Analysis: Biden is touting a massive bill to subsidize computer chip manufacturing in the U.S. But the history of similar government interventions is spotty.
Bob Davis recently retired from the Wall Street Journal where he covered U.S.-China relations and is the co-author ofThe White House and influential lawmakers in both parties are celebrating a big win on tiny chips.passed by Congress will give about $52 billion in grants to some of the world’s largest and richest computer chip makers to build or expand their factories in the U.S., plus another $24 billion or so in manufacturing tax credits.
But big industrial policy raises a big question with many billions of dollars at stake: What works and what doesn’t? That emerging consensus means heartache for many companies seeking government help. U.S.-owned solar manufacturers were counting on the White House to help them revive a domestic industry by blocking foreign competitors. But China and other Asian nations so thoroughly dominate the market that the administration turned its back on their pleas and cleared the way for imported solar panels to continue to pour into the U.S.
Industrial policy is most effective in helping new industries gain momentum, where they can capitalize on America’s long-standing strength in science and technology. But even then, tough policy decisions remain. “What is an American company?” asks Reich, now a public policy professor at the University of California at Berkeley. The answer depends on “the human capital created” by firms, not the location of their headquarters, he says. He would reserve government help to firms that employ “a critical number of people who gain knowledge and expertise and are therefore on the cutting edge,” whether their corporate headquarters are in Berkeley or Beijing.
The Pentagon worried that Japan was leaping ahead of the U.S. in advanced technology, and that many flat screens — then only made in small sizes, which could be used in jet fighter consoles — were made in South Korea, not the U.S. Then, as now, the military warned against dependence on foreign suppliers, even if they were allies.
In September 1993, the Clinton administration and the Big Three American auto makers — General Motors, Ford and Chrysler — unveiled what was formally called the Partnership for a New Generation of Vehicles , which aimed to produce passenger cars that could get 80 miles per gallon — about three times the fuel efficiency of autos at that time and well beyond anything Japan was selling. Hence the nickname, “Supercar” or the “3X” program.
Instead, the administration shifted money to the Supercar plan from other federal energy programs, and spent about $1 billion on the effort. Detroit kicked in about the same amount by 2000, according to a Rand Corp. research paper. In 2000, after six years of research and development, the Big Three rolled out “concept” cars that roughly achieved the 3X fuel efficiency target, but that would have been commercial losers. They all used diesel fuel and would have been illegal to drive under Clean Air Act limits on particulate matter, according to the Congressional Research Service. None of the car makers ever produced the cars for sale. Detroit focused on selling gas-guzzling SUVs at a time when gas was selling from $1 to $1.
Congress’ reluctance, though, may be easing. The revived climate bill negotiated by Senate Majority Leader, and backed by the administration, includes a suite of tax credits for domestic solar manufacturers. Solar manufacturing was yet another largely home-grown industry that had been elbowed away by foreign competition, in this case Chinese. Some of the first practical cells to turn sunlight into electricity were invented in Bell Labs in New Jersey in 1954 and used to power satellites. Starting around 2000, local Chinese governments began backing solar entrepreneurs with inexpensive financing and other support. As Chinese manufacturers multiplied, prices fell sharply because of oversupply.
When announcing the latter decision, the White House said it would help the domestic industry by purchasing electricity produced by domestic solar panels and using the Defense Production Act to gear up solar production. But it said purchases would amount to about 1 gigawatt of energy a year, which is now just 4 percent of the U.S. market, a figure that is bound to shrink as the U.S. market grows.
The current White House has picked up an effort started in the Trump administration to bolster the semiconductor industry. | Anna Moneymaker/Getty Images
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