Letter to the Editor: The Chip Shortage - An Existential Risk to America
In "The Semiconductor Shortage (WSJ 3/13/21)," your editorial staff understates the problem of the American semiconductor supply chain. Aside from the Intel microprocessor, which has fallen a generation or more behind Taiwan-sourced AMD, not a single logic chip is made in America any more. They are designed here but manufactured at TSMC in Taiwan. This is an existential risk to America. A Chinese takeover of Taiwan would shut down the supply chain to the American semiconductor industry at a time when chips have become a vital component in automobiles, medical equipment, drug discovery, genomics, cloud computing, artificial intelligence, and other industries.
You also misunderstand the cause of the problem. Contrary to your editorial, “supply-chain synergies” are no better in Asia than in Silicon Valley—or at least they weren’t until logic-chip manufacturing here vanished. Nor does Asia have a more "skilled workforce" than America. There is only one reason why strategically vital manufacturing left American shores for Asia: because TSMC, defined in its formative years by Taiwan as a "strategic industry," paid little to no income tax. Meanwhile, Silicon Valley chip makers paid approximately 50% in combined Federal and state income taxes. Faced with twice the cost of capital in America, chip “fabs” (factories) here could not compete with TSMC in Taiwan nor was TSMC interested in expanding its Camas, Washington facility, called WaferTech.
To say that "US government support for industry outside of war or other emergency is a slippery slope" is wrong on two counts: 1) This is war. The oft-threatened Chinese attack on Taiwan, more likely now given China’s success in subduing Hong Kong with impunity, would require the US to defend militarily the most vital player in the semiconductor industry or allow the US electronics supply chain to fall under the thumb of China. The Taiwan Strait is today a more valuable strategic asset than the Strait of Hormuz. 2) The best way to respond to unfair government subsidies is to fight fire with fire.
America's strategic priority should be to offer a tax-advantaged semiconductor zone inside the US, like Hsinchu Park in Taiwan, to entice TSMC to "copy-exact" their most advanced fabs here. Not to do so would leave American industry at the mercy of China, where we unfortunately find ourselves today. Would that China were merciful.