Last year's US CHIPS and Science Act created large subsidies for investments in domestic semiconductor fabrication facilities (fabs) because microchips are essential to the US economy and national security. But while no one disputes the importance of chips (which are used in everything from cruise missiles to refrigerators), there are serious questions about whether subsidising such investments is the best way to secure a reliable supply.
In fact, US competitiveness in chipmaking might deteriorate further because of the legislation. After all, governments do not have a good history of "picking winners." Often, such interventions help prop up losers and inefficient producers, leading to monopolisation and concentrations of market power as new (unsubsidised) firms are deterred from entry. Moreover, in the case of chips, the industry has been retrenching with layoffs, cancelled or postponed expansion plans, and other signs of a slowdown.
