American Hustle: Microchip Edition
pirate wires #75 // semiconductors on the brink, breaking down the CHIPS and science bill, and how I learned to stop worrying and love the merchant state
A little mercantilism, for a treat. As late as 2015, the notion America should “bring back” manufacturing was considered a kind of politics exclusive to poor, dumb hicks hopelessly nostalgic for a life that never really existed, and if it did exist — whatever — it could not exist again. Get over it. Trade was global, the world was inextricably connected, and your job’s in China now but you should thank us, actually, because everything is cheap and fast and out-of-work factory workers can simply learn to code.
Then there was a plague, and we learned about supply-chains.
The first thing Wuhan’s coronavirus made clear was decades of globalist policy had destroyed America’s ability to provide its own furniture, let alone sustain a technologically-advanced economy without the rare metal mining, processing, and manufacturing that took place almost entirely in autocratic prison states. Cheap global trade was no mere perk of contemporary life, it was our oxygen. Now, a couple years into the realization, all eyes are on Taiwan. This is not only because Taiwan is a free country at risk of being swallowed by the Chinese mainland, which I’m sure everyone will feel very bad about for the couple weeks following Xi’s invasion, but because Taiwan produces nearly all the world’s advanced microchips, the first and most important building blocks of our entire technological reality.
Fortunately, politicians across the ideological spectrum have finally realized U.S. resource insecurity is a problem, and no one is mocking “bring the jobs home” hicks today. Unfortunately, the single tool in our tool chest continues to be ‘spending absolute shit tons of money and hoping things happen.’ For the past few years, it hasn’t even been clear what things, specifically, we want to happen, which is why I was initially skeptical of Biden’s $280 billion CHIPS and Science Act, framed by the White House as our answer to the ever-looming semiconductor crisis. And how could I not be skeptical?
Last August, in the middle of a delirious, cash-crazed trance from which the political left could not be roused, President Biden signed the largest “infrastructure” bill in history. Infamously, almost no new infrastructure was built. It was a trillion dollar paint job, with (I’m steelmanning here) a focus on temporary job creation, and no coherent infrastructural strategy for the future. But even so thin an accomplishment as temporary work was just in part the focus. Overwhelmingly, this was a pork package. Less euphemistically: bribes.
Biden’s historic spending, on the heels of Trump’s historic spending, drove the country to historic inflation, just as detractors, who were all accused of fear-mongering, insisted it would. The American cost-of-living skyrocketed, and Biden’s popularity plummeted, provoking — what else? — a new spending bill: the Democratic Party’s Orwellian $433 billion “Inflation Reduction Act,” which is poised to cut another half trillion in gifts to the Democratic base, including a host of green subsidies impossible to make use of in a world without rare earth metals, the entire global supply of which has been cornered by China.
With the nation caught between two fundamentally different, but equally useless approaches to government, including the chaotic, borderline kleptocratic impulses of the left, and the “just say no” philosophy of nothing that lives on the right, I assumed the CHIPS Act, a collaboration of the two, would be a disaster. But here’s the thing: with billions in incentives set aside for domestic microchip manufacturing, over $100 billion ostensibly committed to reskilling our labor force, and language clearly aware of the Chinese threat, the stated purpose of the bill is at least addressed by the thousand-page opus. In other words, the bill is not only naming, but attempting to solve a problem. It’s a baby step in the right direction, but it is a step.
As there’s no clear partisan kill shot in this largely collaborative story, it seems few people in media bothered to read the bill. So I dipped in. Here’s what I found:
First and most importantly, sec. 102 sets aside $52.7 billion in domestic chip manufacturing incentives, which can’t be used for stock purchases or dividends, can’t be used by China (amazing that we had to write this in), can’t be used in China, and can’t be used by companies in some way critically important to China. This doesn’t mean we’re looking at a $20 billion check to Intel for a couple plants in Ohio. This means private companies now need to summon an army of lawyers to figure out a legal pitch for their slice of pie, and an army of lobbyists to petition the Department of Commerce. The Department of Commerce will then make decisions, draft a budget, and present the budget to a Congressional appropriations committee, with the total CHIPS Act allocation divvied out five times over five years. The process will be messy, and much of the money will probably go to waste. In the end, something useful might happen. Again, this actually constitutes progress.
Anyway, we still have like $200 billion to talk about.
The highlights: $1.5 billion for a “wireless supply chain innovation fund” (???), $2 billion in auto-manufacturing incentives, and close to $10 billion for scientific research of no apparent discrimination, ranging from the typical left-wing “green energy” fetishism to actually cool shit like AI research, cybersecurity, biometrics, and advanced physics. There is the mention of something called “neutron scattering.” There is the mention of something called “premise plumbing research.” There’s $20 billion for ocean acidification (presumably we are against). There’s $10 billion for 20 “technology hubs” in regions that don’t presently produce technology, with a special billion set aside specifically for “persistently distressed areas.” There are hundreds of millions and billions for “innovation” centers, “clean energy incubators,” upgrading university nuclear reactors, and a cool $800 million to refurbish our national labs.
But overall, as made clear by the $81 billion allocation to the National Science Foundation, this is not a manufacturing bill. This is not a research and development bill. This is an education bill, which should in theory mean we’re reskilling the U.S. labor force, which… okay yeah I’m lost. Because for the letter of the bill, it’s not clear how this will happen.
What sort of research, specifically, are we funding? What sort of workers, specifically, are we training? There are notes (Sec. 10601 + Sec. 10602 for example) where language seems to indicate a young scientist will be granted money, from a pool of $500 million, to study whatever he or she wants. But higher education is, in general, overwhelmingly useless, and certainly the vast majority of what constitutes higher education is not applicable to the very specific manufacturing and technological challenges we now know, for sure, we’re facing. This is all especially frustrating as we also know congress understands this challenge, because meeting it is explicitly the purpose of the bill: without an abundant supply of microchips, we’re heading for dark age status (the 1980s). So why are we talking about anything else?
In any case, the real hole in the CHIPS and Science Act is conceptual. Even if the spending catalyzes the development of significant U.S. microchip manufacturing capacity, the industry will still be dependent on a hostile foreign adversary for supplies. This is because almost everything we need to build the chips is sourced from China.
I raised the materials question with Bonnie Glick, director of the Krach Institute for Tech Diplomacy at Purdue, and former Deputy Administrator of United States Agency for International Development under Trump. She supports the bill, but agrees this is an issue, and summed up the problem as, simply, the materials sector didn’t lobby Congress hard enough. It’s a fair point. If you know how the sausage is made, stop complaining and make the sausage. But the materials sector shouldn’t need incentives to build successful businesses. Rather, the government policies that make the work prohibitively expensive, most of them environmental, and all of them supported by Chinese propagandists, should just be abolished. At the very least, there should be exceptions made for purposes of national security.
Now, the most interesting political piece. While many Republicans voted against the CHIPS Act, their resistance was largely, and obviously, more an attempt to deny Biden a win than it was any kind of ideological objection. As Glick explained, the bill easily passed because of significant Republican support. To a certain extent, this can be accounted for by the bill’s bi-partisan origin. It was born under Trump. But I think we’re also witnessing a notable right-wing evolution on the question of government’s relationship with vital industry.
“Imagine being a Republican in the Trump administration saying ‘we need to think seriously about industrial policy,’” Glick told me of her efforts at the time. “I’m as anti-communist as they come, but we’ve all had that awakening. I believe in the private sector. I believe in free markets. But, at the same time, when you’re fighting with one hand tied behind your back, and everyone else is wielding two double-blades… you’re screwed if you don’t take action to protect your national interests.”
With Republicans slowly warming up to microchip mercantilism, all we need are Democrats, and Democrats? Always down to blow some money. So this should be a slam dunk. And yet.
While China’s approach to domestic industry is to fuel the nation’s companies, protect them from foreign competition, and use them as an instrument to dominate the world, the American approach is, as previously touched upon, hopelessly bi-furcated: Republicans have generally ignored our companies, while Democrats have threatened them, increasingly, with annihilation.
I’ve written about the left’s conceptual aversion to successful business for a couple years now, with the ideology clearly apparent throughout the ongoing anti-trust hearings. Most recently (and yet again), Amy Klobuchar (D-MN) proposed legislative action in her never-ending war on “Big Tech,” which she frames, in her own propaganda, as an “assault.” An assault, while we stand in a position of serious economic insecurity, on our own companies. Let’s go ahead and table the fact that she actually just seems interested in targeting Amazon, which competes with Target, which is headquartered in her state. Her rhetoric is stoking a very real, and actually suicidal impulse on the American left.
There is another way.
We need to acknowledge the limitation of a global “free market,” supported entirely on the back of America’s military commitment to free trade, while another, powerful state plays by the rules of mercantilism. “Free market imperfect” should land on the left, and “America first” should land on the right. Then, we need a strategy for building back our resource security. As there’s literally nothing here, we can start small.
For mining and processing, it’s time for EPA-free zoning in strategic districts, for strategic metals. As we reskill our labor force, there should be heavy but narrow incentives for the specific skills we need. Finally, in terms of manufacturing, if we’re not rethinking our crippling left-wing labor policies, which are at least in spirit understandable given our failure to rethink America’s chaotic health and anti-housing policies, the libertarians among us will have to learn to stop worrying and love a culture of massive industrial subsidies.
There should really only be the one philosophy of government: goal-orientation toward the economic improvements of the nation, and its defense, with a clear plan to get there as cheaply and efficiently as possible. No idiots, and no crazies. Leadership must be clearly named, and held accountable for results. Bribes must not be tolerated, union gifts must not be tolerated, and a policy of nothing must absolutely not be tolerated. A prosperous, self-sustaining, technological America is the goal, and American industry is a critical piece of that puzzle.
The thinking behind the CHIPS and Science Act is at least directionally correct, in that we are finally working toward the goal. But, while it’s obvious and therefore kind of cringe to say out loud, the goal is not enough. Now we need a plan.
Great, objective, and rational breakdown of the bill. Probably because you're the only person in America (other than Chinese espionage spies) who actually read it. Thanks!
Very insightful. Also, as an ideological classic liberal, but also a "nice human," I appreciate seeing a path that might help us come together and actually prevent what you referred to (aptly) as the "actually suicidal impulse on the American left." Thanks, again, Mike!