Welcome to the Chip Wars

Intel wants another HQ2 contest, this time for chip manufacturers.

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The Amazon “HQ2” contest — in which hundreds of cities threw everything including the kitchen sink at Amazon in the hopes of landing a new facility — was a national embarrassment showing just how tight corporate America’s grip on economic development policy is (at least until New York said no way). In a recent interview with The Washington Post, Intel’s new CEO Pat Gelsinger said he’s ready to do the same thing, this time for a semiconductor manufacturing facility.

Apologies for the long quote, but you need to see the whole context to understand just how Intel is thinking about this factory auction.

MR. GELSINGER: And, as I've said earlier in the year, I want to build my next major mega-fab location and announce that in the U.S. before the end of the year, that that will be the most leading technology, the most refined and capable manufacturing capacity, all in the U.S., with U.S. intellectual property. This is just the right thing for us as a company and us as a nation.

MS. ZAKRZEWSKI: And what locations are you currently considering for that facility?

MR. GELSINGER: Yeah. We're looking broadly across the U.S. We're saying come one, come all for proposals. This would be a very large site, so six to eight fab modules, and at each of those fab modules, between 10- and $15 billion. It's a project over the next decade on the order of $100 billion of capital, 10,000 direct jobs. 100,000 jobs are created as a result of those 10,000, by our experience. So, essentially, we want to build a little city.

We're engaging with a number of states across the United States today who are giving us proposals for site locations, energy, water, environmentals, near universities, skill capacity, and I expect to make an announcement about that location before the end of this year.

MS. ZAKRZEWSKI: Got it. And, yeah, it sounds a lot like Intel's version of the Amazon HQ2 contest in a lot of ways.

[Laughter]

MR. GELSINGER: A little bit so. You know, here, though, I think the aspects of--you know, as we've--you know, our sites in Oregon and in Arizona. We have large sites in Ireland and Israel as well. These become hubs for those entire communities, and we've seen in all of our locations, it brings suppliers. Other companies come into it. You know, university, community college, training programs, the need for schools, restaurants, et cetera, these are really just such spectacular projects, and if you go to those communities, it's been just entirely transformational for them.

Hardy har har. But there’s actually nothing funny about it. The HQ2 search was an absurd debacle in which cities were suckered into offering up all sorts of goodies and data to Amazon, and the “winner,” — Northern Virginia — gets to spend hundreds of millions of dollars for a facility it was likely always going to receive anyway.

And it’s not just Intel looking to replicate Amazon’s largesse: Several chip manufacturers are doing their best to put local taxpayers on the hook for billions of dollars in subsidies for new plants.

For example, I wrote here in February about Samsung attempting to shake down somewhere — probably Austin, Texas — for an HQ2-sized deal, and is playing several locations in Texas, as well as New York and Arizona, off against each other.

The Taiwanese manufacturer TSMC received a more than $200 million package from Arizona late last year.

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Intel also recently received a $90 million package from Arizona, and has received more than $6 billion overall from state and local taxpayers dating back to the early 1990s.

For their money spent on Intel, the supposed crown jewel of U.S. semiconductor manufacturing, taxpayers have received a corporation that is getting lapped by its adversaries, constantly fails to deliver on new products, and has engaged in several rounds of layoffs in the very states from which it received the most public funding, as it focused more on financial shenanigans than innovation. (Intel historically both designs and manufactures chips, unlike TSMC, which builds chips other firms design.)

Now, as I’ve said before, I’m not opposed to some level of public funding for chip production at the federal level: It’s a national security issue to ensure we have a steady supply. The current chip-related slowdown in auto production also shows how critical access is to the wider economy. If Congress wants to appropriate money to address those problems in a way that provides for real accountability and clawbacks where appropriate, I’m at least willing to listen — but there’s also a lot that the federal government can do to foster innovation in the sector that isn’t throwing money at specific corporations.

Be that all as it may, responsibility for ensuring a steady supply of chips shouldn’t be foisted onto local taxpayers and local school districts in the form of massive subsidies that lead to reduced services or the formation of company towns dependent on continued corporate benevolence. Chip manufacturers are trying to start a subsidy war, using serious issues around supply chains and security to collect handouts at all levels of government, without the sort of accountability measures that will ensure taxpayers actually receive some level of surety for their investments. It needs to be stopped in its tracks.

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SHAMELESS SELF-PROMOTION: Reuters’ Julia Love had a good piece recently on how the Teamsters are taking on Amazon at the local level. I was quoted on why I think it’s a smart tactic by labor to challenge Amazon this way. You can read the whole thing here.


ONE MORE THING: A third Bass Pro Shops is coming to the greater St. Louis area, in a taxpayer-funded deal with Sunset Hills, Missouri (to fill a space that was meant for a grocery store).

As I explained here, Bass Pro Shops is running a big scam, collecting massive subsidies while failing to generate economic benefits for local communities. That failure is even likelier to occur where there is a concentration of these stores, as the whole theory behind their economy-boosting potential is that they will draw in visitors from near and far — an effect which is obviously diminished if you’re spreading those visitors across multiple stores.

As an economic development strategy, subsidizing Bass Pro Shops is basically sites.


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— Pat Garofalo