Washington Monthly - Two Cheers for the New CHIPS and Science Act

Reporter Garphil Julien writes on new developments for tech in the antitrust world. This article references OMI’s recent report on supply chains.

On Tuesday, President Joe Biden will sign the CHIPS and Science Act. The $280 billion bill was passed with a solid bipartisan majority in both the House and Senate, which is a rare feat. But these are unusual times: A major shortage of semiconductors that has obstructed industrial production for two years has also underscored the nation’s dire situation regarding the chips that drive everything from cars to ovens to computers. The United States invented the microprocessor only to see its manufacture and development migrate to other nations.

The bill is, on balance, a benefit to the U.S. It is expected to ramp up the production of microchips by providing $52 billion to chip makers and subcontractors to build facilities in the U.S. The majority of the bill’s funding goes toward scientific research.

There are assorted guardrails in the bill to ensure that the semiconductor money only goes to the domestic production of chips. While guardrails tend to be overrun, this is, at least, a start. Without the federal infusion of cash, the U.S. will find it even harder to catch up to Taiwan and China.

Unfortunately, the act that Biden will sign doesn’t curb the tactics that have reduced our ability to produce vital goods.

It’s a familiar story. Manufacturers shutter plants in the U.S. and offshore much of their capacity to one or two locations, creating an extreme concentration of industrial production. When production is that concentrated, supply chains become impossibly fragile, which happens with semiconductors. During the pandemic, much of the used and new car shortages have been semiconductor shortages. Modern cars can have hundreds in a single vehicle; no chips, no car.

In particular, the chip industry, motivated by the goal of returning value to shareholders, took advantage of the liberalization of global trade, which made it easier to move production facilities to a few locations abroad.

Many of these corporations looked for single-source suppliers and employed just-in-time distribution to cut costs, increasing the fragility of the chip supply chain. A new report from the Open Markets Institute points out that a single source dominates critical nodes in the supply chain. (I work at OMI and worked on this report.)

Read full article here.