(cheerful music)
- [Narrator] This is just a typical morning.
I'm eating some cereal with lactose-free milk
as I watched some videos on the internet
using closed captioning,
while looking up directions to my MRI appointment.
Okay, maybe not really typical
but just about everything here,
the milk, the TV, the graphics cards, the internet,
the closed captioning, the GPS, the MRI machine
were made possible because of government investments.
- It's probably the case that every technology used today,
at some point there was like government funding involved.
- [Narrator] And the latest technology
that the US government is getting involved in
is manufacturing microchips.
- Folks, we need to make these chips here in America.
- It's law.
- President Biden just signed a bill into law today
boosting domestic semiconductor production.
- There are some big companies
that are set to benefit.
- If it's a good idea to make the semiconductors here,
why do we need the government to help us?
- [Narrator] Here's why the US government
is giving private companies billions of dollars
and why many economists are calling the Chips Act
a return to industrial policy.
- Industrial policy is actually quite a simple term.
It's a set of policies that try to affect the outcome
of some particular industry or industries.
- [Narrator] Industrial policy
can be done through things like tariffs
that make US made products cheaper than foreign ones,
or through tax incentives like getting money back
if you put solar panels on your house,
or what has been less popular in recent years,
direct investments.
Let's go back, way back to Alexander Hamilton.
In 1790, Hamilton proposed tariffs on imported goods
in order to encourage his fellow countrymen
to buy more American products.
- [Speaker] This is the immense plant which gave birth
to the atomic bomb and brought the world to a new crossroad.
- [Narrator] Fast forward to the 20th Century,
to prevent the spread of radioactive contaminants
used during the Manhattan Project,
the US government funded the development of the HEPA filter
which is used in many air purifiers sold today.
World War II also required enormous investment
in radio technology, ship building and jet engines.
- The defense department was largely
the main buyer of many of these technologies.
The commercial market was quite small,
the defense market was quite big.
And so they could really drive
a lot of the movement in industry.
- [Narrator] In the 1960s,
the US government spent more money
on research and development than all other governments,
all foreign private companies
and all US private companies combined.
Why?
The Cold War and the Space Race?
- What did the space program give us?
It gave us Tang
- [Speaker] From Gemini to the Shuttle to Earth families,
- [Both] Bye, mom.
- [Speaker] Great mornings have taken off with Tang.
- Yeah, it gave us Tang,
but it also gave a gazillion other things.
It wasn't talked about as industrial policy.
It was talked about as space policy
or defense policy or health policy,
but it was a defacto industrial policy.
- [Speaker] And liftoff.
- [Narrator] A defacto industrial policy
with many unforeseen benefits.
This robotic prosthetic leg
is powered by small, powerful motors,
originally designed for a robotic arm
on the International Space Station.
Like many of these technologies, semiconductors originated
from research and development programs
funded by the US taxpayer.
- The birth of semiconductors in the United States
had a lot to do with the fact that the Department of Defense
and the space program were the first
big early customers for semiconductors.
- [Narrator] Since 2006, China has prioritized
catching up to the west technologically.
But doing that requires semiconductors.
- China has ramped up its investment in Chips.
- [Narrator] Senator Mark Warner, who is the chairman
of the Senate Select Committee on Intelligence
has long been warning
about the growing threat posed by China.
- China has been able to throw literally, you know,
two, three, four times as much money at trying to build up
their semiconductor chip capacity as the United States.
- [Narrator] This is where the Chips Act comes in.
The legislation offers $53 billion in direct investment
plus a separate tax incentive program
to reinvigorate the US chip industry.
- So, what the Chips bill did was say,
we're gonna take 52 billion,
but we're going to take about 40 billion of that
and try to get the semiconductor factories
that are called Fabs,
get the Fabs to locate here in America
- [Narrator] Today, the US still dominates
the most lucrative links in the semiconductor supply chain
including the design of chips.
But the fabrication of chips
has increasingly moved to China, South Korea, and Taiwan.
- Over the last 20 years,
a lot of that industry has migrated to East Asia
where land and labor are cheaper
and there are a lot of subsidies available
- [Narrator] Because of this,
the US share of global chip making
has shrunk from 37% in 1990 to 12% in 2020.
China went from zero to about 15% in the same time.
- If we don't do this, I don't think there'll be another
chip manufacturing facility built in America.
- Senator Warner sees this as a national security issue.
- Over the last particularly 15 or 20 years,
what we've seen is that national security
is no longer who has the most military hardware
but also who controls what technology domains.
- [Narrator] The US now buys more than 90%
of its advanced chips from Taiwan,
an island China sees as its territory.
Any conflict in Taiwan
could dramatically disrupt global chip supplies.
- We all saw what happened during the pandemic
when chip factories shut down overseas.
We can never let that happen again.
- We have never before been
in this kind of a Cold War type conflict
with a power that was also a worthy economic peer.
And I think it is awakened, in the United States,
an awareness that we cannot simply allow
the private market to allow vital technologies
and capabilities to entirely migrate to a country
that we are in an adversarial situation with.
- So our competitors are pouring
tens of billion dollars into boosting their own supply
of these essential semiconductors,
and the United States needs to keep up and to compete.
The vast majority of our colleagues
agree that this was an important and critical task.
- [Narrator] When was passed,
the Chips Act received rare bipartisan support.
The yays are 64, the nays are 33.
- There is broad bipartisan agreement
that China is the challenge of our time,
and that in these areas of technology
we can't allow America to fall behind.
- [Narrator] Critics of industrial policy
accuse it of picking winners
rather than letting the free market determine
which companies succeed.
Some of the most famous industrial policy failures
include investment targeted at a single company.
At former President Donald Trump's urging,
in 2017, Taiwan's Foxconn Technology Group promised to build
a flat panel display factory in Wisconsin.
- This is a great day for American workers
and for everyone who believes
in the concept and the label, Made in the USA.
- But five years later, and that factory remains unbuilt.
Critics of industrial policy also point to Solyndra
- When it's completed in a few months,
Solyndra expects to hire 1,000 workers
to manufacture solar panels
and sell them across America and around the world.
(audience applauding)
- [Narrator] But in 2011,
the solar manufacturer went bankrupt
after it defaulted on $535 million in federal loans.
But proponents of the Chips Act say,
it's not about picking specific firms
like Intel or Taiwan Semiconductor
- Good industrial policy funds a variety of firms,
big, small, even foreign,
long as they're doing the work in the US
and they're not our adversaries.
- [Narrator] The ability to apply for this money
is drawing major investment from these firms right now.
Both Intel and TSMC are spending billions
to build new Fabs in the US.
- I think one thing we're gonna learn
is that industrial policy is expensive
and we have large government deficits.
And so, I think one of the things that will put the breaks
on the Rush to industrial policy is the fact that
you'll have to persuade, you know,
Congress to vote for this money and that's not easy to do.
The Republican senators, for example,
who gave their support to the Chips Act,
they did so because they saw this
as a narrow exception to their general mistrust
of the government being able to spend money
better than the free market.
And I think that there will not be
many other industries that meet that test.
(cheerful music)