The false promise of America’s Chips Act

THE US Congress recently approved the Chips and Science Act, which allocates over US$50 billion to strengthen the semiconductor industry in the hope of making the United States self-sufficient. And US Trade Representative Katherine Tai said that President Joe Biden’s administration should be “replicating” the Chips Act for other industries “as the key to American competitiveness”.

Semiconductors are certainly essential to a modern economy, and it makes sense to diversify sources. But it is doubtful that the Chips Act will achieve its stated goals, much less that it should be used as a model for similar support to other industries.

The law is flawed in many ways. Subsidies to support research and development (R&D) account for only 21 per cent of the planned expenditures, with the rest going to support physical plant construction. Yet, the US comparative advantage internationally is unquestionably in R&D. Building manufacturing facilities will not accelerate chip development.