November 22, 2022 Reading Time: 6 minutes

Jubilation erupted in Washington this summer as industrial policy came back into fashion. Congress passed Biden-backed legislation known as the CHIPS Act to spend $52 billion subsidizing semiconductor production. But the new law is a reminder that politicians prosper in Washington by “learning nothing and forgetting nothing,” especially not forgetting how to buy votes and snare campaign contributions.

The CHIPS Act’s passage sparked euphoria at the dawn of sweeping new government interventions. Washington Post columnist E.J. Dionne proclaimed, “The chips bill means the Era of Hands-Off Government is over.” Dionne invoked a cherished progressive illusion, despite the feds not being “hands-off” since Grover Cleveland was president. Sen. Charles Schumer (D-NY), the Senate Majority Leader, huffed, “The old laissez-faire theory is: Leave the companies alone, and they’ll do great.” Inside the Beltway, anything less than total federal domination of the economy is derided as “laissez-faire.” Jared Bernstein, a member of the White House Council of Economic Advisers, declared, “When it comes to establishing a lasting legacy in terms of existentially necessary economic transformation, history may well put President Biden in the same sentence as FDR and LBJ.” The exaltation occurred because “many politicians believe that Beijing’s economic planning is superior to the US free-market system,” as a Wall Street Journal editorial noted.

The CHIPS Act made Biden the nation’s Semiconductor Czar, and he promised that he would “personally have to sign off on the biggest grants” to companies. What could possibly go wrong?

If a picture is worth a thousand words, is a political photo opportunity worth $50 billion? Biden rushed to exploit the new law for a campaign event before the congressional midterm elections. Last month, Biden and New York Governor Kathy Hochul summoned the media to Syracuse, New York to celebrate subsidies for a Micron semiconductor plant. That plant is not scheduled to even break ground until 2024, but Hochul is in a difficult re-election fight and Biden needed every victory lap his handlers could arrange. Hochul swayed the New York legislature to enact a subsidy of up to $10 billion for semiconductor producers. Micron is expected to pocket more than $5 billion—the largest corporate handout in state history. Federal subsidies will be added next year when the CHIP Act starts dishing out goodies. The total subsidy per promised job exceeds $600,000 and could rise far higher.

Biden boasted that Micron’s investment in New York is “the largest American investment of its kind…ever, ever, ever in history.” Because the plant will run solely on renewable energy, its production costs could be sharply higher than unsubsidized factories elsewhere in the world. Biden also boasted that the plant would be constructed solely by union members paid high wages dictated by the US Labor Department. The federal and state mandates effectively guarantee that the new plant will be uncompetitive even before the first spade of dirt is overturned. No wonder that Bloomberg News castigated the CHIPS Act as a “boondoggle” that could produce “bloated, wasteful, government-dependent chipmakers demanding yet more handouts a decade down the line.”

Biden bragged, “With Micron’s $100 billion investment alone, we’re going to increase America’s share of global memory chips and production by 500 percent.” But the prospects for the Syracuse plant may hinge more on world markets than on government handouts. The New York Times reported that Micron recently “reported a 20 percent drop in fourth-quarter revenue” and “slashed planned spending on factories and equipment by nearly 50 percent in the current fiscal year.” The Philadelphia Semiconductor Index had declined by 35 percent from its high by the time the law was passed.

There is also the danger that federal subsidies could help cartelize chip production in America. Massive subsidies to a few favored producers could award them dominance, perhaps for many years. And if federal subsidies create or worsen a surplus of chips, that could be ruinous for unsubsidized competitors. The same pattern has repeated since the 1930s for federal agricultural subsidies that favored the largest farmers and helped drive small farmers out of business.

Politicians’ boasts about the job benefits of corporate subsidies are not covered by the Securities and Exchange Commission’s rules on fraudulent statements. Hochul claimed her handouts to Micron will generate more than 50,000 jobs in New York. But the governor’s office refused to disclose the private study from which that estimate was concocted. A study by Reinvent Albany, a nonprofit organization, noted, “New York State spends roughly $5 billion every year subsidizing big businesses…There is overwhelming evidence that government subsidies to businesses are a very poor way to create good jobs and local economic growth.” The study noted that “the state’s oversight of the Excelsior jobs program—under which Micron will receive the tax breaks—is notoriously poor.”

Micron and other chip makers who pocket government subsidies could find themselves junior partners to political appointees and unions, who nowadays have more influence in Washington than private companies. Maybe future green legislators will require semiconductor subsidy recipients to rely solely on windmills to make chips. Commerce Secretary Gina Raimondo boasted that “there’s a lot of strings attached” in the CHIPS Act.

But Commerce bureaucrats have repeatedly disrupted high-tech industries by rotely applying formulas from protectionist laws (such as the antidumping statutes) Congress passed. In 1986, Commerce fabricated unfair trade charges against Japanese semiconductor exports. Those charges were used to browbeat Japan into signing a pact seeking to restrict world-wide semiconductor trade, a shady deal that was extended in 1991. That agreement politically impaled one of America’s most competitive industries. The Commerce Department decreed that imported semiconductor prices must rise by 200 percent, at a time when domestic semiconductor producers could not satisfy domestic demand. That deal destroyed more than 10,000 jobs in companies using chips, according to the Center for the Study of American Business. In 1991, Commerce rubber stamped punitive taxes on the import of computer flat panel displays that devastated American computer makers. But as long as the trade restrictions made a few domestic companies happy, politicians reaped windfall profit in campaign contributions.

fter the CHIPS Act passed, Brian Deese, Biden’s National Economic Council director, declared, “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’” Unfortunately, Biden policymakers are unlikely to learn from previous and ongoing industrial policy trainwrecks.

Since the Nixon era, the US government has throttled steel imports, relying on periodic quotas, special tariffs, contrived anti-dumping penalties, and other deals. A 1984 Federal Trade Commission study estimated that steel quotas cost the US economy $25 for each additional dollar of profit of American steel producers. Professor Hans Mueller estimated that the quotas resulted in thirteen jobs lost in steel using industries for each steelworker’s job saved. The US International Trade Commission concluded in 1989 that steel import quotas actually increased the US trade deficit, causing a significant increase in manufactured goods containing steel and a decrease of US exports of steel products.

Steel producers kept banging their tin cups in Washington and President Trump obliged them in 2018 by slapping a new 25 percent tariff on steel imports. Federal policymakers intentionally endangered six million jobs in industries relying on steel to shelter the jobs of 135,000 steel workers. President Biden pretended to end the Trump tariffs late last year. But he actually replaced them with convoluted tariff rate quotas that could quickly become full-scale import restrictions.

Actually, federal trade policy rulings can amount to a “reverse industrial policy,” as Ron Cass, the vice chairman of the US International Trade Commission (ITC), told me in 1990. The weaker the American industry, the more likely it is that the ITC will blame foreign companies for its problems and approve penalty tariffs. Since falling profits are taken as a sign of injury, the ITC’s method tends to sacrifice the strongest, most profitable American industries to the weakest. US trade law pretends the feds can boost the economy by relieving every industrial straggler from the necessity of competing. 

Corporate subsidies are basically bribes to businesses that routinely spur corruption scandals. A decade ago, President Barack Obama visited New York and proclaimed, “Right now, some of the most advanced manufacturing work in America is being done right here in upstate New York. Cutting-edge businesses from all over the world are deciding to build here and hire here.” Gov. Andrew Cuomo appointed Alain Kaloyeros “to build a semiconductor corridor across upstate,” Politico noted. The promised bonanza never occurred. The program collapsed after Kaloyeros and three other officials were convicted for bid-rigging in 2018 and sent to federal prison. But that scandal vanished down the memory hole, clearing the way for a repeat Salvation Show in 2022. Could history repeat with the latest deluge of subsidies?

Politicians don’t learn from mistakes committed with other people’s money. Letting politicians pick winners is the surest recipe for shafting consumers and every unsubsidized business. Unfortunately, there will always be enough pundits who failed Econ 101 to whoop up every boneheaded intervention.

James Bovard

James Bovard

James Bovard is the author of ten books, including Public Policy Hooligan, Attention Deficit Democracy, The Bush Betrayal, and Lost Rights: The Destruction of American Liberty. He has written for the New York Times, Wall Street Journal, Playboy, Washington Post, New Republic, Reader’s Digest, and many other publications. He is a member of the USA Today Board of Contributors, a frequent contributor to The Hill, and a contributing editor for American Conservative

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