How many times have you experienced it at a crowded football game? Hoping to get a better view, the fans seated in front of you stand. Then, with your view blocked, you and others in your row stand tall. The upward wave continues. Very quickly, everyone is standing, getting weary, and no one has gained an advantage. So it now appears to be with the global response to America’s “Chips and Science Act of 2022,” which established $52 billion of U.S. taxpayer money to subsidize computer chips built on American soil.
As new data show, planned U.S. chip production ramped up, and construction expenditures on computers, electronics and electrical manufacturing plants surged. But, not coincidentally, government chip-manufacturing inducements are now taking place in the United Kingdom, European Union, South Korea, Japan, India and elsewhere. In total, $200 billion is being given away, with the EU dishing out $47 billion in subsidies to firms that will build facilities in Europe.
The result? The global chipmaking fruit basket may soon overflow, and turnover is underway as the industry finds a new equilibrium. Just where it all ends is to be determined, but one thing is certain: Taxpayers are losing, and chip company shareholders are laughing all the way to the bank.
But it doesn’t end with chipmakers. While that industry expands and regroups, the subsidized surge has been broadened to include producers of other goods and services that are part of the chipmakers’ supply chain. Now, chemical manufacturers, toolmakers and other producers — small and large — can take their places in a growing line to get their hands on a piece of the subsidies.
Meanwhile, some American politicians see this as an opportunity to ration the subsidies in ways that fulfill other objectives. All those who receive $150 million or more in subsidies must provide a child-care plan and adopt President Biden’s commitment to diversity, equity and inclusion.
Just as with a football crowd standing up for no good reason, there are a few voices urging everyone to sit back down. Back when political and industrial leaders worldwide were sounding alarms about the rising (and likely temporary) scarcity of computer chips, hardly anyone seemed to expect that industrialized nations would all decide to subsidize chipmakers to the degree that they have. Efforts are now underway to coordinate and avoid excessive subsidies.
As European Competition Commissioner Margrethe Vestager put it: “We hope to agree on high levels of subsidies — that they will not be more than what is necessary and proportionate and appropriate.”
But we should have expected the resulting mess. After all, subsidizing favored producers is a government habit that’s been on the upswing. According to the Lowy Institute’s summary of a 2021 Global Trade Alert report, “Since 2008, China, the United States and the European Union have implemented more than 18,000 subsidy programs for their industries, with the number of identified programs split roughly equally between the three. Together, China, the United States and the European Union account for more than half the number of total world subsidy interventions since 2008.”
With so many subsidies and taxpayer money being given away, it’s little wonder that the U.S. deficit is growing, and tax cuts are not exactly a priority right now. Doing away with unnecessary corporate giveaways is one fiscal step that rank-and-file Democrats and Republicans can get behind. Politicians, as beholden to corporate donors as they often are, may want to take note.
