President Joe Biden claims the CHIPS Act will boost domestic manufacturing, lower prices and bolster U.S. national security. In reality, the bill will be unlikely to achieve any of these objectives. Instead, it could precipitate important distortions in domestic and international markets that lead to inefficiency, waste and political dysfunction.
Congress and the Biden administration’s bid to subsidize the U.S. semiconductor industry has been unnecessary. The industry is healthy, possessing strong capabilities in most supply chain segments, constantly achieving increases in real output and capital expenditures, and accounting for 39 percent of global value-added, the largest share among all countries.
Pro-subsidy policymakers and interest groups are quick to point out that the U.S. share of global semiconductor manufacturing has declined from 37 percent in 1990 to 12 percent today, yet U.S. manufacturing capacity increased from 2 million to 3 million wafers (disc-shaped slices of silicon containing dozens of chips) produced per month between 2000 and 2018, and close to half of those companies’ wafer capacity is in the United States.
