This article is part of the On Tech newsletter. You can sign up here to receive it weekdays.
To stay competitive against China, should the United States become a little more like it?
I’m being provocative, but that’s essentially the question behind the U.S. government’s plans to provide financial help to American-made computer chips, and maybe to other homegrown technologies, too.
In practice, the U.S. government subsidizes or props up industries all the time. But the idea of a government helping its favorite industries is something that the United States typically mocks as a perversion of the free markets. It’s what China does, or what European governments do with their leading airplane maker.
That makes what’s happening with computer chips just the beginning of a thorny policy debate: Should the government intervene more to create American winners, particularly in technology and other key areas? And if so, how?
What’s happening: Computer chips are like the tiny brains or memory in everything from jet fighters and satellites to refrigerators and cars, as my colleagues Ana Swanson and Don Clark have written. Silicon Valley was named for a material in computer chips — and Intel was an industry pioneer and star. Not anymore.
Taiwanese firms including Taiwan Semiconductor Manufacturing Company and South Korea’s Samsung have leapt ahead in advanced designs, and they’re kings of manufacturing now. The vast majority of the world’s chips are made outside the United States, in part because of government subsidies abroad.
The pandemic caused chip shortages that slowed U.S. car factories, leading to more urgency among the U.S. military and American corporations to have a safe and uninterrupted supply of chips closer at hand.
So last year, Intel and federal government agencies proposed financial help for American chip manufacturing. The result was an authorization of taxpayer money to subsidize U.S. chip factories and chip research in the military policy bill finalized a month ago.
Congress hasn’t funded the program yet so the dollar amount and specifics are in limbo, Don told me. He also said that government money may take years to translate into more U.S.-made chips. But you get the goal: Ensure that more chips are churning inside America’s borders, whether made by Intel or foreign chip makers on U.S. soil.
The bigger picture: The backdrop of all this is China. One fear is that perennial tensions between China and Taiwan could at some point disrupt the chip industry on the island and affect the rest of the world.
The Chinese government also has been spending gobs of money to develop its own chip industry and rely less on imported chips and equipment.
In the political, military and economic competition between the United States and China, chips are one of the leading fronts.
What’s next: It’s an odd sight in Washington: Republican politicians who tend to prefer less government intervention are siding with politicians on the left to support more government backing of private companies. That’s true for computer chips and in some other areas, including artificial intelligence, robotics and advanced manufacturing.
One question is how to support industries without wasting taxpayer money. Advocates for government help have backed more generous tax credits for companies’ spending on research and development, government backing for basic scientific research, and taxpayer-funded investment funds in strategic industries like chips, batteries and cars. America has done this before, particularly in the 1980s and ’90s when Japan was a rising economic power.
This debate is about much more than one policy. It’s about figuring out the appropriate role of government in the economy, and what America should do when other countries plow endless cash into their national champion companies.
And ultimately this is a window on a big question that I’m constantly pondering: What should the United States do about a future in which technology is becoming less American?
A history lesson that might be relevant for chips
When I first heard about the proposals for government funding of the chip industry, I thought about the 1990s and equipment for telephone networks. (Yes, I am very cool.) Come with me on a trip through history.
North American companies were once the kings of another essential industry: the gear that telephone companies need to route the world’s communications. But for complicated reasons, American titans including Lucent — a successor to the old Bell Labs — were sold to foreign companies or died.
Today, the world’s leading telecom equipment company is China’s Huawei, and the United States is freaking out about it.
So I wondered whether Huawei was a cautionary tale of America’s missed opportunity. If the U.S. government had thrown taxpayer money behind the country’s telecom sector in the 1990s, as it’s doing now with chips, would Lucent have thrived and not Huawei?
I put that question to Rob Atkinson, who wrote a history last year of the decline of American telecom equipment companies. “If you really had wanted to save Lucent, yes, I think they could have survived” with U.S. government funding or loans, he said.
Dr. Atkinson is president of the Information Technology and Innovation Foundation, a research group that gets funding from telecom and tech companies including Intel.
Of course, there are complex reasons for the death of America’s telecom companies and the rise of Huawei. I encourage you to read Dr. Atkinson’s article for more. It’s also impossible to know for sure whether U.S. government backing in prior decades would have really changed anything for Lucent and its peers.
Dr. Atkinson’s organization supports more U.S. government investment in essential industries including chips. And like others who back those policies, Dr. Atkinson said America also needed to condition its trade and diplomacy with China on that country’s slowing its heavy backing of homegrown industries.
Before we go …
Hugs to this
Teaching a cat to flip a coin. The best part is the man’s delighted reaction.
We want to hear from you. Tell us what you think of this newsletter and what else you’d like us to explore. You can reach us at [email protected].
If you don’t already get this newsletter in your inbox, please sign up here.