Beware of Governments Bearing Gifts

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The title is a “turn of phrase” from when the Greeks provided the Trojans with the gift of a giant wooden horse. Similarly, whenever a government — in this case Biden’s government – appears to give private industry money for a directed purpose, there is a laundry list of caveats. In this case, we are referring to the $280 billion Chips Act.

The Act was passed with bipartisan support and much fanfare. The idea behind the Act is to bring semiconductor manufacturing back to this country’s mainland. Semiconductors are essential to our lives as they are used in a multitude of devices. They are also essential to our defense industry. It was deemed high time that we took control of this essential product even though 90 percent of our chips come from Taiwan, a very friendly country. American companies design many of these chips so why should we not manufacture them? In theory, we just need to supply the capital to companies to build the chips in America. Right?

Reality set in once the bill was passed. Six months after signing the legislation, the Biden Administration rolled out a litany of requirements for any company receiving the funding from $50 billion allocated for direct funding, federal loans, and loan guarantees. These rules were not outlined in the bill. They were left to the career bureaucrats to define.

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The rules were announced by Commerce Secretary Gina Raimondo, the one person in the Administration who has actually worked in the private sector. She was not shy about the role the bureaucracy was playing. She told the New York Times “If Congress wasn’t going to do what they should have done, we’re going to do it in implementation” referring to the subsidies. She certainly does not lack hubris.

Here are some of the requirements laid out by Raimondo:

1. The applicants will have to comply with the Administration’s “Good Jobs Principles” guaranteeing “all workers receive family-sustaining benefits that promote economic security and mobility.” Somewhat cosmic, but it includes “paid leave and caregiving supports.”

2. They must review their project with labor unions, schools, and workforce education programs. Partiality will be given to “projects that benefit communities and workers,” as judged by Raimondo and her team of bureaucrats.

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3. Companies must refrain from stock buybacks which the government believes just enriches shareholders and officers.

4. Applicants must define their “wraparound services to support individuals in underserved and economically disadvantaged communities.” These services are stated, “as adult care, transportation assistance or housing assistance.” They will probably have to pay for parks, stoplights, and other projects deemed essential by the awards committee.

5. Applicants must pay construction workers prevailing wages set by unions. They will be “strongly encouraged” to use project labor agreements (PLAs) handing over to unions the determination of pay, benefits, and work rules for all workers.

6. Companies must guarantee affordable, high-quality childcare not only for workers but for construction workers. This could consist of building company childcare centers, paying local care providers to expand capacity, or directly subsidizing workers’ care costs.

For the honor of meeting these requirements, the Biden Administration will provide only 5 to 15 percent of a project’s capital expenditures. They may go as high as 35 percent. The companies will be required to “share a portion of any unanticipated profits” with the government. The definition of “unanticipated profits” is unclear.

There will no doubt be unintended consequences with the litany of preconditions. There is already a significant shortage nationally of childcare workers. Anybody within the local area will take a position at the applicant’s center since the company will be mandated to pay above market rates. That leaves anybody not working at the plant either with no access to childcare or childcare at a largely increased cost.

The U.S. produces about 10% of our current chip supply. It already costs 40% more than the Taiwanese semiconductors that deliver to the other 90% of the market. These requirements will make the ones produced here costlier than the ones American companies currently produce.

Once again, the Biden Administration — representing the current thinking of the Democrats — decides to throw money at a problem. But it is so invasive that it will not be economically advantageous to take their money.

As you noticed, only $50 billion of the $280 billion authorized through this bill is provided to encourage semiconductor production. The law authorizes, but does not specifically appropriate, $174 billion over five years to various federal “science” agencies to invest in STEM, workforce development, and R&D. $80 billion is earmarked for the National Science Foundation, more than doubling its annual budget which just separately increased 18.7%. We are talking serious boondoggle here.

As an aside, the four major chip manufacturers — TSMC, Samsung, Micron, and Intel — are already busily expanding in various locales across the nation. TSMC is building a plant in Arizona and tells us that construction costs are four to five times higher than in Taiwan. Do you think they will be enticed by all these requirements laid on, including developing a childcare program?

The people who have never worked in private industry are determined to direct our future through the government. Congress went along with this monstrosity. Bureaucrats will be doling out money, under their terms, to companies who will have to grovel to meet their terms. And who is to say they will not change the rules along the way? We can be sure Lucy will be pulling the ball out from Charlie Brown’s foot on many occasions here.

No wonder we have $32 trillion in debt.

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This article was published by FlashReport and is reproduced with permission from the author.

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