America is often known as the primary defender of the free world, with a defense capability that is second to none. In recent years, however, some have cautioned that America’s arsenal may rely too heavily on imported microchips, including from geopolitical rival China. In the event of an international crisis, China may suspend exports of these chips to the United States. Outside of military hardware, these chips are found in most electronic appliances today, ranging from dishwashers to microwaves to televisions.
Analysts fear that America has fallen behind the curve on microchips, relying on imports for both general and advanced chips. However, thanks to the CHIPS Act of 2022, federal subsidies are poised to bring advanced chip production to the United States. The subsidies are intended to expand an existing project to an eventual $65 billion investment in chip manufacturing in Arizona.
Taiwanese Producer to Build Third Plant in Arizona
The producer is the Taiwan Semiconductor Manufacturing Co., which has begun building installations in Arizona to produce chips inside the United States. Having these high-tech chips produced in the U.S. for the first time will help protect our nation from potential supply shortages. If a political rift, or even worse, erupts between the U.S. and China, a crisis in the Pacific could cut off imports of Asian-sourced microchips. This would threaten U.S. manufacturing and the U.S. defense industry, both of which rely heavily on microchips.
Boosted by federal subsidies, TSMC’s third plant in Arizona will constitute the largest foreign direct investment (building of capital) in the state’s history. Aside from the long-term production of microchips for the domestic market, the plants’ construction will generate thousands of jobs. Plans are to have one line of chips manufactured by 2025, with a more advanced model coming online in 2028.
Microchip Shortage During Covid Pandemic Drove Up Prices
A major microchip shortage last occurred during the Covid pandemic, when snarled supply chains led to shortages of chips for many products, especially automobiles. The prices of new cars soared, leading to a rise in the prices of used cars as desirable substitutes. According to the Federal Reserve, microchips are critical production input, meaning they affect virtually all areas of economic production in today’s tech-saturated society. Therefore, it’s not just cars that will see prices soar if the U.S. faces another microchip shortage: the inability to steadily replace worn-out capital goods, ranging from factory equipment to tractors, will result in higher prices in all industries.
Due to the importance of modern microchips, it makes good sense for the federal government to invest in their domestic manufacturing. While some critics may question giving the CHIPS Act subsidies to a foreign producer, only that producer can begin manufacturing those advanced microchips here in the United States. The producer is creating domestic jobs invaluable to the Arizona and national economies. Hopefully, domestic chip producers can quickly expand and compete on the ground with TSMC, with competition both generating more jobs and driving down the prices of advanced microchips.
