The tangled dream of American chips

A worldwide shortage of computer chips had the production of cars, computers and even… dog washing machines† But there are now signs that the shortage of chips – the tiny parts that function like the brain or memory in anything electronic – is coming to an end.

This might be a little bit of good news for our budgets. It’s also an uneasy moment for the Biden administration and US lawmakers who have pushed for taxpayer funding for computer chips with a number of goals, including deficit reduction.

Some of those goals are reasonable. But throwing public money around to solve the chip shortages had… seemed doubtful† Now it seems like a mistake. Let’s talk about why:

Why are chips important again?

Computer chips are needed for smartphones, game consoles and other consumer electronics. We also use them in fighter jets; in automotive ignition, braking and entertainment systems; and to monitor the milk production of dairy cows.

As my colleague Don Clark explained last year it is not surprising that chips are temporarily scarce. What has been unusual in recent years has been the wild combination of disruptions related to the pandemic and our overwhelming desire to buy more stuff, which has led to a variety of shortages.

What has changed?

In recent weeks, computer chips have suddenly become abundant. Several computer chip companies have warned that their sales are from hot to not† Unused chips are pile up in South Koreaan important production center, at the fastest pace in years.

One major reason is that people all over the world don’t buy electronics such as laptops, smartphones and TVs as much as a year or two ago† Many people are concerned about rising prices and the health of economies and hold back. So companies are cutting off orders for computer chips that would be built into many products.

This is how the economy and computer chips work. When people feel good and spend a lot, the chip factories get bigger to make much more. They almost always overproduce and have too many chips. Some experts have said the pandemic mania would be followed by a chip bust. We’re not there yet, but we’ll see.

What does the Biden administration have to do with it?

I have previously written about the consensus in Washington to increase US government support for US chip factories and expertise. Congress has debated – and is still arguing — the specifics of spending more than $50 billion in taxpayers’ money to do so. Most of the world’s most advanced chips are made in Asia, especially Taiwan and South Korea.

One of the stated goals of the funding is to help reduce chip shortages. And now? Nothing went through, and the shortages are ending for some types of chips.

There are good reasons for US taxpayers to subsidize the chip industry. Many experts cite the importance of building knowledge about advanced chip manufacturing in America. To be not good that so many essential chips are made in Taiwan, within China’s potential sphere of influence. The US military wants to make sure it has an uninterrupted and controlled supply of them. (There are US chip factories for this.)

But the mission of America’s chip plan is disjointed. U.S. officials and industries have compiled a laundry list of benefits of U.S. chip financing, including creating more U.S. jobs, being able to compete with China, and making it easier for U.S. industries like car manufacturers to continue producing their products.

The latter, frankly, never made much sense. The hard truth is that cars have to fight for space on the lines of the chip factories against more profitable chips for smartphones or other luxury equipment. Even if more computer chips were made in America, there’s no reason a Texas-made chip should only fit in Ford F-150s and not trucks from European or Asian companies.

The more justifications the government crams into its chips plans, the less clear it is about what America is trying to achieve.

Read more from On Tech about computer chips:

  • Twitter is suing the Indian government: The company is argue against orders to delete some tweets and block accounts that India says are violating the country’s laws, my colleague Karan Deep Singh reported. It’s the latest showdown between an American internet company and the world’s largest democracy about the appropriate limits of freedom of expression

  • This is arguably one of the largest known personal data breaches in China. Hackers put up for sale a police database in Shanghai that could contain information on perhaps a billion Chinese citizens, my colleagues John Liu and Paul Mozur reported

  • When the Religious Pilgrimage Website Fails: Saudi Arabia led Westerners to a single government-authorized website to book trips to the Muslim holy city of Mecca. The Washington Post reported that technical problems have prevented thousands of people from doing the Hajj. (A subscription may be required.)

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