After 20 months, it’s time to review a centerpiece of the Biden administration’s economic policy: the CHIPS and Science Act and the $39 billion in subsidies it will provide to stimulate U.S. chip and semiconductor plant construction and equipment. Make no mistake, this legislation and its funding are based on political and economic risk control as well as an attempt to revive lagging domestic production. The U.S. semiconductor sector leads the world with 48% of chip use and related sales, but is the location of only 6% of manufacturing capacity, far trailing Taiwan (46%), China (26%) and South Korea (12%).

Significantly, Taiwan-based TSMC produces 90% of the most advanced chips and 100% of the ultra-advanced GPU chips used for AI. “There is no other industry that is simultaneously important to the entire economy and also so concentrated in just one country,” Chris Miller, a Tufts University international history professor, said at a recent Aspen Institute conference.

The Biden administration now has 150 Dept. of Commerce staffers working on the program. They have offered Intel Corp. $8.5 billion in direct funding, the largest to one sector firm so far, to support $100 billion worth of construction in Arizona, New Mexico, Ohio and Oregon. TSMC, as well as semiconductor producers Global Foundries and Samsung, also have received money for projects.

Private Investment Lure

While the administration encourages project labor agreements to boost union contracting, Commerce’s funding notices don’t require chip makers to use project labor agreements. As with all federal funding, Davis-Bacon Act wages are required, but labor amounts to only a “moderate” part of the overall construction cost, Miller asserted.

According to Michael Schmidt, the department’s Chips program director, federal subsidies have so far brought forward $300 billion in committed investments from private industry. Visitors to some facilities where expansion is ongoing will see “10,000 construction workers” going in and out and “50 cranes” on duty, he contends.

Boost Market Share

While the dazzling amounts of money will improve the U.S.’ self-reliance in an increasingly digital world, it will not put the U.S. in a position of chip manufacturing independence. Even if new and expanded U.S.-based plants produce three times as many chips of all kinds by 2032 as they do now, as the Boston Consulting Group foresees, the U.S. will attain 14% of world share—up from 12% in 2020. Its production share of the most cutting-edge chips should grow to between 20% and 28% according to different estimates. European and Asian competitors also are expanding capacity.

The various arguments against interfering with free global markets don’t make much sense in this critical industry, especially when you consider the potential impact of a war or an earthquake. Without the CHIPS Act, U.S. production share could have dipped to 8% by 2032—and that should never be allowed to happen.