The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act passed by the United States Congress and signed into law by President Joe Biden in August 2022 funds the CHIPS for America Act that was initiated under the 2021 National Defense Authorization Act signed into law by President Donald Trump in January 2021. The 2021 legislation authorized the Department of Commerce, Department of Defense, and Department of State to develop onshore domestic manufacturing of semiconductors. The CHIPS Act looks good on paper, but its fiscal and regulatory reality is another unnecessary federal economic intervention.
An excerpt from a report entitled “Frequently Asked Questions: CHIPS Act of 2022 Provisions and Implementation” from the Congressional Research Service dated April 2023 states:
The U.S. share of global semiconductor fabrication capacity fell from about 36% in 1990 to about 10% in 2020. Policymakers became increasingly concerned about the potential implications of this trend for economic and national security reasons, and noted the risks associated with ensuring an adequate supply of semiconductors resulting from potential disruption of East Asian manufacturing and shipping due to trade disputes, natural hazards, or armed conflict. The COVID-19 pandemic and consequent interruption of semiconductor supplies to the United States—and the subsequent effects on U.S.-based industries—bolstered these concerns. U.S. overreliance on semiconductor production in East Asia and its vulnerability to disruption has been an ongoing source of concern for many Members of Congress.
One view is that federal policy choices, laws, regulations, etc. have caused the US private companies’ share of long-term semiconductor fabrication capacity to shrink. The semiconductor long-term supply constraints revealed during the government’s amplified coronavirus crisis probably created the CHIPS Act.
The CHIPS Act of 2022 funds the largest federal scientific research and development spending program in US history. The legislation boosts the science and technology “sectors, providing subsidies to begin manufacturing semiconductors in the U.S., and addressing China’s anti-competitive trade practices. The CHIPS and Science Act of 2022 represents a massive investment by the U.S. . . . to establish the U.S. as the recognized international leader in semiconductor manufacturing and scientific research and innovation.”
The 2022 act appropriates approximately $250 billion for a five-year plan ending in 2027. Past Soviet and current Chinese communist central economic plans are five years as well. Here is the federal spending breakdown:
| House Resolution (H.R.) 4346 Funding | ||
|---|---|---|
| Section | Name | Amount |
| Division A | CHIPS Act 2022 | $54.2 billion |
| Investment Tax Credit (ITC) (est.) | $24 billion | |
| Division B | Research & Innovation | $169.9 billion |
| Total for CHIPS & Science Act of 2022 | $248.1 billion | |
| Division C | Supreme Court Supplemental Appropriations | $20 million |
| Total appropriations | $248.12 billion | |
Source: FYI: Science Policy News
The Austrian School of Economics, however, views the federal taxpayer expense, subsidies, and tax credits as monetarily mind-numbing given federal derelict deficit spending, the fretful federal debt, and the historic failures of economic interventions. Not surprisingly, the CHIPS Act’s waste of federal taxpayer dollars and effort shows why research and development [CTB1] are best left to those in the private sector, who are motivated by profit and loss when it is their money and time to risk. Their money can be invested into land and equipment as their private property, which is another motivating factor of money efficiency without the toxic impact of federal dollars, oversight, and regulation. Federal dollars will not be allocated efficiently when no profit or loss motive is available. The results of cronies begging or lobbying to receive this federal money historically yield a poor allocation of these limited tax dollars.
The Congressional Budget Office estimates the legislation would increase federal budget deficits by $48 billion over five years and by $79 billion through 2031. The annual federal deficit will increase with no clear comment about the follow-on federal debt growth. Private enterprise could never withstand financial losses of this magnitude even for one year, which is why it is best at this decision-making and investing and not federal policymakers.
The act [CTB2] “requires recipients of federal financial assistance to agree not to expand semiconductor manufacturing in the People’s Republic of China or any other country that presents a national security threat.” The requirement to show your company’s choice of manufacturing location in order to receive federal incentives requires compliance with federal government policies. One has no idea what the Department of State or the Department of Defense would call a national security threat.
The word “largesse” is a noun that is defined in dictionary.com as “a generous gift or gifts, such as of money.” The CHIPS Act from 2021 and 2022 is a largesse to the semiconductor industry, and the simple solution to this problem is to chop off the CHIPS Act at the ground.
