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Comment by csomar | Hacker News Reader

> The GlobalFoundries expansion would create up to 1,500 manufacturing jobs and 9,000 construction jobs over the next 10 years, federal officials said.

So assuming the construction jobs are temporary and the manufacturing jobs is what remains, this works out at around $2.066 million per employed personnel. Assuming a federal income tax rate of 20% and a 30 year tenure, this means the personnel should have a take home pay of $344k/year. And this is just for the scheme to break-even.

I think this IRA (the act) and CHIPS act are going to be just another wealth transfer where the "work" being done just to check boxes to be eligible for the money getting sloshed around.

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The point of all these breaks is to alleviate a critical dependency on two foreign advanced chip makers. Especially one that is under military threat by a huge political economic and military rival.

Losing out on a big percentage of advanced chip making capacity could be catastrophic for the US economy and technological advancement. And military.

This is not an "investment" in future tax revenue via jobs, although jobs are nice.

I understand the point of these subsidies. I am just doubting (a personal opinion) that they'll actually work and calculating the wealth transfer happening here.

Why do you doubt they'll accomplish their goal of removing dependency on foreign chip makers?

Not parent poster, but there's a long track record of these sorts of subsidies to big tech companies already rolling in money to go bust with little oversight, investigation, or prosecution.

The big one everyone remembers is the set of grants giving to incumbent providers to expand access to broadband (25 Mbps down/3 Mbps minimum) to everyone in the country - a promise that, despite three rounds of grants in the billions, has not materialized.[1]

[1] https://www.jsonline.com/in-depth/news/2021/07/14/weve-spent...

Chips and telecom are pretty different markets, right? GlobalFoundries needs a leg up, most of the big telecom companies are already abusive monopolies.

Because they do not fix the underlying causes; and also they create perverse incentives. Most companies are in the business of extracting money and will see this as such: an opportunity to extract money and the product is bureaucracy checkboxes. It would make more sense, in this personal view, to restrict sales to domestic production only and make sure the field is even for competitors to out-compete one another. This guarantee the dependency aspect at least (as you already restricted yourself!).

Another solution: Move the manufacturing to a near-shore and friendly country (ie: Mexico or Puerto Rico) and keep the design part in the US. But of course, that wouldn’t be as politically popular and wouldn’t create the extraction opportunity (which lots of companies will want to benefit from).

If a certain former president is reelected he will likely continue to push for the type of tariffs that will incentivize domestic production over foreign imports. If that happens the chips act will have put us on the footing required for that ramp up to begin.

This is a compelling perspective. But putting sales or import restrictions in place right now would be damaging in the short term both for the manufacturing partners and the US. They’ve already put some export restrictions in place (ie preventing nvidia from selling their most powerful chips to china).

In terms of nearshoring - that’s a good idea too but I think the workforce training would be even more difficult than it has been in the US and it would be less popular politically as you said. (Side note: PR is part of the US - maybe you meant Costa Rica)

Intel does (or used to do) wafer packaging in Costa Rica. On paper, CR is an attractive near shore location: Good amount of English speakers, time zone parity with the US, and not difficult to travel to.

> Move the manufacturing to a near-shore and friendly country (ie: Mexico or Puerto Rico)

Puerto Rico isn't a foreign country, it's a territory of the United States. Regardless of that, semiconductor fabrication is one of, if not THE most complex form of manufacturing.

It's not enough to simply build a fab in Mexico, the supply chain of materials and highly skilled labor that runs these fabs needs to exist there too. That's not to say that it can't exist somewhere like Mexico, but currently it doesn't and it would take longer to build up.

So while moving it to Mexico would remove the geopolitical risk problem, putting it there instead of the US would only give the advantage of cheaper labor but at the cost of taking much much longer to ramp up.

Not everything needs to be fabbed at 7 or 3 nm. Malaysia does well as a place where industrial nations can put mature manufacturing processes and get high quality outputs.

> to restrict sales to domestic production only

You think people will stop buying NVidia GPUs, AMD GPUs, PS5, XBox, Nintendo Switch, iPhone, Pixels, Samsung Galaxies, and a litany of major automotive parts from Microchip/STMicro/etc. etc.?

Because none of these are made in the USA. The only major chips made here are Flash/RAM by Crucial, CPUs by Intel, and some lower-tech (but still important) chips by TI. The vast majority of chips, well over 60% of the worldwide supply, is made by TSMC IIRC, and another huge chunk are made by other companies located in Taiwan.

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Furthermore, Taiwan is a close ally who has extremely friendly relations with USA. Yes, there's a war-risk with China here, but Taiwan fairly competes with us. I don't think anyone has a single piece of anti-Taiwan hate inside of them.

Its not a protectionist thing. Its purely the "what if China attacks Taiwan" thing. Economically speaking, trade with Taiwan and USA is a good thing. Geopolitically, trade with Democracies is a good thing, and trade with a century+ old friendly nation is a good thing.

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Taiwan can create this tech because they are smarter than us and outcompeted us on this subject. Its not "low tech", its extremely difficult chemistry, high-end PH.d stuff here.

Taiwan is basically the Vulkans from Star Trek. They're smaller, more technologically advanced, but weaker militarily. They're so obviously good allies that its unthinkable to do anything against them. We need a "just in case" plan if trade between our nations gets interrupted because chips are a strategic good, but... cutting them off would mean that they ally with someone else and that's even worse.

> some lower-tech (but still important) chips by TI

TI makes plenty of pretty high-tech chips, just not necessarily bleeding edge digital logic processors. Their real high-tech stuff are analog devices, something far less sexy to people on HN but still incredibly crucial.

Analog is important for cutting another 20% off of MOSFET resistances or whatever, which means even more efficient electric engines or other electric components.

Yeah, important but not as much of a headline as 20% more GHz or FLOPs for some reason.

It’s an accident of history and the hubris of Intel that they passed over an opportunity to buy the last generation machines from ASML leading to TSMC taking the advantage.

It’s not that they are intrinsically superior Vulkans as you’ve described.

It’s a temporary distortion caused by Intel trying to rest on their laurels and drip feed advancements.

Even *IF* Intel reaches parity with TSMC (which seems unlikely...), Intel doesn't have much experience with external customers (like Apple, Qualcomm, AMD, NVidia) like TSMC does.

Even if we magically wave a wand and give Intel next-generation lithography today, they still don't have the capabilities to take orders from customers and translate them to designs.

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Its not Intel who needs to catch up to TSMC. Its a 3rd party fab like GloFo who needs to catch up for USA to recapture that market share.

I'm happy that GloFo is getting some scraps and investment from this CHIPS act, its the right move. But I have my doubts that we'll reach the technological level of TSMC / Taiwan any time soon. But whatever we get its still better than nothing.

> Even if we magically...

ASML began to ship its first High-NA lithography tool to Intel late last year ,and the machine will be fully assembled in Oregon in the coming months. [1]

[1] https://www.anandtech.com/show/21264/asml-to-ship-multiple-h...

Not really. It’s because the government of Taiwan poured a lot of money into these chip companies. Which is the smart thing to do.

A lot of countries shoved tons of money into chips. In fact, a ton of countries have more money than Taiwan.

And yet, it's Taiwan who won. We gotta give them props for that, and we can also thank the gods that it was a close ally of the USA who got so good at it.

Global Foundries promised 7nm tech to IBM and dropped it after winning the contract.

https://www.datacenterdynamics.com/en/news/ibm-sues-globalfo...

> I am just doubting (a personal opinion) that they'll actually work and calculating the wealth transfer happening here.

The goal is not wealth transfer.

If you want that, move to Europe.

Europe does a lot of income transfer, but not much wealth transfer.

Do you think that the gain from this (investment into Saratoga Fab) is useless or that the state pays too much for it?

Because I personally believe that this is a decent deal; I hate the idea and it still reeks of protectionism to me, but I think this serves US (taxpayers!) interests decently well.

I especially like the investment matching aspect, where the necessary commitment from the company is much larger than the grants, so in the end, they are dropping money into that fab (fudging numbers only gets you so far), and its in their best interest to make it work out.

I'd be very careful with characterising this as "wealth transfer", because it seems significantly less questionable than most defense spending to me and even that I wouldn't label as "wealth transfer".

Out of personal curiosity: Are you similarly opposed to agriculture subsidies, or do you consider those less problematic (magnitude is somewhat comparable at ~20billion$/year)?

> Out of personal curiosity: Are you similarly opposed to agriculture subsidies, or do you consider those less problematic (magnitude is somewhat comparable at ~20billion$/year)?

European here, we could and should close our borders for agricultural goods that we can grow ourselves (and you Americans should ban alfalfa exports from California, while you're at it). Ag subsidies are only required because there's no way an US or European farmer can compete with Russian, Ukrainian, South American or African labor and land costs, but we still need farmers to ensure we're self-sufficient and don't end up like many developing nations did once Russia blockaded Ukrainian grain exports.

As a New Zealander: please don't.

That is an interesting take. If I'm not mistaken in India at least (which one would imagine has fairly cheap labour) sugar and corn is still cheaper imported, although in sugar's case I think the production costs are higher due to water requirements. The sugar import situation had become highly political some years back.

I agree with you in principle, but I believe this is basically impossible in any democracy because you just get un-elected immediately.

Just consider the Polish protests against Ukrainian grain, or the recent German protests against cutting fuel subsidies for agriculture. It just costs too much political capital to do anything about this...

Well, agricultural subsidies are also needed because agriculture has become too efficient. The dairy industry is prime example in both US and EU of agriculture that overproduces so much milk that the US has farmers demanding we sanction Canada for their milk quotas (Canada using the quotas on all their farmers to prevent overproduction) and the EU dumps their milk on Africa and prevents any development of the dairy industry in Africa.

The same applies to so many other types of agriculture. Nobody wants to let farmers go out of business for decades now in the Western world. And the rate of "natural attrition" hasn't matched the rate of technological efficiency improvements.

There is of course agriculture that isn't as efficient because higher human labor required for things like picking and sorting. But the automation for that is slowly coming.

> there's no way an US or European farmer can compete with Russian, Ukrainian, South American or African labor and land costs

For certain agricultural goods perhaps, but the Midwest is the most productive region for agriculture on the planet. Russia and Ukraine have vast areas of land, they focus on wheat because they mainly have marginal land and a limited growing season and wheat is perfect for that. Most of Africa and much of South America (Argentina being a notable exception) have terrible soil and require significantly more fertilizer to grow crops at scale. Labor is cheaper in those regions but that’s only one factor and it’s why so much farm labor has been automated in the US.

to this point, the US isn't the single biggest producer, or consumer -- that'd be China.

but they are the single largest exporter of grain overall, mostly corn from the midwest and California produce. the Green Revolution hit hard, and most farms are now huge consolidated enterprises. by comparison, in a lot of the world, most farms are smaller and often single family, and in many cases still using old world techniques -- e.g. non-trivial numbers of people plowing their fields with oxen, etc.

If only it were protectionism!

Which parts of the CHIPS act would you like to see changed?

I personally think that its quite difficult to make protectionism happen in a way where you don't prop up an inefficent industry with continuous infusions of tax dollars in the end...

Your comment doesn't address the parent comment's point though. You'd have to make an argument that the chip factories won't get built at all.

It's always good to question subsidies like this, but the question you ask ("does income tax on the created jobs pay for the subsidies") is the wrong one: The state is not investing into this for a monetary return from income taxes-- he is paying for strategical reasons/supply chain security, and the "price" is to compensate for the fact that labor costs and regulations make building chip foundries in the US more expensive.

So what you would need to ask would be more like: Is the subsidiy higher than it needs to be to lure chipmakers into the US? And that is much harder to answer...

Oxford Economics estimates that there's a 6.7x multiplier on each new role created in the semiconductor industry[1]. That is, each role in the semiconductor industry supports an additional 5.7 jobs indirectly in other domestic industries. The only two sectors that are higher are Computer Storage manufacturing and Aircraft Manufacturing.

You'd need to split the pay between all 6.7 newly created roles, meaning they only need ~$60k take-home or so each - which is right around the US mean salary.

[1] https://www.oxfordeconomics.com/resource/chipping-in-the-us-...

But those employees also do things like buy cars and lattes, and they also pay state and local taxes, sales tax, etc. as does the foundry.

There are other economic benefits too.

But even if your simple calculation was correct and all there was to this story, what you’re missing in your post is that America as a nation has decided we need to produce semiconductors here for economic and national security purposes and so therefore subsidizing their manufacture is a normal thing that would occur.

they would buy cars, lattes and pay tax on non-subsidized jobs, too. Why should the latte shop owner have to pay tax to run their business, while the chip mfg doesn't? it just creates two classes of people.

> America as a nation has decided we need to produce semiconductors here for economic and national security purposes

a few decades ago we decided to move manufacturing jobs overseas because paying people who had families and bought "cars and lattes" here was just too expensive. Why reneg on that commitment?

> they would buy cars, lattes and pay tax on non-subsidized jobs, too

The point here was that your assumption of the economic effects of the subsidies didn’t include other meaningful factors.

> a few decades ago we decided to move manufacturing jobs overseas because paying people who had families and bought "cars and lattes" here was just too expensive. Why reneg on that commitment?

Because it was dumb, changing away from a path when you see it is a dead end is a good thing to do.

Also I’m not sure “we” (to the extent that there even is an “we” here, there are always winners and losers with these sorts of policies so I bet the whole country didn’t agree) ever intended to move high-tech manufacturing away from the US. I think we want to outsource the bad jobs and keep the good ones. Of course it is a game everybody is playing, we’re shifting our strategy to hopefully more effectively keep the high-tech stuff.

why is building a washer that keeps peoples clothing clean a 'bad job' and building tech components a 'good job'?

Because computer chips are cool and washing machines are boring.

Everyone involved with floating the dollar and running a deficit understood that it would pump the asset sector and dump the export sector. There were fights about it. Keynes got himself ejected from elite circles by lobbying a bit too hard for his pet alternative.

If you want a more visible and recent datapoint, look to the perennial fights in the UN over the opposite, where a country that promised not to devalue their currency devalued their currency. Note that these discussions generally start from a point where everyone understands why it might be desirable to devalue one's currency, pumping exports & the real economy while dumping assets. This is macroeconomics 101 stuff.

The surprising thing is not that high tech manufacturing left, it's that for a while it was actually able to compete with a money printer for access to talent and resources.

>I’m not sure “we” ever intended to move high-tech manufacturing away from the US.

Until the recent turnaround, it was understood the west was moving to a service industry. Someone Else(tm) (read: China) would manufacture everything (the "dirty", "cheap" work) and we would provide the service (the "clean", "expensive" work).

Of course, an economy can't be valuable if it can't actually make anything. As it stands, the US can't even make chopsticks by itself let alone microprocessors.

I actually have significant doubt CHIPS will be successful in bringing back microprocessor manufacturing, and more broadly bringing back manufacturing in general to the west at all, but we have to start somewhere if we don't want to be beholden.

I’m not sure what you mean by “can’t even make chopsticks by itself,” which is to say, obviously that is an exaggeration but on the other hand, lots of products do touch multiple countries…

Anyway, US manufacturing output still seems to be second in the world, around 1/2 that of China with 1/4 the population. Microprocessors are already made in the US, Intel (despite their struggles) is still making plenty of chips here.

I’m not really sure what the plan is with Global Foundries, in the sense that they presumably won’t keep up with TSMC or even Intel… but maybe 7nm will be the next or next-next generation automotive chip node or something.

Intel designs their chips here, but Intel makes their chips in Israel, Vietnam, Malaysia, Costa Rica, etc.

This is what the west was trying to do before: Providing services like microprocessor design for the manufacturing industries overseas.

But of course, simply drawing stuff on paper for others to peruse doesn't actually produce value. It's the act of making something that produces value, and we finally realized that grave error.

Not to mention the people doing the manufacturing work will inevitably accrue the know-how to also just do the designing themselves too, and then we in the service industry really are worthless fools.

>I’m not sure what you mean by “can’t even make chopsticks by itself,”

I mean that quite literally. I know Georgia (the state, to be clear) has (or had) a robust disposable chopstick manufacturing industry, but nearly every disposable chopstick I see sold or given out are Made In China these days.

If we can't (or won't) even figure out the means to making some wooden sticks, we definitely aren't manufacturing microprocessors.

> Intel designs their chips here, but Intel makes their chips in Israel, Vietnam, Malaysia, Costa Rica, etc.

> But of course, simply drawing stuff on paper for others to peruse doesn't actually produce value.

Intel actually manufactures quite a bit in the US. The bulk of their fabs are here, and they ensure they can produce the wafers with good yields in the US. Once they've got the process down, the other fabs kick in. And even then, I believe a fair amount of the mass production is still in the US. It's the packaging that is mostly offshored.

So no, not just designing on paper.

If that's true Intel needs to advertise that better, especially in today's geopolitical climate.

I'm aware they have fabs (mostly R&D) in Oregon and have manufacturing fabs planned in Arizona, New Mexico, and I recall Ohio, but I've mostly heard praise of their Israel fabs and all the CPUs I've ever bought from them have said some variation of "Made in Costa Rica/Malaysia/Vietnam".

To be fair my latest purchase, a 14700K, says "Manufactured in US with global content." which is a slight improvement, but that could just as well mean "We shipped chips in from Israel and soldered a heat spreader on it." and it still ultimately says "Final assembly in VN." (Vietnam) right under it.

Made in USA this is not (yet?).

That is false. All the advanced Intel fabs are located in the U.S. And in fact, the design has actually been done in Israel in previous generations.[0] Much of the equipment needed to run advanced fabs are made in the US as well.

[0] eg. https://en.wikipedia.org/wiki/Intel_8088

Intel has production fabs in the US.

https://www.intel.com/content/www/us/en/support/articles/000...

>> I’m not sure what you mean by “can’t even make chopsticks by itself,”

> I mean that quite literally. I know Georgia (the state, to be clear) has (or had) a robust disposable chopstick manufacturing industry, but nearly every disposable chopstick I see sold or given out are Made In China these days.

But these are different things. “Can’t make chopsticks by itself” is clearly not true, I could just go make a pair of chopsticks if I wanted. You can find expensive hand-made chopsticks from the US. The US might not have a huge production of disposable chopsticks, but making really simple things at scale is a place where we don’t have a competitive advantage, and I wouldn’t be surprised if we have a relatively low demand for chopsticks, so this doesn’t seem surprising or indicative of anything in particular.

The game the manufactures are playing is to get extra good conditions for them by pressing the government that they would produce abroad. Local manufacturing in any reasonable volume is not coming back. Highly automated - yes, maybe, if there are dotations/tax cuts/high import tariffs. Highly automated means 1.5k people working on a giant fab and rest are robots.

Why continue to ignore the answer given in favor of purely economic arguments? We need chips built at home so we’re making it happen, it isn’t complicated.

"we" is doing a lot of work there. a multiple-trillion-dollar company could do the investing (since their products depend on this silicon) instead of the American taxpayer. But lets blur the lines with the word "we".

All of their competitors are subsidized by their governments and chips are as important as energy or agricultural today. It’s not realistic for us to expect a free market to compete with non free ones

This has nothing to do with jobs.

Read Chip War by Chris Miller

https://en.m.wikipedia.org/wiki/Chip_War:_The_Fight_for_the_...

Is the only reason governments subsidize things for employment? Could it not just be here, have $3.1B and further us as a species by producing chips needed for AI, ML, cars, cellphones, etc.

We give giant science grants all the time, tons of money for infrastructure, etc, what makes this one immediately go into X dollars / jobs created * tax generated?

In addition to the point of this not being to make money, more than half of this is loans, so is intended to be paid back. 1.5B is grants, so closer to $1M per manufacturing job in your framing.

The other economic benefit is moving one part of the supply chain here may enable more of the supply chain to be completed here. For some of the hardware companies I work with, if you have to make a few parts in China, it's vastly cheaper and more flexible to do the whole assembly there.

The 9,000 construction jobs will also pay taxes while they're working for 2-3 years. The 1,500 people will buy houses and go to restaurants and dry cleaners and have lawn care and create much other economic activity that will also generate tax revenue.

Simply diving the subsidy by the 1,500 permanent employees doesn't capture the value that's created, along with the strategic value of bringing more chip manufacturing to the US.

Its not about this being a "winner" it's about being able to make the dam things domestically. Full Stop.

We have national defense concerns and zero faith in intel.

EDIT: This makes it "defense spending" in a civilian line item.

Intel is one of the recipients/beneficiaries.[1]

[1]: https://www.intel.com/content/www/us/en/corporate/usa-chipma...

Yes but the point stands. “Zero faith in intel being able to fill the gap if left to its own devices,” would be a better wording

TSMC, SMIC, and Samsung among others all have the financial and political will of entire countries behind them. It's unreasonable to expect anyone to fight equally if not better without similar terms like CHIPS.

You are absolutely right but missing the point. The CHIPS act is to make domestic foundries for companies where the manufacturing is outside of the United States. It is to make us resistant to supply chain problems and also the possibility of tampering of computer components. Foundry creation is incredibly expensive and to get to the state of the art lithography is hard but global foundries can make chips for things that don't require that. The subsidies should reflect that (Intel / TSMC have had this grant also).

On the other hand they could just not complete what they promised and we would be in a bad position: https://www.theverge.com/2019/4/10/18296793/foxconn-wisconsi...

Others have said about trickle down economics (this can be debated).

At $344K/year, I can assure you the federal income tax will be higher!

Also, did you not account for capital costs? I know that at Intel fabs, labor costs are significantly lower than capital costs.

Consider, for example, that ASML charges $0.5B for a single unit.

The government is not a business, it's "investments" do not have to "break-even" in raw financial terms.

Maintaining supply chain diversity is critical for national security. The US Military does not want to be dependent on foreign manufacturers for its equipment.

Furthermore the business and employees will be paying sales and property taxes, in addition to federal income tax, and will have 2nd & 3rd order effects from their spending.

But the jobs aren't the only nor primary benefit.

Don't forget that TSMC was essentially a government enterprise when it started.

Be cynical if you want, but the one thing that has a 0% track record of effective results is calling every government function wasteful, corrupt, and untrustworthy and responding by dismantling government institutions and investments.

This isn't about creating jobs. The US has more Jobs than people who're willing to work.

This is about creating strategic independence.

No a big part of the chips and inflation reduction acts are definitely the creation of jobs and the bringing of manufacturing back to parts of America that has been deindustrialized due to offshoring.

That is just what they say to get support from constituents who don't understand international power struggles and the strategic importance of chip production capabilities. The overarching motivation is global strategic power and security. Read Chip War: The Fight for the World's Most Critical Technology.

While policies can have multiple goals, the primary goal of the CHIPS Act is definitely supply chain independence for the US Military, Job creation is a nice side effect.

The value of a job for the state is limited to ... federal income tax? That's certainly a view to hold.

I imagine that $2 million also includes land purchases, materials, and equipment on top of salaries.

National security considerations and second order economic stimulus effects aside, rounding 9000 construction jobs down to 0 is also doing a lot of work here. If you assume the average duration of those jobs is just 5 years, that doubles the number of job-years...

Don't you think they have to pay for the machines?

It’s a money dump no question about it. America simply can’t do these things.

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