Today, President Biden signed the CHIPS and Science Act.
It authorizes $250 billion to subsidize domestic production of semiconductors and fund research into new semiconductor technology.
Supporters say it will help deal with supply chain issues, and make the U.S. more competitive against foreign manufacturers. But not everyone’s so sure.
But Professor Alan O. Sykes isn’t sure that’s a good thing.
“The great fear…of economists in this area is that when you subsidize things, you’re going to be subsidizing investments that are not positive net present value, that are negative net present value, that wouldn’t be made by private industry acting on its own,” Sykes said. “And so you end up with inefficient, higher cost production than you would if you simply let the market work on its own.”
Sykes, a professor of law at Stanford and a senior fellow at the Stanford Institute for Economic Policy Research, generally leans toward a laissez-faire, hands-off economic philosophy.
He argues that the pandemic drove greater demand for consumer electronics and exposed weaknesses in the supply chain, but that doesn’t mean we should put the U.S. government’s thumb on the scale to subsidize semiconductor manufacturing at home.
Sykes said the CHIPS Act is part of a shift to a more protectionist stance by the United States in recent years when it comes to manufacturing and trade. For example, the Ocean Shipping Reform Act – also championed by Sen. Cantwell – beefs up the regulatory agency that oversees U.S. ports, and requires foreign companies to ship U.S. products when they take shipping containers back from port instead of sending them away empty.
“My personal feeling is that letting the market sort these things out, by and large is the right way to go,” Sykes said. “And the government micromanagement of supply chains in any industry is probably a mistake that’s likely to be captured by interest groups with their hands out in Washington one way or another, rather than leading to the most efficient economically sensible approach.”