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Tax-funded subsidies don’t magically fix a problem – more shocking news

The Wall Street Journal ($) has been running articles looking at the silicon chip industry, and the attempts by countries such as the US to try and protect and stimulate production of high-end chips. I can strongly recommend Chip Wars by Chris Miller for an overview of the rise of this extraordinary industry, and the web of supply chains that underpin it.

Here’s the newspaper’s latest feature on the topic:

Two years into a nearly $53 billion government effort to shore up the U.S. chip industry, the [US] program’s impact is becoming clearer: Big companies making advanced chips are getting a boost, but there are limits to what the money can do. The Chips Act, passed in 2022 to jump-start domestic semiconductor production, is supposed to supercharge chip making in the U.S. But even in its early stages, it is being challenged by fast-growing chip industries in competing countries, political complexity regarding the allotments at home and the sheer expense of manufacturing chips.

The lion’s share of the allotments have been slated for Intel and other large chip makers that plan to make advanced chips in the U.S., while some companies that are important in other parts of the chip-making supply chain have missed out. Meanwhile, other countries have amped up spending to keep competitive.

The government received hundreds of applications for the grants from companies eager for funding.

No kidding. When lots of public money is hosed around, firms will try and get some of it.

The biggest chunks of money went to Intel, which got up to $8.5 billion of grants for several projects, and to Taiwan Semiconductor Manufacturing Co., Samsung Electronics and Micron Technology, each of which were allotted more than $6 billion for their projects.

Another way of describing it is corporate welfare.

Industry executives have largely been pleased with the rollout of the program, even as labor disputes, higher costs and extended environmental reviews are slowing work compared with some other countries.

I am sure they are.

Some investors are worried about the amount of money being spent on new construction. Elliott Investment Management, an activist investor, took a $2.5 billion stake in Texas Instruments and wrote a letter last month to its board of directors urging slower spending on manufacturing growth to boost cash flows. TI is expected to receive grants under the Chips Act.

There are dangers of major misallocation of capital when politicians drive anything.

The impact of the program is also limited by the sheer cost of chip plants. A single advanced chip fab can cost more than $20 billion, and the planned U.S. facilities won’t be operating until later this decade. Those realities mean that even a historic $39 billion grant program can’t itself tip the global share significantly in the U.S.’s favor.

This is an expensive business.

The tax credit expires in 2026, and industry lobbyists are already preparing to push for an extension.

I am sure they are. The lobbying industry gets another cause to chase.

10 comments to Tax-funded subsidies don’t magically fix a problem – more shocking news

  • James

    We can expect to see the same pattern repeated across various industries in the US and EU, as executives and lobbyists suddenly magically discover that theirs is a ‘strategic’ industry, at risk from ‘unfair Chinese competition’ etc.

  • I can understand a government disliking that “every semiconductor maker in the world relies on one Dutch firm“.

    I can just barely understand a government thinking that it can fix this with subsidies, if I strain myself.

  • Miller T Smith

    Welfare? Nope. Threat. Yep. A threat. Give us free money or we go overseas and leave the USA without any control over chip production or access.

  • Paul Marks

    The United States became the leading manufacturing nation in the world in the late 19th century – overtaking the United Kingdom which sabotaged itself with such things as the Trade Union Act of 1875 (establishing what the late W.H. Hutt called “The Strike Threat System” complete with legalised para military tactics such as “picketing” – a military term “picket line”), and the United States was still the leading industrial power well into my own life time.

    However, the economic changes in the United States (the vast growth of government – and the weirdly dysfunctional interventions of local, State and Federal government in the United States) and the change in the CULTURE (yes the culture) of the United States is having terrible effects.

    The cultural changes are not some natural evolution – they have been deliberately pushed for many years, and now the cultural crises is here.

    Whether this cultural sabotage (for sabotage it is) will be reversed, whether the United States (indeed Western society in general) will survive remains to be seen.

    But, certainly, throwing out a few billion Dollars in Corporate Welfare will not solve problems caused by decades of economic and cultural sabotage.

    Indeed such policies are part of the problem – not part of the solution.

  • Phil B

    Correct me if I am wrong on this but …

    Samsung is a Korean company, based in Korea so unless Korea is now the 51st State of the Union, then it is a foreign owned company? How can this be considered investing in American companies?

    Similarly, is Taiwan another one of the newly acquired States that is now part of America? And if I recall correctly, China has threatened to invade and make Taiwan a part of mainland China. Likely very soon.

    Wise investments is not really a phrase I’d use to describe that scenario.

    Intel, if it still maintains that its chips will always run obsolete versions of Windoze and has painted itself into a corner with that promise, is not really a good investment opportunity, particularly when AMD chips beat Intel on performance.

    Still, it is only taxpayers money and there is plenty more where that came from, eh?

  • TomJ

    Counsell’s Fourth Law:
    Where there’s a subsidy, there’s a scam.

  • Grond Destroyer of Carpets

    Correct me if I am wrong on this but …

    They are paying Samsung, Taiwan Semiconductor, et al to set up in Continental USA

  • Paul Marks

    The United States is a mixture of two things, found in different people in the government – and in the structure of it.

    An incredible level of incompetence and dysfunctionality.


    Active hatred of America – a desire to harm (yes deliberately harm) America and the American people.

    “There is a lot of ruin in a great nation” – yes, but not an infinite amount. The crises for the United States of America will come soon – the time of trial when it will be decided if the United States survives or not.

    And if America falls the rest of the West can-not-strand – that is the brutal truth, no other Western nation will stand if America falls.

    The present political and economic establishment in the United States, the Corporate State (with its fiat money, Credit Bubble finance, rigged elections, and corrupt courts) must go – if the nation, if Western society, is to survive.

  • Phil B

    @Grond Destroyer of Carpets June 6, 2024 at 9:44 pm

    My point is that these are foreign companies whose headquarters will not be in the USA. This has a number of obvious consequences:

    1) The technology and knowledge will be based in their respective countries and only manufacture will be in the USA. This is similar to the car makers building cars in Mexico. The R&D, Design and engineering are not in Mexico.

    2) Any accountant worth their salt can juggle the figures so that, how sad, too bad, nothing that the company did in the USA made a profit and no tax is paid.All the profit and revenue goes to their home countries.

    3) Taiwan in particular, is extremely vulnerable to Chinese aggression so the knowledge and skills base for R&D and design will be lost when they decide to invade.

    4) In any downturn, the companies concerned will favour their own domestic factories and close the USA ones.

    In relation to point 4, this happened on Tyneside. Siemens built and opened a semiconductor factory which was the best in their possession. Long story short, if a semiconductor factory hits a potential yield of finished semiconductors from a silicon slice of over 97% that is considered excellent (some will be spoiled, the outer edges of the slice usually contain impurities that make the chip unusable etc.) but the Tyneside plant was hitting 103% to 105% yield. Guess what plant Siemens shut when a downturn came?

    Add in that it takes about 10 years to build and work up to volume production any semiconductor plant and it is, in my opinion, a poor way of restoring domestic all-American production.

  • Paul Marks

    Presently the United States government, and academia (the universities), is pushing a made up crises of disease in animals. In reality there is no more disease in animals this year than in previous years.

    So why the made up crises?

    So they can push mRNA “vaccine” injections – that is why.

    Even though they know (they know) the terrible harm the mRNA Covid “vaccine” injections did.

    That is the United States government and the (massively subsidised) corporations, and academia.

    They are despicable – despicable and vicious.

    The mixture of government and the corporations, the Corporate State, is a very bad thing – a very bad thing indeed.

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