Democrats in Congress want to solve the semiconductor shortage. What a truly terrible idea.
Show me a situation in which legislators tried to fix a market imbalance, and I will show you a trail of tears. Solyndra, the housing catastrophe, the entire ethanol misadventure, price controls — generally speaking, measures enacted by the government waste taxpayer money and are mistimed.
Case in point: the America Competes Act, which just passed the House of Representatives, calls for a diplomatic boycott of the Olympics, which started more than a week ago in Beijing. Oops.
That is certainly not the only problem with the latest Democrat boondoggle. The bill spends $52 billion to subsidize new chip-making capacity in the United States. This even as the semiconductor industry is booming, with global sales up an estimated 25 percent in 2021, and as major suppliers are already ramping up capacity here at home.
Chip makers are investing in the U.S. because that’s where they can hire trained workers and because our country is home to some of their biggest customers. Taiwan Semiconductor Manufacturing Company (TSMC), one of the largest providers, is choosing a location devoid of Chinese fighter planes buzzing overhead. These companies, among the most profitable in the world, do not need Congress to grease the skids; that said, few CEOs can resist a government handout. More on this later.
The Competes Act, now en route to marrying up with the Senate-passed United States Innovation and Competition Act of 2021, spends $325 billion in total, purportedly to make America more competitive against China.
The bill is way more Green New Deal than it is America Competes; it mentions coral reefs more often than it does China.
All you really had to know was that the law runs 2,912 pages in length and included hundreds of amendments. Democrat-produced multi-thousand-page boondoggles always raise red flags; this one is no exception. Stuffed into the bill are numerous items that were included in prior pieces of legislation that failed to pass, for good reason. For instance, Democrats snuck in proposals from the Protecting the Right to Organize (PRO) Act, like the elimination of secret ballots in union organizing elections and other measures meant to boost Big Labor. That will not make the United States more competitive; just the opposite is true.
Programs that have nothing to do with competing with China are plentiful, as reflected in these representative section headings: “Federal science agency policies for caregivers,” “Support for Young African Leaders Initiative,” “Collection of demographic information for patent inventors” and “Shark fin sales elimination.”
Much of the bill proposes climate change policies that would hurt the energy-rich U.S., like complying with the Paris climate accord. The bill gives $8 billion with no strings attached to what Republicans in Congress describe as a “green energy slush fund” at the United Nations. In addition, it funnels $2 billion per year in perpetuity to foreign countries to help them fight climate change, duplicating spending already underway via the State Department and USAID.
It also allocates $3 billion to ramping up domestic solar production, as though the Solyndra debacle never happened.
Strangely, the bill includes $22 million “for the purpose of investigating the building collapse that occurred in Surfside, Florida” last year. Huh?
But, back to the widely publicized core of the bill, which purports to boost semiconductor manufacturing at home. Legislators are concerned that the U.S., the birthplace of advanced silicon and once the dominant supplier of the widely used electronic components, only accounted for 12 percent of global production in 2020, down from 37 percent in 1990. Advocates neglect to mention that the U.S. has enjoyed a steady rise in chip output, and in investment.
This comes at a time when chips are in short supply, the industry consequently is operating full out and reaping record profits. After decades during which technology gains made chips cheaper and prices dropped, companies have been raising prices aggressively. TSMC announced last year that it would raise prices up to 20 percent, its largest hike in a decade. Other companies have done the same, with the prices of some chips soaring as much as 40 percent.
In other words, semiconductor providers are in an excellent position to expand, and surely don’t need taxpayer help to do so.
In fact, major manufacturers are doing just that. Intel recently broke ground on a new plant in Arizona and has announced that it will build a $20 billion semiconductor manufacturing plant in Ohio, saying it wants to expand capacity and bring more production home. Interestingly, it has not set a timetable for the Ohio construction, indicating that it is waiting to see what Congress will offer in the way of incentives.
TSMC, the leading producer of high-end chips, is already building a $12 billion facility in Arizona, the first leg of an announced $100 billion investment program. Samsung, the biggest supplier, is building a $17 billion fabricating plant in Texas, its largest-ever investment in the U.S.
These companies understand the risks and rewards of manufacturing in the U.S. and are voting with their feet. Even the bill’s backers acknowledge that the shortage will likely ease before the subsidies in the America Competes Act kick in. Taxpayers should not fund what could turn into a boom-bust cycle.
Republicans in the House backed several bipartisan measures to boost U.S. investment in science and research, concerned that China is vastly outspending us in these areas. They are dismayed that their work was subsumed into a bill that Democrats wrote with little GOP input and that only Democrats will support.
Who is surprised? House Speaker Nancy Pelosi (D-Calif.) and her colleagues are unhappy that their leftwing agenda has failed to garner support, and that Build Back Better, the voting rights bill and the PRO Act, to name a few, have gone nowhere.
Maybe Democrats should drop their more controversial ambitions and work across the aisle to put America first. Now there’s a radical thought.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.