The CHIPS and Science Act is an innovative and important industrial policy. It makes targeted investments in critical industries to strengthen America’s manufacturing base, protect workers, and fortify U.S. national and economic security. It will help reverse the decades-long trend of job and supply-chain offshoring and contribute to inclusive growth.
The law — signed by President Joe Biden after passing in both chambers of Congress with bipartisan support — has two motivating ideas. The first is an understanding that economic competitiveness, especially in advanced manufacturing, often requires systematic government support. Support is required because “public goods” problems are endemic. The second is the recognition that the United States lacks reliable access to critical semiconductor manufacturing capacity, which creates economic and national security risks.
Advanced manufacturing is based on scientific discovery, translating discoveries into prototype products and production processes, adequate standards and tests to control quality, and a well-trained workforce. Because private actors cannot capture all the benefits of investing in these prerequisites — it is hard, for example, to keep scientific ideas secret or to prevent well-trained workers from leaving for other employment — the level of private investment in each of them is insufficient. The CHIPS and Science Act includes initiatives to remedy these market failures and allow U.S. manufacturers to develop technologies and products that would otherwise be out of reach. Moreover, it is designed to increase economic development in diverse regions and to make access to higher-wage employment more inclusive.
