Opinion | Congress Goes All in for Computer Chip Subsidies

Opinion | Congress Goes All in for Computer Chip Subsidies

President Joe Biden holds a semiconductor chip.


Jonathan Ernst/REUTERS

Industrial policy is back in fashion in Washington, or as it ought to be called, corporate welfare. The semiconductor industry is first in the queue, but it won’t be the last. Taxpayers should at least know they’ll be subsidizing highly profitable companies that don’t need the help and might end up regretting the political handcuffs they’re acquiring.

The bill that will head to the Senate floor as early as Tuesday includes $52.2 billion in grants to the computer chip industry. But wait, there’s more. Congress is also offering a 25% tax credit for semiconductor fabrication, which is estimated to cost about $24 billion over five years. That’s $76 billion for one industry.

Republicans on the House Ways and Means Committee point out that for the same money Congress could double the research and development tax credit for all companies through 2025. It could also throw in 100% expensing for companies and allow immediate R&D deductions through 2025. But that would mean the politicians aren’t picking favorites, which is what they prefer to do.


The impetus for the bill was a severe pandemic chip shortage that disrupted supply chains and raised the cost of autos and many other products. But the shortage is easing as global demand and the economy slow. South Korea, the world’s top producer of memory chips, last month said its national chip stockpile has increased by more than 50% over the past year as demand for electronics ebbs.


the giant U.S. firm, froze hiring in its PC-chip division in June.

Micron Technology


Sanjay Mehrotra

warned a few weeks ago that “the industry demand environment has weakened” and it would cut back investment.


is scaling back hiring due to declining demand for its chips that are used in crypto mining and videogames.

As often happens, yesterday’s shortage may be tomorrow’s glut, as chip firms have expanded production without subsidies.

Taiwan Semiconductor Manufacturing Co.

(TSMC) tripled capital spending between 2019 and 2022. Intel nearly doubled capital spending during the pandemic, and


last year increased its 10-year investment plan by more than 30%.

Global semiconductor capacity increased 6.7% in 2020 and 8.6% in 2021 and is expected to grow another 8.7% this year. The risk of over-capacity is growing as China heaps subsidies on its semiconductor industry as part of its Made in China 2025 initiative, and the U.S. and Europe race to compete.

Some 15,000 new semiconductor firms registered in China in 2020. Some have drawn investment from U.S. venture-capital firms. Intel has backed Chinese startups even as CEO

Pat Gelsinger

lobbies Congress for subsidies to counter Beijing. Intel has threatened to delay a planned Ohio factory unless Congress passes the subsidy bill.

The other claim for the bill is that the U.S. must subsidize domestic chip-making to compete with China, but this also isn’t persuasive. The companies like to point out that the U.S. share of the world’s chips has fallen to 12% from 37% in 1990. They don’t mention that the U.S. leads in chip design (52%) and chip-making equipment (50%). Seven of the world’s 10 largest semiconductor companies are based in the U.S. China trails American companies by years in semiconductor technology.

Chip fabrication has moved to South Korea and Taiwan because many chips are commodities with low margins. But chip makers are working to diversify their manufacturing bases to avoid future supply disruptions and have announced $80 billion in new U.S. investments through 2025. Samsung plans to build a $17 billion factory in Texas. TSMC has a $12 billion plant under construction in Arizona.

One unfortunate impetus behind this bill is that, for all their talk of competing with China, many politicians believe that Beijing’s economic planning is superior to the U.S. free-market system. It reminds us of the 1980s when legendary Intel CEO

Andrew Grove

warned that Japan was going to dominate the chip industry and the future of global technology.

As former Cypress Semiconductor CEO

T.J. Rodgers

explained on these pages last year, the government set up the Sematech chip consortium that “was obsolescent when it opened.” But Intel innovated with more advanced chips, and no one is talking now about Tokyo’s central-planning genius.


History shows that easy government money can undermine competitiveness. It often leads to inefficient spending and investment. The politicians will also attach their own strings, perhaps with limits on stock buybacks and dividends. Wait until Bernie Sanders is heard from on the Senate floor.

The chip bill isn’t needed to compete with China, and it will set a precedent that other industries will follow. Anybody who can throw up a China competition angle will ask for money. Why Republicans want to sign up for this is a mystery, especially when they might control both houses of Congress in six months.

Journal Editorial Report: Pressure builds for a big rate hike. Images: AP/Getty Images Composite: Mark Kelly

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Appeared in the July 19, 2022, print edition as ‘Congress Goes All in for Chip Subsidies.’

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