Semiconductors are unbelievably important components in practically countless goods relied on every day, but that’s no excuse to ignore the fact that the domestic semiconductor industry is, per a 2020 report by the Semiconductor Industry Association, “on solid footing.” U.S.-based semiconductor firms hold nearly half of the global market share, and 44 percent of that production already occurs in the U.S. Moreover, these figures don’t even capture firms based in allied countries such as South Korea and Taiwan that are currently spending billions of dollars to open semiconductor manufacturing facilities in the U.S.—without the need for funding.”
“Making chips is an intricate process, but building a factory that can do this type of manufacturing is even more complicated. For one thing, fabs can’t go just anywhere. They need to be close to a reliable source of electricity, since they can use as much energy as 50,000 homes in a single year (they release a lot of carbon emissions, too). These factories also need to be near a large body of water, which they use to clean and cool down their equipment, which, in turn, produces wastewater that needs to be treated. And it’s better if they’re not particularly close to any airports or geological fault lines; seismic activity can disrupt the incredibly precise machinery they use.
Then there’s the matter of the supply chain. Beyond the fab, making a chip can involve 70 different border crossings and more than 1,000 steps, and a single disruption in one country or during a particular step can throw the entire process off course. That’s because there are usually very few, if any, other options for supplies when something goes wrong. For example, just one company in the Netherlands, ASML, makes the specialized, $200 million lithography tools that many advanced chip fabs rely on. And just two firms, both based in Ukraine, supply about half of the specialized neon gas that fabs throughout the world use to control these lasers. Of course, securing all this equipment has gotten even more difficult during the pandemic.”
“concern is based, in part, on fears that China may invade Taiwan at some point and attempt to take control of its chip-manufacturing capacity. But there are other reasons to be worried about the state of US semiconductors. The US doesn’t currently make very many of the most basic, or legacy, chips, which are typically produced where they can be made for less. These are the chips that became unavailable during the pandemic, and that made lots of technology hard to find and drove up car prices. The US will also need to manufacture more chips to maintain its hold on the auto industry, since EVs will likely need at least twice as many chips as their gas-powered counterparts do.”