Editorial

U.S. Election post #9: Don’t let them kill the CHIPS Act

Of all the dunderheaded things the Republican party will do should Trump win the election — and they have a 900+ page wishlist of dunderheaded things — one of the most dunderheaded is killing the CHIPS Act.

The CHIPS Act — also known as the CHIPS and Science Act, where CHIPS is short for “Creating Helpful Incentives to Produce Semiconductors” — authorizes $280 billion in new funding to boost manufacturing of semiconductors (a.k.a. “microchips”) in the United States. Its goal is to make our semiconductor supply chain more resilient and prevent China from owning the industry outright.

The bill for the CHIPS Act enjoyed bipartisan support, and President Biden signed it into law in 2022.

The CHIPS and Science Act is incredibly important. Here’s Renée James, former President of Intel — if you have a computer running Windows or Linux or have a Mac made prior to 2020, there’s a good chance that its central processing unit was made by Intel — explaining just how important it is:

The CHIPS and Science Act also represents a much-needed return to industrial policy, a practice where a government directs or influences a country’s industrial development and economic growth in a specific direction or towards specific fields. This may sound like an outlandish idea in 2024 America, where there’s been a steady drumbeat of propaganda that government is incapable of doing anything (usually shoveled out by conservatives working in the government), but industrial policy has created some of the biggest success stories in the past century, including:

Japan’s post-WWII targeting of electronics and automobiles
America’s emphasis on science, engineering, and space after the wake-up call of Sputnik
South Korea’s development of heavy industries and electronics (which was once Japan’s thing)
China’s current focus on manufacturing goods for Western customers (which was once Japan’s thing), and now semiconductors and electric vehicles

Here’s a Wall Street Journal piece on how the CHIPS Act signals a much-needed return to industrial policy:

There is a race to be number one in the semiconductor game, and I’d rather the Chinese Communist Party not win it. Want to know how high-stakes this race is? Here’s a Financial Times piece that explains things:

When campaigning for Trump and the Republican Party on Saturday, November 2nd, Speaker of the House Mike Johnson was asked if he and his party would try to repeal the CHIPS Act if Trump wins and they have control of Congress. His answer: “I expect that we probably will.”

He walked it back a little later…

But here’s the thing: Trump hates the CHIPS Act — or at least that’s what he said during his October 25 podcast interview with Joe Rogan:

Instead of using federal money to encourage American firms to build fabrication plants (or “fabs,” which are factories that produce chips), he’d rather hit foreign companies with high tariffs to force them to force them to build fabs in the U.S.. The problem with his idea is that tariffs are paid by the people importing them, not the exporters.

Trump also says that companies like TSMC “stole” chip manufacturing from America, but that’s not true either.

Intel was originally in the DRAM (dynamic RAM) business, but Japanese companies like NEC, Toshiba, and Hitachi were producing DRAM chips with defect rates of about 10 parts per million, while American companies were relative slackers, producing the same chips, but with defect rates were anywhere from 10 to 100 times greater and at twice the cost. By 1986, Japan had 80% of the DRAM market.

These days, it’s Taiwan-based TSMC that owns the semiconductor market, as they make about 90% of the most advanced chips. But what’s truly interesting is TSMC’s origin story.

Morris Chang founded TSMC in 1987 in collaboration with the Taiwanese government and the electronics company Phillips. He could have been an American success story — although he was born in Taiwan, he got his education at MIT and Stanford and spent most of his career in the U.S. as an executive at Texas Instruments for 25 years. Despite having a strong performance record at Texas Instruments, he was passed up for the CEO role. Racism may have played a role (it’s a company based in Texas, he’s Asian, it was the 1980s, you do the math), but so did his concept of only manufacturing chips instead of designing and manufacturing them, which was revolutionary at the time.

The Taiwanese government recruited Chang to lead their industrial policy initiative, providing a lot of the capital to get it started, and partnered with Phillips for their tech, their manufacturing expertise, and to provide credibility with initial customers.

TSMC’s approach succeeded because:

It let chip design companies avoid massive factory investments.
Companies that designed chips didn’t have to worry about TSMC becoming a competitor.
Single focus: TSMC could concentrate entirely on the manufacturing process and excelling at it.
It enabled the rise of “fabless” chip companies like Qualcomm and the company that just displaced Intel on the Dow Jones Industrial Average: Nvidia!

Asian companies didn’t steal the chip industry from America; America simply handed it over to them.

The most advanced chips in the world, including Apple’s new M4 CPU and Nvidia’s Blackwell and Rubin AI chips, are made by a single company in a single factory in Taiwan, a mere 100 miles from China.

China has been performing military exercises in the general area of Taiwan, partially as an intimidation tactic, partially as a rehearsal for a military takeover or blockade, and they also have the “soft power” option of getting China-leaning politicians elected.

Taiwan is the weak link in the semiconductor supply chain, and it’s better for security — and not just for the U.S., but the world — if there were other places that could produce advanced semiconductors. The CHIPS Act is not a guarantee that the U.S. will go back to being a semiconductor manufacturing leader, but it’s the best shot we’ve got.

Don’t let Trump and company kill the CHIPS Act!