As Beijing threatens Taiwan and its world-leading semiconductor manufacturing sector, U.S. policymakers agree that the U.S. needs to produce more of the chips that run the country’s computers. A signature initiative emerging from this new industrial policy consensus is the Creating Winning Incentives for Semiconductor Production Act (CHIPS Act), which was passed by Congress and will be signed into law by President Joe Biden in 2022. The law promises more than $50 billion in direct subsidies and loans to encourage chipmakers to set up shop in the U.S. and, with a bit of luck, bring back much of the industry’s cutting-edge technology from Asia.
But two of CHIPS’ best-known companies, US-based Intel and Taiwan Semiconductor Manufacturing Co. (TSMC), are already experiencing disruptions. Intel, which the Commerce Department earmarked for $8.8 billion in subsidies in March, posted a staggering net loss of $1.6 billion for the second quarter of 2024 and announced the layoffs of 15,000 employees in August. Meanwhile, TSMC has pushed back the start of production for its first CHIPS-funded Arizona factory from this year to next, and its second from 2026 to 2027 or 2028. This contrasts with TSMC’s ahead-of-schedule progress on its new fab in Kumamoto, Japan.
There are many factors that cloud the prospects that the CHIPS Act will propel US factories to the forefront of the semiconductor industry. Business insiders may look to Taiwanese management practices and workplace norms that TSMC (much less Intel) cannot replicate in the US. Christopher Miller’s 2022 book “Chip War” supports this theory. Among other evidence, he cites an interview with Xianyi Chang, who led research and development at TSMC and worked for US companies in Texas and California. Chang told Miller, “In Taiwan, people worked much harder…If something broke at 1am in the US, engineers were fixing it by the next morning, but at TSMC, they were fixing it by 2am.” Meanwhile, US right-wing politics blame the CHIPS slowdown on the Biden administration’s obsession with diversity, equity and inclusion (DEI). Matt Cole and Chris Nicholson of Vivek Ramaswamy’s Strive Asset Management wrote in The Hill in May that CHIPS grants “have too much DEI-related money to move.”
But there’s another factor in the early struggles of the CHIPS Act that deserves more attention: environmental “safetyism,” the philosophy that maximum precaution should be the governing principle. Of course, precaution makes sense in some circumstances, but when it trumps evidence-based regulatory practice, the result is stagnation.
Removing safety-ism impediments to CHIPS has greater potential to accelerate U.S. productivity than addressing workplace culture or DEI pork. Workplace culture is ingrained, apolitical, and ambiguous. DEI pork is new but already outdated. In contrast, safety-ism is far more institutionalized than DEI and has been a notable economic drag for decades, but is less entrenched than cultural practices. Importantly, it can be reformed through standard regulatory practices.
While the National Environmental Policy Act of 1970 (NEPA) has become the nemesis of the “pro-enrichment” movement, a lesser known (and perhaps less comfortable) obstacle to the success of the CHIPS Act is the Toxic Substances Control Act. TSCA displays the hallmarks of safetyism and its inevitable consequences.
In 1976, Congress enacted TSCA, giving the U.S. Environmental Protection Agency the authority to regulate chemicals throughout their life cycle. TSCA requires manufacturers to report on the chemicals they manufacture, use, or import and the potential risks they pose to worker health and the environment, and to comply with regulations on handling and disposal. The Lautenberg Chemical Safety for the 21st Century Act, signed into law in President Obama’s final year in office, sought to strengthen EPA’s authority and more effectively codify the process. However, President Biden’s EPA has unreasonably stretched TSCA risk assessments, resulting in bans of established industrial compounds (many of which are used in closed systems with little potential for exposure), unattainable workplace standards, and review delays that stifle innovation in the creation of new chemicals.
Few people think of semiconductor manufacturing as a dirty job – after all, chips are made in “clean rooms” – but it’s definitely a materials-intensive process. Chip manufacturing requires specialized chemical compounds to create optimal conditions for both manufacturing and the product itself. According to the American Chemistry Council, more than 500 specialized chemical compounds are needed to make advanced semiconductors, including formaldehyde, PFAS, trichloroethylene, N-methylpyrrolidone, and methylene chloride. These are some of the chemicals that have been sent to hell by the Biden Administration’s EPA’s implementation of TSCA.
The TSCA used by the Biden EPA establishes four designations for chemicals: “unlikely to pose an unreasonable risk,” “insufficient information,” “likely to pose an unreasonable risk,” and “poses an unreasonable risk.” The first designation is a green light to allow manufacturers to use a chemical, the second and third are yellow lights, and the fourth is a red light.
While Americans enjoy a presumption of innocence in court, in TSCA regulatory proceedings, chemicals are presumed to be unreasonably dangerous unless proven otherwise. That means red flags until EPA changes it. Moreover, EPA assumes that manufacturers will not comply with their own internal protocols, nor with other federal occupational safety and health regulations that prescribe the use of personal protective equipment under certain circumstances. For example, instead of running an analysis based on a protocol that prescribes the wearing of gloves, EPA treats manufacturers as if their employees were dipping their bare hands in hazardous solvents throughout their shifts. From a safetyist perspective, this makes perfect sense. But from the perspective of a government that has invested billions of dollars in the rapid production of critical industrial inputs, such as chips, this is a huge contradiction.
According to a report by the American Chemistry Council, as of July 2024, 243 new chemical substances have been under TSCA review for more than a year. As a result, semiconductor manufacturers find it harder to obtain and use the materials they need in the United States than they or their competitors need overseas. As the Ohio Chemical Engineering Association pointed out in a regulatory comment submission in May, TSCA’s new risk assessment approach will create “significant economic harm” in a state that is at the heart of U.S. industrial policy.
When we consider laboratory innovation, industrial production, and commercialization, the United States has been the undisputed global technology leader for a century. It is no exaggeration to say that the early semiconductor industry, which blossomed in what is now known as Silicon Valley, represented the pinnacle of American dominance along the entire technology value chain. But since the 1970s, the U.S. lead in that field and others has shrunk. That shrinkage is largely due to other regions realizing their potential, and the natural behavior of global markets. Broadly speaking, the result was that America designed and Asia built. But that is not the whole story. Environmental safetyism has imposed unfair costs on semiconductor manufacturing and many other industries.
As EPA critics are quick to point out, TSCA is just one part of a constellation of safety policies that plague the United States. If the United States is to get ahead of China without feeling guilty about safetyism, it must reverse the overly cautious standards that have limited the nation’s productivity. Addressing the TSCA issues is a great place to start.
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