Remember when administration officials, members of Congress, and pundits were claiming that the Chinese government’s industrial policy — including massive use of subsidies — was so successfully building up China’s economic strength that the U.S. government must do the same? These guys were particularly happy when Congress passed the CHIPS Act, with its $50 billion in subsidies for U.S.-based producers of microchips.
I have always believed that this mimicking of Beijing’s economic policies is nuts. I don’t see how becoming more like Communist China, with its warm embrace of central planning under President Xi, will strengthen us economically. In fact, as similar historical episodes suggest, it will weaken our economy. And it will do so for the very same reason that Beijing’s own heavy-handed interventions are now weakening the Chinese economy — a realization that appears to be dawning on Chinese leadership.
Here’s Bloomberg reporting:
China is pausing massive investments aimed at building a chip industry to compete with the US, as a nationwide Covid resurgence strains the world’s No. 2 economy and Beijing’s finances.
Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said. While some continue to push for incentives of as much as 1 trillion yuan ($145 billion), other policymakers have lost their taste for an investment-led approach that’s not yielded the results anticipated, the people said.
The irony is that Beijing’s recent moderation of its industrial policy is happening at the same time that the U.S. government is jacking up its subsidies for American chip production.
The New York Times reports on this effort:
The pledges are part of an enormous ramp-up in U.S. chip-making plans over the past 18 months, the scale of which has been likened to Cold War-era investments in the space race….
The push is one facet of an industrial policy initiative by the Biden administration, which is dangling at least $76 billion in grants, tax credits and other subsidies to encourage domestic chip production.
And for what? Well, we are told that all the subsidies are supposed to “take the U.S. share of global production to as much as 14 percent by 2030” up from 12 percent (don’t laugh). And then there is this:
The new chip factories would take years to build and might not be able to offer the industry’s most advanced manufacturing technology when they begin operations. Companies could also delay or cancel the projects if they aren’t awarded sufficient subsidies….
[T]he ramp-up is unlikely to eliminate U.S. dependence on Taiwan for the most advanced chips.
Now, if only American industrial-policy cheerleaders had been warned. Oh wait, they were.