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Last week, I noted that Intel announced it will be building a new semiconductor plant in Ohio and that state and local officials there, in a cynical but effective move, didn’t initially reveal what sort of financial commitments taxpayers would be making to the corporation. Those officials reaped a whole lot of good press, with questions regarding what Intel was promised in subsidies relegated to the bottom of most news stories.
But as of Friday, the details are public: Intel will receive more than $2 billion from Ohio taxpayers—in the form of a $600 million “onshoring grant” (whatever that means), $691 million in infrastructure, and $650 million over 30 years in income tax breaks. That total doesn’t account for the fact that Intel will pay no property taxes to the city of New Albany, where it will be located, for 30 years.
All that for 3,000 permanent jobs, meaning we’re talking well north of $650,000, and maybe even nearing $1 million, per job created.
But I don’t want to dwell too long on the specifics of Ohio’s deal with Intel, because there’s something much bigger at work here: The Chip Wars, as I’ve dubbed them, are heating up, and revealing some of the tensions between national needs and extraction from local communities.
First, to review, TSMC, the Taiwanese semiconductor manufacturer, received hundreds of millions for a new plant in the Phoenix area. Then it was Samsung’s $1.9 billion deal for a plant in Texas. Then Intel’s Ohio deal cleared $2 billion.
The trend is pretty clear: Climbing costs to bring semiconductor manufacturing to particular places, even though the number of jobs these deals create don’t match such lofty expenditures. Intel’s CEO has previously said he aims to replicate Amazon’s HQ2 search, in which states and cities all over the place bid on that corporation’s “second headquarters”; the semiconductor manufacturers are indeed recreating that effort.
And then there’s New York: It has two potential semiconductor plant sites that state leaders have been hopelessly hawking for a long time: One at the White Pine Commerce Park in Onondaga County and one at what’s known as the STAMP site in Genesee County.
The latter is particularly embarrassing because the state and localities sunk tens of millions of dollars into building a corporate campus there, and it just sat empty until the state coughed up an additional $4 million per job subsidy to get Plug Power, a clean energy company, in there.
New York Gov. Kathy Hochul claims to be actively negotiating with a semiconductor manufacturer for the Onondaga County site—and of course she won’t say which one or provide any others details—but we’ve heard that one before: New York was a stalking horse for both the Samsung plant in Texas and the Intel plant in Ohio, used to gin up more local payments rather than an actual location that was in the running. The desperation in New York to get something, anything, that smells like semiconductor manufacturing into one or both of those sites is palpable.
My guess is that if New York does “win” a semiconductor plant, the subsidy deal will be truly massive. The Empire State has a bad history on this score: Global Foundries received about $1.4 billion from the state for a chip manufacturing facility.
But there’s another New York angle worth exploring, and it moves us from state capitals to the U.S. Capitol Building. New York Sen. Chuck Schumer, the current Senate majority leader, has been a driving force behind what’s known as the CHIPS Act, which stands for Creating Helpful Incentives to Produce Semiconductors. That bill would provide $52 billion in federal incentives to promote chip manufacturing in the U.S. And it makes sense that Schumer is pushing this, as his state has two embarrassing sites that it really wants a semiconductor manufacturer to fill.
The U.S. Senate passed the CHIPS Act as part of a larger package over the summer, and this week it’s scheduled for a vote in the House as part of what’s called the Competes Act, a broader bill aimed at addressing America’s economic competitiveness with China. The Competes Act cleared a procedural vote in the House yesterday with a vote of 219 to 203, so it seems pretty clear we’re headed for a conference committee between the House and Senate since their respective versions of the bill—CHIPS excepted—are pretty different.
And herein lies the tension: It is actually a problem that so much of the world’s semiconductor manufacturing capacity is located elsewhere in the world, including a big chunk in Taiwan, where the security situation is, let’s just say, not great. Just 12 percent of production capacity is in the U.S., for a product that is integral to everything from cars to computers.
The Commerce Department recently reported an “alarming” shortage of chips that could result in slowed production and shuttered factories for a host of goods, and a recent study found that the chip shortage is pushing up inflation for the products that require them. So there is a national interest in having semiconductors made here so that we can at least somewhat ensure a predictable supply.
But the corporations that make chips know there are security and economic resiliency concerns inherent to their industry and are using that dynamic to gin up massive subsidies at all levels of government, and then leverage one subsidy into the other. Intel, for instance, has said that it won’t complete its plans for Ohio without passage of the federal CHIPS Act, never mind the $2 billion it already received from the state. So now, of course, Ohio’s congressional delegation is hammering away for a vote on CHIPS.
In fact, spreading facilities across the country is likely an intentional strategy by these companies to have more federal lawmakers feel they have to carry the industry’s water—which will probably work.
As I’ve said before, I see the case for some federal support for such a critical industry so as to not be subjected to the whims of other nations, but that doesn’t mean communities should bear the load of national priorities. In fact, a competent federal economic development policy would prevent corporations like Intel and Samsung from using New York’s desperation as a fairly obvious ploy to extract resources from elsewhere.
Instead, the Chip Wars are going to result in a situation in which, yes, taxpayers get the security of having a domestic chip industry, but via paying a price in public subsidies that will be way, way, way too high.
This post initially appeared in a slightly different form on the author’s Substack, Boondoggle., on February 3, 2022.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle newsletter, and the director of state and local policy at the American Economic Liberties Project.