The Joe Biden administration's highlighted "signature economic initiative" is taking on a deeper shade, as reported by The Wall Street Journal. In the upcoming weeks, the administration plans to allocate billions of dollars in subsidies to prominent semiconductor companies to facilitate the construction of new factories.
These grants are part of the $53 billion Chips Act, aimed at reshoring the production of advanced microchips and countering the rapid development of China's chip industry. Experts suggest that the funding is geared towards jumpstarting the manufacturing of advanced semiconductors for artificial intelligence and weapons systems applications, reflecting the administration's strategic priorities.
While the administration aims to present a positive outlook for the industry, this move is likely to distort the chips market. Additionally, despite claims of a merit-based process by an unnamed official from the US Department of Commerce, there seems to be a political consideration at play. The companies poised to receive subsidies include Intel and TSMC, indicating a possible intention to garner support in key states through job creation.
This political calculus, coupled with the failure to address domestic labor shortages, exacerbates the market-distorting effects of the administration's economic policy. Moreover, concerns are raised about the lengthy process involved in obtaining permits and other factors, potentially delaying the production of American-made chips from subsidized factories.
Jensen Huang, CEO of Nvidia, suggests that the US' stringent control over the industry may hinder its own technological leadership by prompting Chinese companies to intensify their efforts in producing advanced chips.
The administration's narrow perspective on the industry and its disregard for the potential benefits of China-US cooperation hinder its ability to make sound decisions in the broader context.