Re: [Salon] Biden Our Boneheaded Chip Czar

[Clyde Prestowitz <presto@econstrat.org>]

Jim,
You say "typical of self-initiated DOC cases." There has only been one such case, so it is, of course, typical of itself.

You say it was a "farce", but in its wake dumping of Japanese chips in the U.S. market did stop and U.S. producers did obtain a substantially increased market share in Japan in the wake of the agreement.  These are undeniable facts.

More important, is the fact that the U.S. maintains leadership in most of the key elements of the industry. It is precisely this leadership that makes it possible for the U.S. government to adopt policies that may slow the development of China's industry. 

If you want to argue that the industry would have achieved this and more without U.S. government intervention, you may, of course, do so, but it is impossible to prove that.






-----Original Message-----
From: Jim Bovard <jbovard@his.com> 
Sent: Wednesday, November 2, 2022 1:27 PM
To: Clyde Prestowitz <presto@econstrat.org>
Cc: salon <salon@committeefortherepublic.org>
Subject: Re: Biden Our Boneheaded Chip Czar

The Commerce Dept. dumping case against the Japanese was a farce, typical of self-initiated DOC cases.  Here's my thumping of the resulting Semiconductor Arrangement from WSJ 1993


                    The Wall Street Journal 
           Copyright (c) 1993, Dow Jones & Co., Inc. 
                    Friday, April 23, 1993 
             The Semiconductor Pact's Bad Example 
                        By James Bovard 

The Clinton administration is seeking to end the U.S. trade deficit with massive increases in the export of verbal sludge. 
"Temporary quantitative indicators" is the motto of the administration's trade policy. Unfortunately, the Clinton approach, which looks for measurable increases of specific U.S. exports, is certain to provoke more trade conflicts and acrimony in the future
-- and to make some of America's premier manufacturers look like beggars of market share. 

Earlier this week, U.S. and European Community officials worked hard to advertise modest progress in resolving U.S.-EC trade disputes. Toward Japan, the administration is using a more heavy-handed approach. Clinton administration officials are touting the U.S.-Japan Semiconductor Arrangement as the model for future trade policy. The foreign market share of semiconductors purchased by Japanese firms recently exceeded 20%; U.S. Trade Representative Mickey Kantor hailed the sales result, declaring on March 19 that "setting a target figure appears to have been . . . successful." 
But, rather than offering a valuable model, the Semiconductor Arrangement illustrates how an artificial definition of fair trade foments political racketeering. 

In 1986, the U.S. Commerce Department investigated Japanese semiconductor exports to the U.S. and imposed arbitrarily high dumping penalties on Japanese companies. These were then used as leverage to pressure Japan to sign a pact seeking to restrict world-wide semiconductor trade. The Semiconductor Arrangement, signed in July of that year, made it an official act of trade war for a foreign government not to compel its own domestic companies to rapidly increase their purchases of American products. 

The 1986 agreement politically impaled one of America's most competitive industries. The Commerce Department acquired the power to set floor prices for Japanese chips sold in the U.S., and that August it announced its first "fair market values" for chip imports. 
U.S. computer and electronics companies -- the primary chip users -- were stunned as the decree raised chip prices by 200%, far more than even the highest alleged dumping margins. (Domestic semiconductor producers could not satisfy domestic demand.) 

Arthur Denzau of the Center for the Study of American Business estimated that the Semiconductor Arrangement resulted in up to
11,000 jobs lost in companies using chips. The Journal of Commerce reported in 1988, "The supply crunch has left U.S. electronics makers wringing their hands over lost sales and profits, delayed product introductions and worsened relations with customers." 

At the time the Semiconductor Arrangement was signed, the Japanese Ambassador sent a side letter to then-U.S. Trade Rep Clayton Yeutter declaring, "The government of Japan recognizes the U.S. semiconductor industry's expectation that semiconductor sales in Japan of foreign capital-affiliated companies will grow to at least slightly above 20% of the Japanese market in five years. The government of Japan considers that this can be realized and welcomes its realization." The letter clearly did not commit the Japanese government to enforce purchasing of American chips by Japanese companies. 

But in late March 1987, President Reagan announced that the Japanese had violated the pact, in part because American companies had not increased their chip sales in Japan. The Japanese were pronounced guilty of unfair trade simply because American companies did not sell as many semiconductors in Japan as the U.S. bureaucrats thought they should be able to sell. 

In 1991, the Semiconductor Arrangement was modified and extended. 
The 1991 pact stated that Japan "recognizes that the U.S. 
semiconductor industry expects that the foreign market share will grow to more than 20% of the Japanese market by the end of the 1992 and considers that this can be realized." The agreement specifies that the 20% figure is "neither a guarantee, a ceiling nor a floor on the foreign market share." 

Not surprisingly, fierce disputes have again arisen over the trade pact's meaning. Despite the fact that the 1991 agreement explicitly made no guarantees, Clinton administration officials implied they might retaliate against Japanese exports if the 20% market share were not reached. Now that the foreign share of semiconductors purchased by Japanese firms has hit 20%, Mr. Kantor declares that 20% is "a floor, not a ceiling." 

The Clinton administration's resentment of the U.S. merchandise trade deficit with Japan (estimated at $46 billion last year) is driving Mr. Kantor to make increasingly far-fetched statements. In testimony before the House Ways and Means Committee on Wednesday, he declared that the Japanese market is "basically closed" for semiconductors, automobiles, computers and several other products. 

It is absurd for U.S. government officials to condemn the Japanese auto market as closed when U.S. car makers have only recently deigned to ship to Japan autos with the steering wheel on the right side of the car (the Japanese, like the British, drive on the "wrong" side of the road). 

And it is peculiar for Mr. Kantor to declare that the Japanese semiconductor market is closed only a few weeks after he announced that the Japanese had met the U.S.-proclaimed goal of a 20% foreign market share. Also, American personal computers are barnstorming Japan. Peter Wolff, a Tokyo-based technology expert with Kidder, Peabody, predicts that NEC, Japan's dominant computer maker, "is going to get its head handed to it" by U.S. companies. 

The U.S. already has a fully developed system of managed trade akin to what Clinton administration officials advocate for Japan. 
The U.S. government imposes more than 3,000 different import quotas on textiles and apparel. Trade officials sometimes go to maniacal lengths to dictate a foreign country's precise "fair share" of the U.S. market: Mexico is allowed to sell the U.S. only 35,292 bras each year. Managed trade in textiles has created a bureaucratic monstrosity and given government officials sweeping arbitrary power over importers and their domestic customers. 

"Pick a number, any number" is a pathetic guide for U.S. trade policy. The government has no right to dictate the market share that American exporters are entitled to in any foreign country. 

--- 

Mr. Bovard writes often on trade. 


----- Original Message -----
From: "Clyde Prestowitz" <presto@econstrat.org>
To: "Jim Bovard" <jbovard@his.com>
Sent: Wednesday, November 2, 2022 4:17:01 PM
Subject: RE: Biden Our Boneheaded Chip Czar

Jim is really over the top on this. He seems unaware that there would never have been a chip industry without a government regulated monopoly (AT&T) and its Bell labs R&D, DARPA and its early investment and more R&D, and DOD procurement. Let's also not forget the government's self-initiated anti-dumping case against Japanese chip producers, the Semiconductor Agreement negotiated by DOC with the Japanese, and the SEMATECH industry government consortium on semiconductors.  

-----Original Message-----
From: Salon <salon-bounces@listserve.com> On Behalf Of Jim Bovard via Salon
Sent: Wednesday, November 2, 2022 9:42 AM
To: salon <salon@committeefortherepublic.org>
Subject: [Salon] Biden Our Boneheaded Chip Czar

https://libertarianinstitute.org/articles/biden-our-boneheaded-chip-czar/

Libertarian Institute, November 2, 2022

Biden, Our Boneheaded Chip Czar

by Jim Bovard

Jubilation erupted in Washington this summer as politicians lurched towards commandeering a key swath of the American economy. Congress passed Biden-backed legislation known as the Chip Act to spend $52 billion subsidizing semiconductor production. A Washington Post headline hailed “a big month for Bidenomics” and another headline celebrated “Biden’s hot streak.”

The Chip Act’s passage sparked a volcanic eruption of economic illiteracy from the media and top politicians. Washington Post columnist E.J. Dionne proclaimed, “The chips bill means the Era of Hands-Off Government is over.” Sen. Charles Schumer (D-NY), the Senate Majority Leader, huffed, “The old laissez-faire theory is: Leave the companies alone, and they’ll do great.” Inside the Beltway, anything less than total federal domination of the economy is derided as “laissez-faire.” Schumer scoffed at the failure of laissez-faire just after Congress sharply raised taxes on corporations. Jared Bernstein, a member of the White House Council of Economic Advisers, declared, “When it comes to establishing a lasting legacy in terms of existentially necessary economic transformation, history may well put President Biden in the same sentence as FDR and LBJ.”

The exaltation occurred because “many politicians believe that Beijing’s economic planning is superior to the U.S. free-market system,” as a Wall Street Journal editorial noted. Brian Deese, Biden’s National Economic Council director, declared, “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’” And since Congress passed the law, that proved that Team Biden was successful.

The Chip Act made Biden the nation’s Semiconductor Czar, and he promised that he would “personally have to sign off on the biggest grants” to companies. What could possibly go wrong?

If a picture is worth a thousand words, is a political photo opportunity worth $50 billion? Biden rushed to exploit the new law for a campaign event before the congressional mid-term elections. Last week, Biden and New York Governor Kathy Hochul held a media circus outside of Syracuse, New York to celebrate subsidies for a Micron semiconductor plant that will not even break ground until 2024. Hochul swayed the New York legislature to enact a subsidy of up to $10 billion for semiconductor producers. Micron is expected to pocket more than $5 billion—the largest corporate handout in state history. Federal subsidies will be added next year when the Chip Act starts dishing out goodies. The total subsidy per promised job exceeds $600,000 and could rise far higher.

Biden boasted that Micron’s investment in New York is “the largest investment of its kind…ever ever in history.” Because the plant will run solely on renewable energy, its production costs could be sharply higher than unsubsidized factories elsewhere in the world. Biden also boasted that the plant would be constructed solely by union members paid high wages dictated by the U.S. Labor Department. The federal and state mandates effectively guarantee that the new plant will be uncompetitive even before the first spade of dirt is overturned.

Biden bragged, “With Micron’s $100 billion investment alone, we’re going to increase America’s share of global memory chips and production by 500%.” Actually, it is unclear whether the Syracuse plant will even be built. The New York Times reported that Micron recently “reported a 20 percent drop in fourth-quarter revenue” and “slashed planned spending on factories and equipment by nearly 50 percent in the current fiscal year.” Fortune magazine noted that “demand for chips is collapsing just as Joe Biden signs bill” to boost U.S. production. The Philadelphia Semiconductor Index had declined by 35% from its high by the time the law was passed.

But Biden and Schumer, counting on the illiterates in the mainstream media, are still hailed as saviors regardless of the glut. Biden’s subsidies could help turn chip production in America into a cartel. Creating a surplus of chips could be ruinous for unsubsidized producers. The same pattern has repeated since the 1930s for federal agricultural subsidies that favored the largest farmers and helped drive small farmers out of business.

Corporate welfare has always been accompanied by blizzards of shaky statistics. Hochul claimed her handouts to Micron will generate more than 50,000 jobs in New York. But the governor’s office refused to disclose the private study from which that estimate was concocted. Politicians’ boasts about the job benefits of corporate subsidies are not covered by the Securities and Exchange Commission’s rules on fraudulent statements. A study by Reinvent Albany, a nonprofit organization, noted, “New York State spends roughly $5 billion every year subsidizing big businesses…There is overwhelming evidence that government subsidies to businesses are a very poor way to create good jobs and local economic growth.” The study noted that “the state’s oversight of the Excelsior jobs program—under which Micron will receive the tax breaks—is notoriously poor.”

Micron and other chip makers who pocket government subsidies could find themselves junior partners to political hacks and unions, who nowadays have more influence in Washington than private companies. Maybe future green legislators will require semiconductor subsidy recipients to rely solely on windmills to make chips. Commerce Secretary Gina Raimondo boasted that “there’s a lot of strings attached” in the Chip Act.

But I have to wonder: have any of these people whooping up the Chip Act ever stepped inside the headquarters of the U.S. Commerce Department? The Chip Act tacitly assumes that Commerce bureaucrats are the “best and brightest” and should rule the U.S. economy. I spent a lot of time haunting Commerce Department hallways in the late 1980s and 1990s when I was investigating U.S. trade laws. The Commerce employees I met were low-watt even by civil service standards. Many of them seemed as if they were born tired and chose to take eternal refuge on the federal payroll. Most evinced zero curiosity about anything except the date when they could retire with full pension.

Commerce bureaucrats have repeatedly ravaged high-tech industries by rotely applying formulas from harebrained laws that Congress passed. In 1986, Commerce fabricated absurd unfair trade charges against Japanese semiconductor exports. Those charges were used to browbeat Japan into signing a pact seeking to restrict world-wide semiconductor trade, a shady deal that was extended in 1991. That agreement politically impaled one of America’s most competitive industries. The Commerce Department decreed that imported semiconductor prices must rise by 200% at a time when domestic semiconductor producers could not satisfy domestic demand. That deal destroyed more than 10,000 jobs in companies using chips. In 1991, Commerce rubberstamped punitive taxes on the import of computer flat panel displays that devastated American computer makers. But as long as the trade restrictions made a few domestic companies happy, politicians reaped windfall profit campaign contributions.

Commerce employees had secure jobs regardless of how many private jobs they destroyed. When I asked those bureaucrats about the chaos their actions caused, they stared blankly as if I had asked them to reveal the surface temperature on the planet Venus.

Corporate subsidies are basically bribes to businesses that routinely spur corruption scandals. A decade ago, President Barack Obama visited New York and proclaimed, “Right now, some of the most advanced manufacturing work in America is being done right here in upstate New York. Cutting-edge businesses from all over the world are deciding to build here and hire here.” Gov. Andrew Cuomo appointed Alain Kaloyeros “to build a semiconductor corridor across upstate,” Politico noted. The promised bonanza never occurred. The program collapsed after Kaloyeros and three other officials were convicted for bid-rigging in 2018 and sent to federal prison. But that scandal vanished into the memory hole, clearing the way for a repeat Salvation Show in 2022.

Will the Chip Act spur kickbacks that result in prison sentences for some of the prime wheelers and dealers? Stay tuned.

Politicians don’t learn from mistakes committed with other people’s money. There is no reason to expect the Chip Act to be any less of a boondoggle than all the preceding boneheaded interventions. Letting politicians pick winners is the surest recipe for screwing consumers and every unsubsidized business.
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