December saw the announcement of the first grant award under the CHIPS Act, the 2022 law designed to enhance domestic manufacturing and research within the US semiconductor industry. The $35 million award to BAE to modernize its defense semiconductor production facility in New Hampshire received the requisite press rollout showing that progress is finally being made in the program. The expectation of supporters of greater government industrial planning is that this is just the beginning of a juggernaut of money from the five-year, $53 billion program that will be spent to transform not just the US semiconductor industry, but the competitiveness of America itself.
The implications of the first CHIPS Act award to a defense company familiar with government compliance regimes may indicate something less lofty may be in store, as the effort may suffer from a serious flaw in expectations. CHIPS Act backers may not have learned the lessons about how innovative, globally-oriented commercial companies actually make investment decisions and succeed in the marketplace. One key concept that should have been considered is regulatory arbitrage: companies seek to avoid and minimize regulatory and compliance costs and will establish operations in those places that allow for that. These costs can be more than just monetary as regulatory incentives and compliance can also undermine innovation, productivity, and the culture of a firm..............To Read More....
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