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Intel, the American tech company that puts “Intel” in so many American computers, “plans” to build a new chip factory in Ohio. It would be great news for the state – and for America – if we could believe it’s actually going to happen.
As President Joe Biden said, we need to bring home strategic industries, including semiconductors. They are needed for jobs, economic growth, resilient supply chains, and supercomputers. They power everything from new rocket designs to advances in artificial intelligence.
Therefore, America’s future, and that of democracy around the world, may depend on the success of the only American chipmaker that both designs and builds in America.
The lack of computer chips, which is currently costing car companies – from America’s Ford to Germany’s BMW – billions in lost revenue – hits directly the democratic economies, which must be strong to fund the necessary defenses against Russia and China.
US Commerce Secretary Gina Raimondo said in January: “Car prices are currently driving a third of inflation. Why? Because we don’t have enough chips.” In 2021, she said, American automakers will make nearly 8 million fewer cars than they would have had the chip shortage not existed.
We need more chip supply, which can be achieved by building new factories in America. That’s exactly what Intel claims to do.
“We’re going to build the most advanced things in the world, right here in Ohio,” Intel CEO Patrick Gelsinger said at the Sept. 9 groundbreaking ceremony at the Ohio facility. “We’re putting our chips on the table to help the US reclaim its manufacturing heart, as well as its undisputed technology leadership.”
Biden attended the event. He and Raimondo met Gelsinger at the White House in January to announce Intel’s $20 billion investment. Biden’s Chips and Science Act of 2022 will provide nearly $53 billion in subsidies for new chip manufacturing capacity in America. But all this is not enough.
According to The Wall Street Journal, Intel’s plan to expand its manufacturing capacity in the United States will “first build the factory structures and equip them only when there is a need.” (The italics are mine.)
Biden is making full use of Intel’s “proposed” investment and getting great press from the Ohio plant, but isn’t doing enough to actually get the factories — each group of which is likely to cost around $100 billion — to actually run. So far, only $20 billion is planned to build the Ohio factory. Even that was only ambitious at the time of the January announcement, according to a disclaimer at the end of Intel’s press release.
Intel is working with a private equity firm called Brookfield on its new US factories, including one in Arizona. Intel is also planning fabs in Mexico and Germany. Each new factory can cost over $100 billion, considering the $53 billion in subsidies for American chipmaking isn’t much.
Even after subsidies and co-investments from companies like Brookfield, Intel will need to increase capital spending to over 35 percent of annual revenue in the coming years, which sounds like “fake until it’s done,” according to the Journal.
So we have to ask: is America really doing enough for Intel? What does it take to get an actual commitment from Intel to get more American factories up and running? Stuck auto assembly lines need real factories making real chips, not just cocky politicians and empty factories waiting for the right demand signals.
The real problem is an uncompetitively high price at which Intel can produce chips in the United States. Foreign chips are cheaper, in large part due to massive foreign subsidies, lower labor and regulatory costs, and chip companies in Taiwan and South Korea that have consistently advanced in terms of process technology.
Losing America’s competitive edge in chipmaking to vulnerable factories in Asia, as Biden said, shouldn’t be an option.
Gelsinger is truly leading the way by doubling down on American chipmaking plans despite these downsides, including costs that are 30 to 50 percent higher than Asia. Unfortunately, that patriotism put downward pressure on Intel’s stock price, which has plummeted 50 percent since it was acquired by Gelsinger in early 2021.
Conversely, American chip companies that focus on domestic design but exclusively produce overseas are being rewarded in the markets, with AMD’s market cap exploding nearly 1,000 percent since 2018 to now rival Intel.
AMD’s market success is based on subcontracting most of its chip manufacturing to TSMC in Taiwan.
TSMC is the most valuable chip manufacturing company in the world, but that honor should lie on the shores of America. Intel should be rewarded – not penalized – by America for outsourcing chip manufacturing.
Biden rewards Intel with moral support and deliberately leaves AMD out of his speeches. But moral support doesn’t pay Intel’s $100 billion bills or impress the stock market.
Taiwan gets 73 percent of the world’s chip contract revenue, while the United States gets just 10 percent and South Korea 6 percent. Intel needs more of America’s concrete support to recapture a large chunk of that global market share.
Both TSMC and Samsung have overtaken Intel in terms of process technology, and AMD’s cheaper foreign-made chips can cannibalize Intel’s market share. Taiwan and South Korea are at least US allies, but if those supply chains were disrupted for any reason — say, expanded Chinese military operations against Taiwan or in the South China Sea — America’s economy and defense production would be at even greater risk than they are today.
America’s failure to protect American chip manufacturing in the 2000s was a mistake that left our defense, technology and manufacturing future at the mercy of Beijing decisions.
American chip designers who think they hold the trump card with their intellectual property are wrong. In fact, up to $600 billion worth of American intellectual property is stolen from China every year.
By definition, the Chinese Communist Party (CCP) does not care about America’s so-called property rights.
We cannot fight the CCP with pure market solutions. Shareholders today don’t want to shoulder the cost of risk mitigation and national security, and neither do taxpayers. So we need to call for government action.
Biden pays lip service, putting legislative weight and subsidies on buying Americans. But even one of its flagship projects, the Intel plant in Ohio, has no specific commitment to actually produce chips.
We’re not setting Intel and America up for success because, as a nation, we’re not yet ready to bear the necessary costs. The Biden administration, including Raimondo, is still talking about rolling back the Trump administration’s tariffs on China when we should be talking about extending them.
This attitude must change if we are to defend America, and with it democracies around the world. Setting subsidies and tariffs on computer chips at levels high enough to move from “plans” to “commitments” for American manufacturing is the necessary next step. Lip service and reservations will never be enough.
The views expressed in this article are the author’s and do not necessarily reflect the views of The Epoch Times.
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Anders Corr holds a BS/MA in Political Science from Yale University (2001) and a PhD in Government from Harvard University (2008). He is a director at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe and Asia. His most recent books are The Concentration of Power: Institutionalization, Hierarchy, and Hegemony (2021) and Great Powers, Grand Strategies: the New Game in the South China Sea (2018).
