America’s Must-Win Semiconductor War

Jan. 16, 2023

NYT

By Steven Rattner

Mr. Rattner was a counselor to the Treasury secretary in the Obama administration. Intent on reversing America’s decline in the world’s production of cutting-edge semiconductors, the federal government has begun what is arguably the government’s largest foray into the private sector since World War II.

That’s just one piece of a larger, more muscular approach to industrial policy. It’s a road filled with hope but also pockmarked with risks. On balance, the record of government trying to improve the functioning of the private sector is poor, and particularly in complex sectors like semiconductors, the challenges are great.

Nonetheless, for the first time in memory, even many free-market conservatives seem to recognize that unfettered capitalism can lead to imperfect results.

Put chips high on that list. American scientists invented transistors, the key component in chips, shortly after World War II, and for decades we dominated the design and production of semiconductors as they quickly became smaller and more powerful.

Then companies in Asia, particularly in Taiwan, entered the industry, and America began to lose to cheaper labor, strong local governmental support and better corporate management. Worse, today the United States does not manufacture any of the highest-performing chips; 92 percent of those are produced by the Taiwan Semiconductor Manufacturing Company, 100 miles from mainland China. (The rest are manufactured in South Korea.)

This presents enormous economic and national security risks for the United States and the rest of the world. If China took control of Taiwan and cut off our chip supply, that would be economically devastating, akin to (or worse than) the loss of oil exports from a major Middle Eastern producer.

In that context, we should be heartened that Congress passed the CHIPS and Science Act, which, among other things, will provide $52 billion for investment in facilities, as well as for more research and development.

In part as a result, Taiwan Semiconductor Manufacturing Company, the world’s biggest maker of advanced computer chips, has broken ground on a major plant in Phoenix and announced that it will increase its investment there to $40 billion; Intel has announced plans for a $20 billion facility outside Columbus, Ohio; Micron is building a fab (as chip factories are known) complex in Syracuse, N.Y.; GlobalFoundries is expanding in New York and Vermont; and Samsung is considering the construction of 11 facilities in Texas.

That’s all great, but let’s not be blind to the challenges. For one thing, these new facilities are just a tiny first step. The output of the Phoenix facility will amount to only a single-digit percentage of TSMC’s total output. For another, TSMC has historically insisted on producing its most cutting-edge chips in Taiwan, at least partly to ensure that the United States, whose official policy toward Taiwan is one of strategic ambiguity, will nonetheless protect the island against any mainland aggression.

Our ability to truly compete with Asia remains uncertain. In a recent submission to the Commerce Department, TSMC complained that the cost of the Phoenix facility would be much greater than its equivalent in Taiwan (partly because of regulatory requirements), wage costs substantially higher, productivity lower, construction delays more likely and taxes higher.

In a podcast interview, Morris Chang, the 91-year-old founder of TSMC, who was born in China and made his early career in the United States, acknowledged the national security considerations while calling America’s semiconductor efforts “a wasteful and expensive exercise in futility.” He noted that his company has had a smaller facility in Oregon for 25 years and chips produced there cost 50 percent more than those it manufactures in Taiwan.

Europe is marching forward with its own set of chip subsidies, and Asian countries have been providing aid to their semiconductor makers for decades. The result is a financial version of an arms race.

The quest for an industrial policy in America goes back to our earliest days. George Washington wore a suit of American-woven broadcloth to his first inauguration to emphasize the importance of domestic production. Alexander Hamilton’s Report on Manufactures advocated tariffs and trade restrictions to encourage domestic industry.

Over the ensuing 230 years, we’ve had both successes (transportation facilities like the Erie Canal and the interstate highways) and failures (pretty much everything we’ve tried to do to retain manufacturing jobs).

Those failures include chips. In 1987, alarmed by Japan’s growing dominance of the semiconductor industry, the federal government created Sematech, a public-private partnership that was intended to restore American prowess in the sector.

According to a study by the Peterson Institute for International Economics, the $1 billion spent by the federal government over a decade succeeded in temporarily — emphasis on “temporarily” — stanching the loss of market share and American jobs but at a yearly cost of about $29,000 per job, roughly the same as the then-average annual wage in the sector, $27,000.

As the head of President Barack Obama’s auto task force, I saw the positives and the risks of industrial policy. Importantly, we did not try to protect old, inefficient factories or to create uncompetitive jobs. We insisted that the companies produce viability plans as a condition of receiving government assistance and left the companies to run their businesses.

So I believe government can pursue an industrial policy — but we need to put substantial guardrails around that effort.

The most successful governmental interventions are often around research and development, such as the funding of the creation of the internet by the Department of Defense and Operation Warp Speed, the emergency program to develop Covid vaccines. In that context, I applaud the inclusion of $11 billion for semiconductor research and development in the CHIPS and Science Act.

In some cases, like semiconductors, government grants may be necessary to accomplish our goals. But whenever feasible, we should favor market-based incentives, like tax credits, in order to lessen the government’s role in picking winners.

Finally, let’s remember that we have other means of promoting our economic interests. As part of its increased spending in Phoenix, TSMC also announced that the facility would be making more advanced chips than previously planned. That reportedly occurred at the behest of Apple, TSMC’s largest customer. When public and private interests align, leveraging the influence of the corporate sector should very much be a part of a wise industrial policy.

With the dangers of overdoing industrial policy evident, President Biden should ask his staff to put together clearer and narrower rules of the road to govern when and how the United States should undertake adventures in industrial policy.

In that regard, a recent speech by Brian Deese, the able director of the National Economic Council, provided a good beginning — though he was a bit overly enthusiastic about the merits of industrial policy and a bit disingenuous about the dangers.

While Mr. Deese contended that the Biden industrial policy was not about picking winners and losers, any policy that includes awarding federal funds to some applicants and not to others is obviously a process of picking winners and losers. That will be the case in the dispensing of $28 billion of direct aid for semiconductor facilities as states, localities and companies jockey to be selected.

This approach to industrial policy — in contrast to approaches like tax incentives that allow the market to pick the winners — would benefit by being removed as much as practicable from politics, much as we have used an independent commission to choose which military bases in the U.S. should close.

And as we did in the auto rescue, subsidies should be, to the maximum extent feasible, as close to commercial terms as possible, potentially including equity participation in the recipient.

I agree that in today’s more globally competitive and insecure world, a more robust industrial policy is called for. I just hope that logic and prudence will prevail in the ongoing debate.

China’s Population Falls, Heralding a Demographic Crisis

Deaths outnumbered births last year for the first time in six decades. Experts see major implications for China, its economy and the world.

NYT By Alexandra Stevenson and Zixu Wang

Published Jan. 16, 2023

HONG KONG — The world’s most populous country has reached a pivotal moment: China’s population has begun to shrink, after a steady, yearslong decline in its birthrate that experts say will be irreversible.

The government said on Tuesday that 9.56 million people were born in China last year, while 10.41 million people died. It was the first time deaths had outnumbered births in China since the Great Leap Forward, Mao Zedong’s failed economic experiment that led to widespread famine and death in the 1960s.

Chinese officials have tried for years to slow down the arrival of this moment, loosening a one-child policy and offering incentives to encourage families to have children. None of those policies worked. Now, facing a population decline, coupled with a long-running rise in life expectancy, the country is being thrust into a demographic crisis that will have consequences not just for China and its economy but for the world.

Over the last four decades, China emerged as an economic powerhouse and the world’s factory floor. The country’s transformation from widespread poverty to the world’s second largest economy led to an increase in life expectancy that contributed to the current population decline — more people were getting older while fewer babies were being born.

That trend has hastened another worrying event: the day when China will not have enough people of working age to fuel the high-speed growth that made it an engine of the global economy.

“In the long run, we are going to see a China the world has never seen,” said Wang Feng, a professor of sociology at the University of California at Irvine who specializes in China’s demographics. “It will no longer be the young, vibrant, growing population. We will start to appreciate China, in terms of its population, as an old and shrinking population.”

Births were down from 10.6 million in 2021, the sixth straight year that the number had fallen, according to the National Bureau of Statistics. By 2035, 400 million people in China are expected to be over 60, accounting for nearly a third of its population. Labor shortages that will accompany China’s rapidly aging population will also reduce tax revenue and contributions to a pension system that is already under enormous pressure.

Whether or not the government can provide widespread access to elder care, medical services and a stable stream of income later in life will affect a long-held assumption that the Communist Party can provide a better life for its people.

The news of China’s population decline comes at a challenging time for the government in Beijing, which is dealing with the fallout from the sudden reversal last month of its zero-tolerance policy toward Covid.

Understand the Situation in China

The Chinese government cast aside its restrictive “zero Covid” policy, which had set off mass protests that were a rare challenge to Communist Party leadership.

Rapid Spread: Since China abandoned its strict Covid rules, the intensity and magnitude of the country’s outbreak has remained largely a mystery. But a picture is emerging of the virus spreading like wildfire.

Rural Communities: As Lunar New Year approaches, millions are expected to travel home in January. They risk spreading Covid to areas where health care services are woefully underdeveloped.

Digital Finger-Pointing: The Communist Party’s efforts to limit discord over its sudden “zero Covid” pivot are being challenged with increasing rancor on the internet.

Economic Challenges: Years of Covid lockdowns took a brutal toll on Chinese businesses. Now, the rapid spread of the virus after a chaotic reopening has deprived them of workers and customers.

The data on Tuesday showed a small increase in mortality last year, to 10.41 million deaths compared to around 10 million in recent years, raising questions about how a recent Covid surge may have contributed to the numbers.

Last week, officials unexpectedly revised the Covid death figures for the first month after reporting single-digit daily deaths for weeks. But experts have questioned the accuracy of the new figure — 60,000 deaths between Dec. 8 and Jan. 12.

On Tuesday, Kang Yi, the commissioner of the National Bureau of Statistics, said the Covid death figures for December had not yet been incorporated into the overall death totals for 2022.

China also on Tuesday released data that showed the depth of its economic challenges. The country’s gross domestic product, the broadest measure of its commercial vitality, grew just 2.9 percent in the last three months of the year after widespread lockdowns and the recent surge in Covid infections. Over the whole year, China’s economy grew only 3 percent, its slowest rate in nearly four decades.

This historical demographic moment was not unexpected. Chinese officials last year conceded that the country was on the verge of a population decline that would likely begin before 2025. But it came sooner than demographers, statisticians and China’s ruling Communist Party had anticipated.

China has followed a trajectory familiar to many developing countries as their economies get richer — fertility rates fall as incomes rise and education levels increase. As the quality of life improves, people live longer.

“It’s the kind of situation that economists dream of,” said Philip O’Keefe, the director of the Aging Asia Research Hub, ARC Centre of Excellence in Population Aging Research.

But the government shortened its timeline to prepare for this moment by moving too slowly to loosen restrictive birth policies. “They could have given themselves a little more time,” said Mr. O’Keefe.

Officials have taken several steps in recent years to try to slow the decline in births. In 2016, they relaxed the one-child policy that had been in place for 35 years, allowing families to have two children. In 2021, they raised the limit to three. Since then, Beijing has offered a range of incentives to couples and small families to encourage them to have children, including cash handouts, tax cuts and even property concessions.

China’s situation is a stark contrast with India, whose total population is poised to exceed China’s later this year, according to a recent estimate from the United Nations. But India’s fertility rate is also declining rapidly.

Xi Jinping, China’s top leader, recently made the country’s demographic challenges a priority, pledging “a national policy system to boost birthrates.” But in reality, experts said, China’s plunging birth figures reveal an irreversible trend.

“The aggregate decline in population and decline in working-age population — both of those are irreversible,” Mr. O’Keefe said. “I don’t think there is a single country that has gone as low as China in terms of fertility rate and then bounced back to the replacement rate.”

Together with Japan and South Korea, China has one of the lowest fertility rates in the world, below what demographers call the fertility replacement rate required for a population to grow. That figure would require every couple, on average, to have two children.

So far, the government’s measures have failed to change the underlying fact that many young Chinese people simply do not want children. They often cite the increasingly high cost of raising them, especially with the economy in a precarious state.

Rachel Zhang, a 33-year-old photographer in Beijing, decided before she married her husband that they would not have children. Sometimes, elders in the family nag them about having a baby.

“I am firm about this,” Ms. Zhang said. “I have never had the desire to have children all along.” The rising costs of raising a child and finding an apartment in good school district have hardened her resolve.

Other factors have contributed to such reluctance to have more children, including the burden that many younger adults face in taking care of aging parents and grandparents.

China’s strict “zero Covid” policy — nearly three years of mass testing, quarantines and lockdowns, resulting in some families being separated for long periods of time — may have led even more people to decide against having children.

Luna Zhu, 28, and her husband have parents who are willing to take care of their grandchildren. And she works for a state-owned enterprise that provides a good maternity leave package. But Ms. Zhu, who got married five years ago, is not interested.

“Especially the past three years of the epidemic, I feel that many things are so hard,” Ms. Zhu said.

Li You contributed research and Keith Bradsher contributed reporting.

French nuclear power: 'Accelerate the laws, the rallying cry has been issued'

Philippe Escande

Le Monde Today

The French parliament is looking at two bills, one for nuclear power and the other for wind power, with a view to removing obstacles to the deployment of these energies.

Bureaucracy is a French problem. In a country that concocts a law as soon as a new problem appears, they now have to legislate to combat administrative delays resulting from previous laws. In the field of energy, in order to ensure that society accepts a scary technology (nuclear power), or one which is said to spoil the landscape (wind power), they are piling up legal guarantees, each of which also provides a foothold for opponents of all kinds.

In the case of France's first offshore wind farm near Saint-Nazaire, it took seven years to complete the procedure before the facility was built in just three years. The same goes for nuclear power. So the rallying cry has been issued and, in two weeks, two "acceleration" laws are coming to Parliament. One for renewable energies, the other for nuclear power.

In the nuclear case, however, only a small part of the problem will have been solved, since there are so many other obstacles. The first is construction time. Nuclear reactors have become so complex that it is difficult to build them. The law presented to the Sénat on Tuesday, January 17, is supposed to accelerate the time taken for nuclear reactors to be operational. Thanks to this law, the said new reactors are now expected to start in around 2040. Twenty years for six reactors! As a consequence of this timeframe and sophistication, costs are soaring. The current estimates are €50 billion for these first machines.

European industrial geography

As a result, the cost of the energy produced is now at least twice that of renewable energies. Today, wind farms in the North Sea have capacities 10 to 20 times greater than those of these reactors, even taking into account the intermittency.

According to The Economist, all the projects planned between now and 2050 in this region represent nearly 260 gigawatts of capacity, the equivalent of what is needed to provide power for 200 million Europeans. A development that could disrupt the industrial geography of the continent, similar to what happened in the hydro and coal regions in the 19th century.

Major technological uncertainties remain both for nuclear power (safety, waste, simplicity) and renewable power (storage). It is therefore in the interest of the nuclear industry to accelerate its transformation if it wants to stay in the race.

Davos looks ahead to a fragmented world after pandemic and Ukraine invasion

The World Economic Forum holds its annual session amid signs of a reshaping of the world order and a retreat from globalisation.

Written in Spanish by ANDREA RIZZI (SPECIAL ENVOY)

El País

Davos - 17 JAN 2023

The Davos Forum, the great annual liturgy of the globalised world, is holding its traditional annual meeting in the Alpine town this week under worrying signs. In the immediate term, although the last few months have yielded some encouraging data in terms of inflation and growth, the majority consensus of experts still foresees a gloomy 2023. Deep down, perhaps more importantly, the disintegrating forces that are fragmenting the world seem unstoppable. The great expansionary phase of globalisation of the past three decades is undergoing a radical shift.

There are two major triggers for this trend. First came the pandemic, which profoundly disrupted global supply chains and underlined the importance of maintaining a degree of self-sufficiency in certain strategic commodities. Then came the Russian invasion of Ukraine, a major focus of the forum, a huge geopolitical shock that has completely severed ties between the West and Russia and stimulated reflection on whether it is appropriate for liberal democracies to maintain a high degree of dependence on China, another adversary that could one day become an enemy.

Driven by these two shocks, the protectionist race is on, with huge subsidies to prop up domestic industries in strategic sectors such as energy transition or cutting-edge digital technologies. The United States has approved large aid packages for microchips and green technologies (more than 400 billion euros between them); the European Union has done the same for the former (some 40 billion) and is preparing to do the same for the latter (some 350 billion is planned to counteract the US support plan and prevent the flight of energy investments to the transatlantic partner). Other developed countries will undoubtedly follow suit.

Washington is also promoting tough restrictions on exports to China in key areas to develop pioneering technologies, and is looking for other Western countries to follow suit. At the same time, it is encouraging private companies to reshape their supply chains to be less dependent on Chinese manufacturing and more reliant on friendly countries.

Protectionism, restrictions on free trade, segmented reorganisation of production, geopolitical blocs: this, then, is the background scenario being scrutinised by the world's elite gathered this week in the Swiss Alpine resort.

The World Economic Forum resumes with this edition of its traditional winter meeting after the disruption caused by the pandemic and a spring edition held last year. The organisation reports that more than 2,600 delegates will be present, including some 50 heads of state or government - including the leader of the Spanish government, Pedro Sánchez - more than 100 foreign, finance and trade ministers and more than 600 company presidents - from Nadella of Microsoft to Dimon of JP Morgan - as well as some 20 central bank governors, media executives and leading figures from academia and civil society.

Of course, in addition to the major geostrategic transformation, short-term issues will undoubtedly play a major role in the forum.

On the one hand, the future of the war in Ukraine, with important decisions pending on the delivery of battle tanks and the prospect of a new round of sanctions against Russian oil, in this case refined products.

Economic outlook

On the other, the more immediate economic scenario, with the corresponding decisions that will have to be taken by public authorities - executive or monetary - and private companies. In this area, the outlook has become less catastrophic than most experts expected following the Russian invasion of Ukraine, thanks in part to a particularly mild autumn and early winter in Europe, which has allowed less gas to be spent. Overall, inflation has been easing in many countries, and growth has exceeded expectations. Labour markets remain buoyant. However, the outlook is not clear.

A survey published by the forum on the eve of the start of the programme suggests that two-thirds of the leading economists consulted - public or private - consider a global recession in 2023 to be likely. This is double the figure recorded in the previous survey, conducted in September.

Another survey by Price Waterhouse Coopers (PwC) of 4,400 chief executives in 105 countries found that more than 70 per cent foresee an economic downturn. Even so, most do not plan to reduce staff or salaries.

As for inflation, levels are moderating in many countries, but core inflation remains threatening. There is no guarantee that a return to normalcy will be swift. Meanwhile, the blow to the purchasing power of so many has been severe, as wages almost everywhere have lagged far behind price increases.

This is therefore a new risk factor that can exacerbate inequality, one of the fundamental problems that has marked the era of globalisation. Globalisation has undoubtedly lifted hundreds of millions of people out of poverty in emerging countries, with China at the forefront; but, together with the technological revolution, it has made the position of so many within advanced societies more fragile. This has eroded popular support for the idea of an interconnected, free-trade world, giving rise to political proposals that advocate other kinds of policies.

Oxfam released a report on global inequality on Monday, arguing that "since 2020, the richest 1% have captured nearly two-thirds of the world's new wealth, almost twice as much as the other 99%", and lamenting the dismal efficiency of tax systems that allow elites to pay too little tax.

In the midst of the polycrisis that the world has been facing in recent years, many voices are warning of the neglect of one of the most threatening challenges: climate change. A report on future risks published by the Davos Forum on the eve of the official programme highlights this issue as one of the most problematic.

Extraordinary problems precipitating a new epoch of the world are piling up on the discussion and business tables in Davos. A bitter cold - with expected lows as low as -15 degrees Celsius - will envelop the event, as a sort of physical reminder of the hibernation phase facing the globalisation of which this forum is the flagship.

Actress and photographer Gina Lollobrigida has died at the age of 95.

Italian cinema mourns one of its greatest stars.

By David Mouriquand  & Agencies  •  Updated: 16/01/2023 - 15:42

Best known to the public for her films in the 1950s, including Christian Jaque’s Fanfan La Tulipe (1952) and the Silver Bear winning Italian film Pane, amore e fantasia (Break, Love and Dreams) (1953), Lollobrigida became an international star and one of the highest-profile European actresses of her generation.

Born on 4 July 1927 in Subiaco (Italy), Lollobrigida was noticed by the film world in a photo-novel in which she posed under the pseudonym Diana Loris, while she was studying at the Beaux-Arts and taking part in beauty contests.

For years, she was cast for her physical assets and status as a sex symbol, leading many to say that she was "the best thing that has happened since the invention of spaghetti" and describing her as "the most beautiful woman in the world."

Her performance in Bread, Love and Dreams led to it becoming a box-office success and she continued to work in the French cinema industry on such films as Les Belles de nuit (Beauties of the Night) (1952) and Le Grand Jeu (1954).

She was then directed by John Huston in Beat the Devil (1953) in which she played the wife of Humphrey Bogart. Roles in Crossed Swords (1954), co-starring Errol Flynn, Beautiful But Dangerous (1955), Carol Reed’s Trapeze (1956), as well as her turn as Esmeralda in The Hunchback of Notre Dame, led to more critical acclaim.

Over the next few years, she would star with the likes of Yves Montand (The Law - 1959), Frank Sinatra (Never So Few - 1959) and Yul Brynner (Solomon and Sheba - 1959). She won a Golden Globe Award for her turn in the romantic comedy Come September (1961), in which she had a leading role alongside Rock Hudson.

"I knew right away that Rock Hudson was gay," she told one reporter, "when he did not fall in love with me."

She is also remembered for starring alongside Sean Connery in the thriller Woman of Straw (1964) and with Alec Guinness in Hotel Paradiso (1966).

By the 1970s, her film career had slowed down and in 1973, she stopped filming for good in order to and take up photography. She had a successful second career as a photographic journalist and photographed, among others, Salvador Dalí, Henry Kissinger, Audrey Hepburn and Ella Fitzgerald.

She did, however, make occasional appearances afterwards, notably at the Berlin International Film Festival in 1986 where she was president of the jury.

She came back to the screen in 1995 for a part in the French comedy Les cent et une nuits de Simon Cinéma (One Hundred and One Nights) directed by Agnès Varda, alongside Marcello Mastroianni, Jean-Paul Belmondo, Catherine Deneuve, Robert De Niro, Jane Birkin and Michel Piccoli.

She was made a Chevalière de la Légion d'honneur and an Officer of the Order of Arts and Letters by Jack Lang in 1985 for her achievements in photography, and was awarded the Légion d'honneur by François Mitterrand.

Appointed Goodwill Ambassador in 1999 by the United Nations Food and Agriculture Organization, she ran in the same year for the European elections as number 2 on the list of Antonio Di Pietro, the former anti-corruption magistrate, without being elected.

Lollobrigida is survived by her son, Milko, and grandson, Dimitri.