CHIPS and Science Act

In the AI Story

The CHIPS Act emerged from a specific strategic concern: the increasing concentration of advanced semiconductor manufacturing in Taiwan, particularly TSMC, and the geopolitical vulnerabilities this created given Taiwan's exposure to Chinese pressure. The American policy response was textbook industrial policy — direct subsidies for domestic production, tax incentives for capital investment, and supply chain reshoring requirements that would have been denounced as 'distortionary' if implemented by a developing country.

The act's provisions go well beyond simple subsidies. It includes funding for semiconductor research, workforce development programs, and the explicit goal of restoring American manufacturing capability that decades of offshoring had eroded. The strategic logic is openly developmental: identify a critical industry, deploy public resources to build domestic capability, accept short-term inefficiency for long-term strategic advantage.

The contradiction with American AI policy advice to developing nations is sharp. Nigeria, Brazil, or India, considering similar interventions to build domestic AI capability, would face immediate pressure from the IMF, the World Bank, and the WTO dispute settlement system to cease and desist. The Americans, when they want to build domestic capability in a strategic technology, simply pass the legislation and write the checks. The asymmetry is not subtle.

Chang's framework treats this asymmetry as the defining feature of the contemporary global economic order rather than an exception to it. The wealthy nations practice industrial policy when they consider it strategically necessary and prevent developing nations from doing the same when their interests are threatened. The CHIPS Act is not an aberration from American economic doctrine. It is the truth of American economic doctrine, made visible by strategic urgency.

Origin

The legislation emerged from years of bipartisan concern about American semiconductor manufacturing capacity, accelerated by COVID-era supply chain disruptions and the Trump administration's escalating trade conflict with China. The bill went through several iterations — the Endless Frontier Act, the United States Innovation and Competition Act — before being consolidated into the CHIPS Act and signed by Biden in August 2022.

The intellectual case for the act drew explicitly on the East Asian developmental state model — particularly Taiwan's success in building TSMC through state-led industrial policy. American policymakers studying the Taiwanese case concluded that strategic state intervention was necessary to rebuild American capability. The same policymakers continue to discourage developing nations from drawing the same conclusions about AI.

Key Ideas

Explicit industrial policy. Direct federal subsidies for domestic semiconductor manufacturing — the precise instrument that the WTO regime restricts for developing nations.

Strategic targeting. Identification of semiconductors as a critical technology requiring deliberate state intervention to maintain domestic capability.

Asymmetric application. Industrial policy as legitimate when wealthy nations practice it for strategic reasons; illegitimate when developing nations practice it for developmental reasons.

AI implications. The CHIPS Act establishes the precedent and toolkit that domestic AI industrial policy can deploy — and that developing nations should be allowed to deploy in turn.