This Wednesday, President Biden announced a grant of up to $8.5 billion to Intel in order to invest in domestic semiconductor production.
The U.S. used to be a leader in semiconductor chip production, but has fallen behind Asian countries — Taiwan and South Korea, for instance — in recent years, with the flaws of a reliance on chip imports seen in the shortage over the pandemic. With COVID-19 interfering with industries and logistics and introducing uncertainty into the market and supply chain for chips, products dependent on semiconductors suffered from a shortage in chips. In late March of 2021, near the start of the shortage, Bloomberg reported on an “unprecedented global shortage” — noting increased demand and supply chain uncertainties due to the pandemic as well as the effect of increased wait times for chip orders and losses in industries like automobile manufacturing, later estimated to be a lost $210 billion in automobile revenue as reported by Reuters.
Biden, announcing the new Intel grant, cited this issue as a cause for the expensive investment in the domestic industry. “When the pandemic shut down chip factories overseas, prices went up, and for the first time Americans began to realize how important they were,” Biden explained. “Unlike my predecessor, I was determined to turn things around to invest in America, in all Americans — and that’s what we’ve been doing.”
As explained by CNN, this measure, in addition to its economic effect, serves as a way for President Biden to appeal to voters, particularly those in battleground states like Arizona, host to one of the planned Intel projects. In Chandler, Arizona, a suburb of Phoenix, the funding is expected to create 7,000 construction jobs and over 3,000 manufacturing jobs, “among the largest private sector investments in the state’s history,” according to the White House. While Arizona voted Democrat in the 2020 election, the state has voted Republican in most other recent presidential elections, and thus investment in the state, creating new job openings, may win more undecided voters to Biden’s favor. The prospect of securing a better chance for a Democrat in Arizona would explain why Biden chose to announce the grant there — while the White House predicts roughly equal numbers of jobs provided in Ohio, Ohio strongly backed Trump in 2020, and so appealing to Arizona voters seems more likely to have an effect.
David E. Sanger, however, writing for the New York Times, suggests another reason for Biden’s proud rhetoric about this grant: that it might be to draw less attention to the fact that federal grants to chip manufacturers may not go much further. Sanger describes that there is a “significant risk it could be the high point of the effort,” citing Congress’s unwillingness to spend billions of dollars that were authorized to be used for the industry but never properly allocated. Seeing as how the proud rhetoric around this investment is tailored for its political gain despite Intel’s own acknowledgement to CNN that the company won’t meet its “aggressive 2025 production goal,” the economic effect of this grant does not seem prioritized as much as the political one. Money is certainly needed to establish the plants and infrastructure for chip production, but there’s also a cost to training the skilled workforce necessary that may not be adequately addressed with this investment. Morris Chang, head of Taiwanese chip manufacturer TSMC, has critiqued the skills of American workers — albeit from a biased perspective — at matching the productivity of Taiwanese factories even when spurred on by money. Given Business Insider’s report on employee experiences at TSMC — “unmanageable workload,” “12-hour working is normal,” and “workers were discouraged from applying for overtime pay” — it seems reasonable to assume domestic labor costs may be higher than those in countries like Taiwan. Whether it be due to the expensive training required for the new workers or to a difference in work ethic (or labor standards), a truly significant increase in domestic chip production may take a larger investment than Congress may be willing to provide, making the long term efficacy of this plan unclear.
In class, we’ve learned about the factors that can shift supply and demand, and we’ve seen that when the government steps into the market, the typical purpose is to add regulations that often raise input prices and lower supply. Here, however, we have an instance in which the government is investing in an industry to reduce input prices, shift domestic supply to be greater — and if successful investment in the domestic chip market lowers prices in the long run, this may even reduce the demand for a substitute good (imported chips) in favor of a greater quantity of domestic chips. That said, a properly trained skilled workforce is an inelastic quantity in the short term (it takes time to train new workers, even if there is money for it), and while it can be simple to predict the direction of shifts in supply, the actual numerical values of these changes are more complex and variable, so the extent of this investment's effect — as well as the future of the U.S. chip industry — remains to be seen.
Sources:
https://www.cnn.com/2024/03/20/politics/chips-act-intel-funding-biden/index.html
https://www.nytimes.com/2024/03/20/us/politics/chips-act-grant-intel.html
https://www.bloomberg.com/graphics/2021-semiconductors-chips-shortage/
https://www.nytimes.com/2024/03/20/us/politics/biden-chip-manufacturing.html
https://www.businessinsider.com/tsmc-jobs-taiwan-semiconductor-chip-worker-skills-work-ethic-2023-8
3 comments:
It's funny how Biden specifically compares his investments in the chip industry to Trump's. He's very clearly trying to emphasize his differences in preparation for the election, like he did in his State of the Union address --- a political move to appeal to more than just workers in Arizona. I am hopeful that the investment will swing some votes, and also be a good economic move, since chip manufacturing is growing as companies are designing chips specifically for AI.
I find it very interesting how of late, both with this grant as well as other actions by Biden's staff and himself, how he has heavily used his position as president to gain voter base. Although this is definitely a trend seen in other presidents entering a re-election phase, it seems as if Biden is going over the top, as seen through this deal as well as his State of the Union Address and anti-tax cuts on oil companies which we learned about in class. Additionally, I like how you mentioned the importance of considering the market in such a grant as this no doubt a tremendous amount of money being poured into American Industry, albeit potentially with a lack of true oversight, which is a little bit worrying as personally I believe this project if failed could spell doom for American Technology Industry, at least production, as you mentioned in this post.
The plants Biden seeks to build will take a LONG time to be completed (maybe a bit less than a decade?). Biden (probably) isn't trying to curry votes with the results of the project, but rather through what the project stands for (Built in America, American independence, etc.). That said, Intel lost (by an INCREDIBLE margin) to Taiwan (specifically TSMC) in the chip wars for a reason. It is likely extremely economically inefficient to rely on domestic plants that require high labor costs in the U.S. rather than significantly cheaper products from Taiwan.
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