American scientists invented transistors, the key component in chips, shortly after World War II, and for decades they dominated the design and production of semiconductors as they quickly became smaller and more powerful.

THEN companies in Asia, particularly in Taiwan entered the industry, and America began to lose to cheaper labor, strong local government support and better corporate management.

Worse, today the United States does not manufacture any of the highest-performance chips; 92 percent of those are produced by the Taiwan Semiconductor Manufacturing Company, 100 miles from mainland China. [The rest are manufactured in South Korea.]

THIS presents enormous economic and national security risks for the United States and the rest of the world. If China took control of Taiwan and cut off the chip supply, that would be economically devastating, akin to [ or worse than ] the loss of oil exports from a major Middle Eastern producer.

Intent on reversing America's decline in the world's production of cutting edge semiconductors, the federal government has begun what is arguably the government's largest foray into the private sector since World War II.

That's just one piece of a larger, more muscular approach to industrial policy. It's a road filled with hope but also pockmarked with risks. On balance, the record of the government trying to improve the functioning of the private sector is poor, and particularly in complex sectors like semiconductors, the challenges are great.

Nonetheless, for the first time in memory, even many free-market conservatives seem to recognize that unfettered capitalism can lead to imperfect  results. 

Put chips high on that list.

In that context, Americans should be heartened that Congress passed the CHIPS and Science Act, which, among other things, will provide $52 billion for investment in facilities, as well as for more research and development.

In part as a result, Taiwan Semiconductor Manufacturing Company, the world's biggest maker of advanced computer chips, has broken ground on a major plant in Phoenix and announced that it will increase its investment there to $40 billion.

Intel has announced plans for a $20 billion facility outside Columbus, Ohio; Micron is building a fab [ as chip factories are known ] complex in Syracuse, N.Y.; Global Foundries is expanding in New York and Vermont; and Samsung is considering the construction of 11 facilities in Texas.

That's all great, but let's not be blind to the challenges. For one thing, these new facilities are just a tiny first step. The output of the Phoenix facility will amount to only a single-digit percentage of TSMC's total output.

For another, TSMC has historically insisted on producing its most cutting-edge chips in Taiwan, at least partly to ensure that the United States, whose official policy toward Taiwan is one of strategic ambiguity, will nonetheless protect the island against any mainland aggression.

America's ability to truly compete with Asia remains uncertain. In a recent submission to the Commerce Department, TSMC complained that the cost of the Phoenix facility would be much greater than its equivalent in Taiwan [ partly because of regulatory requirements ], wage costs substantially higher, productivity lower, construction delays more likely and taxes higher.

IN A PODCAST interview, Morris Chang, the 91-year-old founder of TSMC, who was born in China and made his early career in the United States, acknowledges the national security considerations while calling America's semiconductor efforts ''a wasteful and expensive exercise in futility.''

He noted that his company has had a smaller facility in Oregon for 25 years and chips produced there cost 50 percent more than those it manufactures in Taiwan.

The Publishing continues. The World Students Society thanks author Steven Rattner.


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