Why is the United States about to give $52 billion to companies like Intel? | Robert Reich

Congress will soon put the finishing touches on the Chips Act, which will provide more than $52 billion to companies that design and manufacture semiconductor chips.

The subsidy is demanded by the biggest chipmakers as a condition for making more chips in America.

It’s pure extortion.

The largest chipmaker in the world (in terms of sales) is already an American company – Intel, based in Santa Clara, California.

Intel hardly needs the money. Its turnover reached 79 billion dollars last year. Its chief executive, Pat Gelsinger, earned a total compensation of $179 million (which was 1,711 times higher than the average Intel employee).

Intel designs, assembles and tests its chips in China, Israel, Ireland, Malaysia, Costa Rica and Vietnam, as well as in the United States.

The problem for the United States is that Intel is not helping America deal with its current chip shortage by giving preference to American producers. And that doesn’t keep America at the forefront of new chip technologies.

Clearly, Intel would like some of the $52 billion Congress is about to throw at the semiconductor chip industry. But why exactly should Intel get the money?

Other likely beneficiaries of the Chips Act will include GlobalFoundries, which currently manufactures chips in New York and Vermont, but also in many other places around the world.

GlobalFoundries is not even an American company. It is a wholly owned subsidiary of Mubadala Investment Co., the sovereign wealth fund of the United Arab Emirates.

The country where a chipmaker (or any other global high-tech company) is headquartered has less and less to do with where it designs and manufactures. things.

Which is why every industry that can be considered “essential” is now lobbying governments for subsidies, tax cuts and regulatory exemptions, in exchange for designing and manufacturing products in this country.

It’s a giant global shakedown.

India, Japan and South Korea have all recently enacted tax credits, subsidies and other incentives worth tens of billions of dollars for the semiconductor industry. The European Union is finalizing its own chip law with $30-50 billion in subsidies.

Even China has extended tax and tariff exemptions and other measures aimed at improving chip design and production there.

“Other countries around the world … are making major investments in innovation and chip production,” said Senate Majority Leader Chuck Schumer. “If we don’t act quickly, we could lose tens of thousands of well-paying jobs to Europe.”

But who is “we”, senator?

John Neuffer, the chief executive of the Semiconductor Industry Association (the Washington lobbying arm of the semiconductor industry) warns that chip manufacturing facilities are often 25-50% cheaper to build in foreign countries than ‘in the USA.

Why is that? As he admits, this is largely due to the incentives offered by foreign countries.

As capital becomes increasingly global and mobile, it is easy for global corporations to pit nations against each other. As the chief executive of the American company ExxonMobil shamelessly declared: “I am not an American company and I do not make decisions based on what is good for the United States”.

People, on the contrary, are rooted in nations, which gives them much less bargaining power.

This asymmetry helps explain why Congress is willing to hand over $52 billion to a highly profitable global industry, but can’t even provide $22.5 billion, according to the Biden administration, to address the health crisis. current Covid public.

If public, corporations must be loyal to their shareholders by maximizing the value of their shares. But more than 40% of the shareholder value of US-based companies is owned by non-Americans.

Furthermore, there is no reason to assume that American business owners will be happy to sacrifice returns on investment for the good of the nation.

The real question is what conditions the United States (or any other country that subsidizes chipmakers) should impose on the receipt of such subsidies.

It cannot be enough for chipmakers to agree to produce more chips in the country that subsidizes them, because chipmakers sell their chips to the highest bidders around the world, regardless of where the chips are produced.

If the United States wants to subsidize them, it should demand that chipmakers give the highest priority to their US-based customers who use the chips in products made in the United States by American workers.

And Congress should require them to produce the highest value-added chip manufacturing in the United States — design, design engineering, and high-precision manufacturing — so that Americans gain that technological expertise.

What if every nation that subsidizes chipmakers demands them for itself?

Chipmakers will then have to choose. The extortion will then end.

About Christopher Easley

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