by Rohan Sinha (’23) | February 3, 2023

Since the 1990s, semiconductor manufacturing has moved from the United States to locations overseas, including Taiwan. Reversing this departure is the premise for a new Cold War-style arms race between the U.S. and China.

U.S. Secretary of Commerce Gina Raimondo has argued that the significance of this issue transcends economics: “Right now in the United States, we don’t really make any of the world’s most sophisticated…cutting-edge chips. That’s a national security issue.”

Many officials have noted that China’s invasive surveillance system in Xinjiang, used to reinforce an oppressive system of discrimination, involved American-made chips. Additionally, the U.S. currently maintains a monopoly on technology required to create certain chips—which is fundamental to its leverage over rivals like China. If China’s chip technology began to outpace its American counterpart, the U.S. could lose this strategic advantage, explaining the secretary’s concerns.

In line with Secretary Raimondo’s national security concerns, the U.S. government has taken steps not only to support its semiconductor industry, but also to counteract China’s growing economic power. Last summer, President Biden signed the CHIPS and Science Act to subsidize domestic semiconductor research and manufacturing, encouraging chip makers to establish factories in the U.S. 

These legislative and executive acts represent some of the most significant examples of federal government involvement in industrial policy in decades—hence the “new Cold War.” But this almost unprecedented expansion of federal power over industry in the 21st century raises an important question: just how effective will these acts be in reversing the U.S. semiconductor industry’s decline?

Despite the impracticality of achieving fully self-reliant semiconductor manufacturing in the United States, many experts argue that current geopolitical instability makes the CHIPS Act particularly impactful. Many American officials expressed concern about reliance on Taiwan for chip production, especially given the region’s geopolitical volatility and ambiguity. When the Taiwan Semiconductor Manufacturing Company (TSMC) began plans to add chip production capabilities to a Phoenix factory, many hailed this move as a sign of the CHIPS Act’s success in establishing a degree of independence from overseas manufacturing.

But this self-reliance has a downside: many see The CHIPS Act as a misguided and ultimately self-defeating notion of American exceptionalism. Critics argue that in seeking to establish independence from Taiwan’s chip production, the U.S. reduces its economic interests in the island, which may also lessen the international community’s willingness to defend Taiwan’s autonomy from China. In other words, many critics worry that the CHIPS Act creates a slippery slope that harms key relationships with allies.

There are also practical challenges to the CHIPS Act, including a labor shortage. In addition to the logistical challenge of training workers, chip companies may struggle to attract workers who have more enticing employment opportunities in other industries.

Moreover, many progressives, including Senator Bernie Sanders, have sharply rebuked the CHIPS Act as “massive corporate welfare.” To incentivize operations in the United States, this legislation subsidizes semiconductor manufacturers—which many see as solely benefitting the profitability of large corporations. Naturally, this legislation raises questions about who really benefits from this Cold War-level spending by the federal government.

The CHIPS Act was intended to promote American technological innovation in an almost Cold War-style arms race with China. Whether it lives up to this lofty goal remains to be seen.