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Rebuilding US industry requires more than just computer chips

It only took a year and a half, but Congress is finally on the verge of passing a “China bill.” At this point, however, the final legislation is only aimed at building the domestic computer chip industry in America. That means, much of the original intent – ​​to enact legislation to address massive Chinese subsidies, intellectual property theft and market barriers – will be left to the next Congress. But the “Chips Act” passed by Congress offers a helpful template for solving America’s broader challenge – winning the global competition for good jobs and important industries.

Computer chips are very important, of course. They are one of the most important dual-use commodities in the global economy. Not only do most consumer products — including everything from refrigerators to cars — require computer chips. But America’s military hardware is also heavily dependent on high-tech semiconductors as well. In fact, the shortage of computer chips that emerged in the wake of the COVID-19 pandemic has proven to be one of the factors driving current inflation, with consumers waiting months for everything from cars to kitchen utensils.

The United States urgently needs a strong, domestic semiconductor industry. Increasing American-made computer chip production will certainly ease the shocks in the current supply chain of many industries. And it would address a significant national security concern, as the US remains dependent on overseas chip makers.

Helpfully, what Congress has done is allocate $54 billion in investment aid for US semiconductor companies, plus a tax credit worth nearly $24 billion. These are good incentives to help manufacturers locate production in the United States. Intel Corp. have already announced their intention to build a new $20 billion factory in Ohio.

However, what is surprising is that due to the current inflation driven by the lack of supply chain, Congress is taking a long time to allocate funds for domestic chip-making. In contrast, lawmakers quickly used the same level of funding for aid to Ukraine.

Since much of America’s current inflation is driven by the ongoing shortage of consumer goods, the obvious answer should be to start bringing these industries back to US shores. Fortunately, Congress now has a blueprint for exactly this kind of effort, because the chips act is intended to restore a critical industry. Lawmakers should extend the same approach to rebuilding America’s domestic manufacturing of personal protective equipment (PPE), pharmaceuticals, industrial minerals, metalworking and automation systems.

The big issue is still China, though. Currently, Beijing controls 70 percent of the world’s lithium supplies, for example, and almost all of the world’s graphite. Similarly, thousands of prescription drugs that Americans use every day are made with ingredients that are only made in China.

America’s reliance on China extends to many industries. And it is no accident that China has taken such a controlling position. Beijing continues to fund state-owned factories with billions of dollars in direct subsidies. This allows Chinese producers to “dump” product on the world market at artificially low prices – a tactic that has successfully put many US manufacturers out of business.

With the chips act finalized, Congress will need to draft similar legislation to revive other key US industries – and once again make the United States a competitive place to be. produce not only semiconductors but also pharmaceuticals, electronics, metals and medical equipment.

Achieving this requires a new mindset, however – a recognition that almost every other nation plays in the global system. China is the worst, with massive subsidies and market barriers. But manufacturers across Asia are also enjoying the benefits of currency misalignment, low-wage jobs and government funding.

To counter this, Washington should get tough, and provide incentives and tax assistance to local producers who are willing to find new production at home. The Chips Act is a start. But even with tax breaks or tariffs, Congress should consider it a reasonable response to other countries already defrauding the global market.

Overdependence on China is robbing the United States of millions of good-paying middle-class jobs. And the lack of imports is now driving inflation. It’s time to correct both problems – and start rebuilding the domestic industry. That’s the smartest way to cushion future price shocks while bringing back high-paying jobs.

Michael Stumo is the CEO of the Coalition for a Prosperous America. Follow him on Twitter @michael_stumo.

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