The federal government’s proposed $52 billion program to subsidize domestic production of semiconductors appears to be in trouble. And that has the otherwise highly capitalized and profitable companies that have lined up for a handout upset.
According to The Wall Street Journal, the circumstances that spurred bipartisan congressional majorities to embrace chip subsidies have dramatically changed. And now, the multi-billion dollar industrial policy looks less essential. And of course, there’s the midterm election angle:
More experts now think ultimate passage of the measure is unlikely—especially if it doesn’t clear Congress by the beginning of its August recess. Paul Gallant, Cowen’s policy analyst for tech, media and telecom issues, says there is a “non-trivial risk” to the chip bill, adding that “Republicans are thinking hard about whether they want to give Biden a win here, and perhaps help Democrats hold the Senate this fall.”
While that’s probably a reach – subsidies are popular in both major parties and rarely become issues on the campaign trail – there are genuine reasons to cheer the possible wreck of this particular boondoggle.
Back in February, the Cato Institute’s Scott Lincicome wrote, chip subsidies never made sense, either as a cure for shortages or a hedge against foreign competition:
They won’t alleviate the current chip shortage, which should end long before subsidized U.S. production arrives. Furthermore, the proposed funds aren’t limited to supporting the most advanced semiconductors or national‐security‐related ones, undermining arguments that these subsidies are needed because free markets can’t fully address risky R&D or national‐security concerns. Indeed, the House and Senate bills earmark billions for older commercial chips because Detroit auto makers use them.
Subsidies for today’s leading technologies might not solve tomorrow’s problems, either, as attention and resources are already shifting from even the most advanced current technologies to different models like quantum and neuromorphic computing.
And let’s not forget the boom-and-bust nature of chip manufacturing:
Chip making is notoriously cyclical, with a history of strong capital spending followed by overcapacity, price crashes and struggling firms. Current investment is, by some accounts, already at levels that typically lead to oversupply, and previous demand forecasts may have been too optimistic. Many analysts are thus worried about a global glut in 2023 that would put U.S. and foreign chip companies in financial distress. U.S. subsidies would exacerbate these unstable market dynamics.
Bottom line: If the chip subsidy racket collapses, good. It was a bad idea hatched in a panic intended to solve a problem that is correcting itself.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
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Norman Leahy has written about national and Virginia politics for more than 30 years with outlets ranging from The Washington Post to BearingDrift.com. A consulting writer, editor, recovering think tank executive and campaign operative, Norman lives in Virginia.
Heres a thought , How about Big Govt get the hell out of the way and let the Free Market System / Private Business Do its Thing
Come on man! Democrats know how to help private companies thrive and stay in business!
Just like Solyndra! On Wait….
Eight words that people hate to hear: “We’re from the government. We’re here to help.” This is because they know the government will the project will be FUBAR from the git-go.
Bad Optics GOP dont do this
Bad optics? You sound like Obama
It is all about election strategy. The pols need money to finance their expensive campaigns . Business knows this so they push for this subsidy bill and the sponsors will be rewarded by the very companies they help with this bill. The sponsors and their party will have mysterious donors contribute millions of donations to their coffers. They put Soros and Zuckerburg to shame. Already the weak kneed liberal Democrabs and their
low life lying fake Republicans have given us more than 6 trillion of national debt. It will take at least 10 generations for that to be paid down. If EVER.
AOC says buying Frito-Lay chips are much cheaper.
When companies are eager to accept government subsidies, the end of a free market economy is in sight. Innovation will wither and die and the country will follow.
If there is any problem with the computer chip industry, it’s because government created it in the last 2-3 years. No money for these guys. The government already wastes billions pandering to the drug industry.