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home > archive > 2024 > this article

New Nobel winner fails to address whole picture

By Jackson Riley
web posted October 21, 2024

It's 2020 and the world is amid a pandemic. The United States is currently the economic powerhouse of the world, but this new turn of events has boosted a long-time communist enemy to the top of the totem pool in technological development. The United States finds itself importing $12.5 billion worth of semiconductor chips, becoming the second largest importer of semiconductor devices. Meanwhile, China has become the largest exporter of semiconductors and holds 14.9% of the market. This came as a huge weaponized economic win for the CCP (Chinese Communist Party) as the United States' domestic market for semiconductors is pinned against the ropes. If the United States loses grip on their domestic market, they will no longer have the ability to produce computers that power their nation, missiles that defend their citizens, submarines that keep the world at peace, and everything else in their nation that requires any kind of computation. Their national security would rely entirely on imports—something that would make any enemy rejoice. How does the United States government respond? Can they even do anything to stop this?

Most citizens, people invested in current events, and domestic semiconductor producers call for tariffs on imports. This strategy would lower the cheap competition that the domestic producers face and enable them to have a monopoly on the domestic market and sell their semiconductors without competition. This approach would likely create a strong domestic industry for semiconductors and solve the problem of having to worry about importing all semiconductors in times of international trouble. However, stifling international competition would remove innovation, increase prices in the entire market (since so much production revolves around semiconductors), and would create a weaker industry in the long run.

President Biden proposes a new plan. This plan is called the CHIPS Act of 2022, and it works hand in hand with the tariffs talked about in the last paragraph (also called Section 301 tariffs). The plan aims to allocate significant funds to domestic innovation and production, while also preventing US companies from exporting their goods to China and other countries for low-cost manufacturing, often facilitated by forced child or slave labor, such as the Uyghurs. This was done by 1) introducing the CHIPS Act of 2022. This bill establishes investments and incentives to support U.S. semiconductor manufacturing, research and development, and supply chain security. 2) Impose Section 301 tariffs so that manufacturers aren't forced to use illegal labor to compete in the market.

Economist Simon Johnson, a 2024 Nobel laureate in economics, praises this approach in his article, "How to Create More Good Jobs." In this article, he discusses a lot of the benefits of the CHIPS Act, how it has created many jobs for the United States industry, and why other countries in the same situation should employ similar solutions. While I agree with Johnson that the plan was a success, he doesn't necessarily explain why. He talks about how the Act was responsible for creating 31 new tech hubs in 32 states, and he states, "If you want more good jobs, invest in science, facilitate the commercialization of the technology that results from it, and make it easy for people to build companies where the product was invented. More funding and further strategic thinking is needed, in part because there will always be new technologies just over the horizon. But the CHIPS and Science Act has provided a major constructive step forward, and other countries should take note.

Johnson's argument remains almost entirely based on the increase in jobs. Yes, the Act creates more domestic jobs, but he remains focused on one part of the strategy, which is the funding. He does not address that the main reason there is an increase in jobs is due to the tariffs that discouraged companies from manufacturing overseas.

While the funding is an important part of creating more jobs, it isn't the entire reason. The companies wouldn't have an incentive to create more manufacturing facilities if they could manufacture at dirt cheap prices overseas. I agree that the approach worked, but when urging other countries to follow suit, Johnson can't forget an important step. ESR

Jackson Riley is a AP Economics student in highschool (c) 2024 Jackson Riley

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