PCBs, Global Innovation Policy & the CHIPS Act

Highlights

• 2024-03-03 22:56 But around 20 years ago, the founder of ITIC wanted to kind of seed formation of a think tank that would elevate the discourse on the importance of information technology to the economy and to society to a higher level. And so they and a few companies at the very beginning got together and helped ITIF get off the ground. So working on electronics and ISCT policy has been core and foundational to our work ever.

• 2024-03-01 20:20 What we’ll do is we’ll go in and know countries like Germany or Taiwan have these applied industrial research institutes like the Fraunhofer center, and they bring universities and industry together to develop and diffuse technologies throughout industry. Us doesn’t have a mechanism like this, so we should create something like the national network for manufacturing innovation.

• 2024-03-03 22:56 So, you know, with the Chips and Science act, and your listeners probably know, just be clear what that is is literally the merging together of two different pieces of legislation. The CHiPS act was being developed under one route through folks like Senator Cornyn. And of course, that’s the $52billionwehavenowtosupporttheUSsemiconductorsector,$39 billion for incentives and $11billionforRandD.Butseparatelywascomingthescienceact.Thisultimatelywas$200 billion of authorized funding.

• 2024-03-01 20:22 By the way, just briefly, why that matters, we did a study. We looked at, where are innovation jobs found in the US economy? We define those as being jobs in companies that invest a certain share of their revenue each year in r and D. So their r and D intensity and then their number of science stem workers.

• 2024-03-01 20:23 Essentially what we found was that one third of us innovation jobs are found in just 14 us counties and half in just 40 us counties. So that suggests there’s a real inequality of innovation opportunity, if you will.

• 2024-03-03 22:58 So even though Congress has authorized this $200billionoverfiveyearsforthesciencepartofit,andifyoulookatthatregionaltechhubwhichImentioned,Congressauthorized$10 billion for it, but so far has only appropriated a billion dollars for it. So even already we’re seeing a significant gap between the authorizations and the appropriations. Policymakers like to throw out big, huge numbers, but then some money really getting delivered, we’ll see in budget cycles going forward. But one reason on the science side that was important is because federal investment in r and D as a share of GDP has recently declined to lower than it was in 1953, before Sputnik. So yes, of course, the US does still invest the most in the world for the federal government in R and D. But when you look at the real intensity level of that R and D is a share of GDP in countries like Israel or Korea or Finland, it’s going to be four or 5%. And the US is around 2.8%. So we’re in 9th among OECD nations in r and D intensity. So that’s why it’s important that we invest more, because we need that relative to the size of our economy. Now, coming to your question about industrial policy.

• 2024-03-03 22:58 And of course, this is a very fraught question. What is industrial know if you roll the tape back, if you remember this firm called Quero, but Quero was a firm which was started by the french government from the ground up, funded by the French, to go out and, quote, be the european Google killer. It was going to be Europe’s answer to Google, right? It was like when France created group Bull. It was a mainframe company in the 1960s to compete against IBM.

• 2024-03-03 22:59 China has created from the ground up a company called YMTC, Yangtze Memory Technology Corporation. Zadram, a memory chip manufacturer. This is a company started with $25 billion of chinese government money from the ground up. Go compete in global semiconductor memory chip markets. That’s really industrial policy to us, innovation policy is when we are saying how can we collaboratively build public private partnerships like we do with Cimatech for the semiconductor sector in the 1980s? That’s an important part of this national semiconductor technology consortium that’s going to come out of now the Chips act.

• 2024-03-03 22:59 We can talk about that, but ultimately the point for your listeners is that in 1990 the US accounted for 37% of global semiconductor manufacturing and that share has fallen to 12% today. That’s a 70% decline in our share of semiconductor manufacturing

• 2024-03-03 22:59 Now what happened, of course, when you look at the broader economics of the semiconductor industry, us based companies still command 47% of market value in the global semiconductor industry. That’s because we have very strong design firms like Nvidia, AMD, Apple, Qualcomm, and there’s tremendous value added from designing the chip, but in terms of the manufacture of it, that’s largely gone offshore.

• 2024-03-01 20:32 And kind of what’s come to take place in this industry over the past several decades is that hungry nations like Korea or Taiwan will say to these semiconductor firms, we’ll offset $2billionofyouputtingafabhere.Andofcourse,aleadingedgefabisnowa$20 billion investment. I’ll say, well, we’ll offset some of your energy consumption cost, defray your taxes if you need a road or a rail facility built there.

• 2024-03-03 23:00 according to a Boston consulting Group report, foreign government incentives can reduce the upfront capital expenditures for land, construction and equipment involving a fab by up to 15% to 40% of the ten year total cost of ownership of the fab

• 2024-03-03 23:01 What is a subsidy? So in China’s case for firms like SMIC, which is their semiconductor manufacturer, they found that 40% of SMIC’s quote unquote revenues were in fact a direct government handout to the bottom line. 40% of SMIX revenues was government money. That’s a subsidy.

• 2024-03-01 20:34 We’re not capitalizing intel, not bailing out intel if we bailed out General Motors. Right? We’re providing a pot of money that offsets some of the types of investment incentives that other countries offer.

• 2024-03-01 20:38 The support of public research institutes, notably in Taiwan, the industrial Technology Research Institute, which intentionally was designed by the taiwanese government to find ways to acquire western technologies.

• 2024-03-03 23:03 another critical point of this is us companies made very serious mistakes. I mean, Morris Chang, as I have read the history orchid Texas Instruments, of course, Morris Chang, founder of TSMC, came up with a fabulous business model. Right. The idea that most companies heretofore like ITM like Ti text instruments, had been these integrated device manufacturers. You do all of the design, fabrication and ATP in house. And then what he did, of course, was broke that integrated model by saying, hey, we’ll just focus not on design, but solely on the fabrication, the chips. We can protect your. You know, Morris took that idea to Ti and the executives at Ti turned down that mean the US could have had.

• 2024-03-01 20:41 In fact, if you remember Lawrence Summers, Lawrence Summers, who was the chair of the economic advisors at the start of the Obama administration, said, quote, America’s role in the global economy is to be a provider of ideas and services. It is not to make things.

• 2024-03-03 23:04 And even worse in Europe’s case, Europe’s happy to make cars and maybe some yachts in Italy, and of course, they have ASML in Holland. And Sweden sees it entirely differently than the rest of Europe to be England. I mean, I mentioned our book, and the second chapter of our book is about the industrial decline of Britain in the post World War II era. And it’s a staggering tale of

• 2024-03-03 23:05 with respect to our british friends, they took leslie faire approaches to the extreme and almost entirely lost all of their manufacturing sector. I mean, they have what? They have some. They have some engine manufacturing left and a couple of semi firms. But our book talked that it was like the biggest industrial decline for any nation in known history.

• 2024-03-01 20:45 Germany is fitting $20billionforwardforitssemiconductorsector.AndtheEUactuallyhasitsownEuropeanChipsact.Tha{t}^{\prime }swhattheycalledit,$47 billion that they have put forward, again, a mix of r and d and incentives to attract the manufacturers.

• 2024-03-02 09:32 And the differential between overseas production in Asia, specifically in the chinese market share versus production in the US and Europe, is massive. You could drive a semi truck through it.

• 2024-03-02 09:33 So I think that begs the question, would a pcbs act succeed in creating the same kind of results that we want to see with the Chips and Science act? Can we take an innovation management approach with PCB manufacturing?

• 2024-03-03 23:05 So, in a like manner, when you look at the US share of PCB production, that was about 25% in 2000 and spawn just 4% today, 9%. Fine. China manufactures 56% of the world’s pcbs. Now between China and Taiwan, that gets up to 70%.

• 2024-03-03 23:06 Our view is that China’s economic strategy has fundamentally evolved since the 1980s along the following trajectory. Initially it started with an attraction strategy. Ding Zhao Ping come manufacture here. Far lower labor cost, environment, lot sizes of a million. So that was the attraction was largely the chinese strategy up until Xi Jinping comes into office. And around the mid 20, mid two thousand and ten s it turns to much more of what we call a compulsion economic strategy. Okay, you have to manufacture here if you want to sell to our market. You have to transfer IP or technology if you want to sell what China called trading market for technology. We argue that it’s now evolved to an expulsion strategy. So if China has a domestic competitor that can suffice for the local market, the foreign enterprises are no longer invited to service that marketplace.

• 2024-03-02 09:41 If China could wave a wand and have its way with its trillion dollars, it’s invested in the smecular sector over the past decade. You wouldn’t sell anything in China. So how do we deal with that economic game board?

• 2024-03-02 10:26 And to be clear, we want nothing more than for China to fully comply with its WTO commitments and conduct its trade and economic fairs in a way that it’s committed to for its partners because nations agreed that that would be the best way to maximize global warfare.