Congress gives billions to chip industry. Strings are attached.

It’s an embrace of industrial policy not seen in Washington in decades. Gary Hufbauer, a senior foreign fellow at the Peterson Institute for International Economics who has studied US industrial policy, said the bill is the most significant investment in industrial policy the United States has made in at least 50 years.

American politicians of both parties have long hailed the economic power of free markets and free trade, while stressing the dangers and ineffectiveness of government intervention. Republicans and some Democrats argued that government was a poor arbiter of business winners and losers, and that its interference in the private market was at best wasteful and often destructive.

But China’s growing dominance in key global supply chains, such as those for rare earth metals, solar panels and some pharmaceuticals, is generating new support among Republicans and Democrats for the government to nurture strategic industries. South Korea, Japan, the European Union and other governments have outlined aggressive plans to court semiconductor factories. And the production of highly advanced semiconductors in Taiwan, which is increasingly threatened by invasion, has become for many an unsustainable security threat.

Semiconductors are needed to power other key technologies, including quantum computing, the Internet of Things, artificial intelligence and fighter jets, as well as ordinary objects such as cars, computers and coffee machines.

“The question really needs to shift from why we’re pursuing an industrial strategy to how we’re pursuing it,” Brian Dease, director of the National Economic Council, said in an interview. “This will allow us to really shape the rules of where cutting-edge innovation happens.”

Disruptions to supply chains for essential goods during the pandemic have heightened the sense of urgency to stop American manufacturing from flowing overseas. That includes semiconductors, where the U.S. share of global production has fallen to 12 percent in 2020 from 37 percent in 1990, according to the Semiconductor Industry Association. China’s share of manufacturing rose to 15 percent from almost nothing over the same time period.

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