CHIPS Act Spending Is Making America Less Free

COMMENTARY Budget and Spending

CHIPS Act Spending Is Making America Less Free

Aug 5th, 2022 4 min read

Commentary By

Anthony B. Kim @akfreedom

Research Fellow and Editor of the Index of Economic Freedom

Dustin Carmack @DustinCarmack

Research Fellow, Border Security and Immigration Center

The Washington way of boosting production is to throw billions of dollars in subsidies to already flush companies and government agencies. sinology / Getty Images

Key Takeaways

The latest budget buster is the CHIPS and Science Act, a $280 billion bipartisan boondoggle engineered by Democrats and passed with the aid of Republicans.

“The answer to the CCP’s malevolent ambitions is not spending billions of dollars to help Fortune 500 companies.”

America’s competitive position is slipping because government has grown too big in terms of its scale, scope and power over people’s daily lives.

It may be summer in Washington, but the deficit spending and debt keep snowballing. This puts our nation’s fiscal health at risk. If federal spending continues on this trajectory, it will end in economic instability.

The latest budget buster is the CHIPS and Science Act, a $280 billion bipartisan boondoggle engineered by Democrats and passed with the aid of Republicans. The bill was trumpeted as a way to boost domestic production of semiconductors, thereby reducing our reliance on chips made in China that are used in everything from cell phones to automobiles to military weaponry.

And, as is usually the case, the Washington way of boosting production is to throw billions of dollars in subsidies to already flush companies and government agencies.

This misguided spending was first authorized in the fiscal year 2021 National Defense Authorization Act, yet congressional appropriators did not deem it necessary to fund this program for nearly two years. That changed last week, when both chambers of Congress approved the bill and forwarded it to President Joe Biden who, with midterm elections fast approaching, is eager to sign it.

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The final bill intends to fund much of this through “emergency” expenditure and increased deficit spending. To justify the “emergency” designation, the Biden administration launched a broad review of supply chain issues. Commerce Secretary Gina Raimondo promptly flooded the airwaves and Capitol Hill with dire predictions, describing the chips situation as “downright scary and untenable.”

And just like that, we’ve got a national security emergency.

The measure does contain a handful of useful foreign policy and security provisions. But the main thrust is spending: more than $250 billion on corporate handouts to tech companies and additional funding for federal agencies.

This is not Washington’s first stab at “fixing” the semiconductor industry with government windfalls. In the 1980s and ’90s, the U.S. established the Semiconductor Manufacturing Technology (“Sematech”) consortium to counter what was viewed as the “Japan threat” to the industry. It spent more than $500 million (roughly $1.3 billion in 2022 inflation-adjusted dollars) in taxpayer funds.

So, how did that work out? T.J. Rodgers, a former chairman of the Semiconductor Industry Association, summed it up this way: “The U.S. has wasted money…[T]he Sematech consortium began spending $500 million in government funds that did zero for the industry.”

The argument that the United States can out-subsidize and incentivize others that are active in this arena is short-sighted and ill-guided.

After the Senate passed the CHIPS Act, Senate Majority Leader Chuck Schumer (D-N.Y.) crowed: "This legislation is going to create good paying jobs, it will alleviate supply chains, it will help lower costs, and it will protect America’s national security interests."

Speaker of the House Nancy Pelosi echoed the security talking point, claiming “it is also a national security necessity, reducing our dangerous dependence on foreign manufacturing, especially amid growing aggression from the Chinese Communist Party.”

The U.S. is indeed locked in a long-term struggle with the Chinese Communist Party. It’s the greatest international challenge facing the U.S. However, the CHIPS and Science Act  is not a practical or effective way to meet this challenge. Worse, the spending provisions create few concrete firewalls to keep those funds from benefiting China.

As Heritage Foundation President Kevin Roberts observed: “The answer to the CCP’s malevolent ambitions is not spending billions of dollars to help Fortune 500 companies, with no guarantee those dollars won’t end up supporting these companies’ business operations in China.”

The China challenge, which America must deal with and win, spans the full range of national power: economic, military, diplomatic and informational. We need effective, muscular policies in all of those areas.

On economics, in particular, the last thing we need is another politically-driven spending spree. Excessive government spending has brought us record-setting inflation and two consecutive quarters of shrinking GDP. What’s needed is an approach that reins in government and expands economic freedom, the engine of innovation and prosperity.

For more than 25 years, the Heritage Foundation’s annual Index of Economic Freedom has documented the consistent, strongly positive correlation between a nation’s level of economic freedom and its citizens’ overall standard of living and competitiveness.

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Unfortunately, it has also revealed a decline in economic freedom here at home. After reaching a high score in 2006, the U.S. economic freedom rating began to fall. In 2010, the United States fell from the ranks of economically “free” countries to the “mostly free” category. The ratings have continued to slide, hitting an all-time low in 2022, ranking America behind 24 other nations.

America’s economic freedom is under assault from massive government spending bills that drive the country and its citizens deeper into ever-growing debt. The taxes that must ultimately pay for the government’s profligacy shift the freedom to choose from the individual to the government.

Congress’s addiction to “emergency spending” has been a key driver of inflation, and further emergency spending will only increase the cost of living for all Americans.

America’s economic freedom is also being eroded through numerous layers of politically-driven regulations. America’s competitive position is slipping, not because the federal government is spending or doing too little, but because government has grown too big in terms of its scale, scope and power over people’s daily lives.

The U.S. economy needs limited government, not expanded and expensive, to ensure a transparent and competitive economic climate in which citizens enjoy the freedom and opportunity to prosper to the fullest possible extent.

This piece originally appeared in The Detroit News