Past U.S. Industrial Policy Offers Lessons, Risks for Chips Program

By Greg Ip of The WSJ. Excerpts:

"the U.S. also accumulated many examples of failed industrial policy. Efforts to develop supersonic airliners and fast-breeder nuclear reactors flopped. A flat panel display factory that Taiwan’s Foxconn Technology Group promised to erect in Wisconsin at former President Donald Trump’s urging remains unbuilt. Congress and presidents have repeatedly turned to tariffs, quotas and other trade measures to protect industries deemed vital to the national interest. The 1920 Jones Act still requires goods shipped between American ports to travel on U.S.-built vessels as a way of preserving a shipbuilding industry and thus naval readiness. President Kennedy used quotas to protect textiles. President Trump used tariffs to protect steel and aluminum. The result has usually been higher prices for American consumers and continued decline for the targeted industry."

"Former Treasury Secretary Larry Summers, generally a skeptic of government intervention, says: “I like industrial policy advisers how I like generals. The best generals are the ones who hate war the most but are willing to fight when needed. What I worry about is the people who do industrial policy love doing industrial policy.”"

"The $39 billion earmarked for factories easily exceeds what the U.S. has spent on sector-specific industrial subsidies in the past, but it is small compared with the $3 trillion that, according to a 2021 report, semiconductor companies were expected to spend on capital expenditure and research and development over the coming decade. Moreover, these companies have alternatives. Japan, the European Union, South Korea, Taiwan, Canada and India are all offering or considering incentives of their own for chip production, and China’s ambitions haven’t slackened.

This highlights a final risk: when so many countries pursue the same industrial policy, it is harder for any one to succeed. With so much public money chasing chip factories, a glut could materialize in coming years. Ms. Raimondo said she is talking to U.S. allies to avoid that. While good in theory, it remains to be seen if such coordination can be achieved in practice."

See also U.S. Aims to Chart New Course for Chip Industry by Yuka Hayashi and Asa Fitch of The WSJ. Excerpts:

"an extensive list of requirements, particularly the rules on profit-sharing and workforce, had some economists raising questions.

“There appear to be even more restrictions, or more conditions, in this funding than what the law demands,” said Scott Lincicome, a trade and economics expert at Cato Institute, a libertarian policy group. He noted that rules on child care and “Buy America” requirements will raise the costs for the participants and could slow down the projects"