Hello there, Odd Lots listeners, You are about to hear a live episode recording of the Authoughts podcast.
YEP.
This episode was recorded in front of a live audience at the Decades Bowling Allie in Lancaster, Pennsylvania. We hope you enjoyed the show.
Hello, and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway.
Joe So, Joe.
Uh, we can't seem to get away from semiconductors.
No, we can't.
And you know, we recently talked to two of the pupil basically running the Chips Act in a recent episode. But I think if we're going to ask the question like how the Chips Act is going, we can't just talk to the pupil running.
No biased you think, Uh no, we need some outside perspective. And I'm very happy to say that in this very special episode of Odd Lots, which we are recording live at the Decades Bowling Allie, we are going to be speaking to two of the perfect guests. We are going to be speaking to Dan Wong, visiting scholar at Yale Law School's Side China Center, and tech analyst over at
Gavical Dragonomics. Perhaps the only man who's ever read a full copy of the Chinese Communist Party's Internal Policy Journal from cover to cover.
Q Speaking Truth, Seeking Truth.
And special guest. A last minute addition, just to keep our producers and our tech audio people on their toes, we're also going to have Adam Ozamak. He is, of course chief economist at Economic Innovation Group and also our host for this wonderful event. So thank you both so much for coming on odd lots without further Ado, Dan, you recently moved back to the US and now you're in Lancaster at a bowling alley. Isn't it great that we're all here?
No one is more surprised than me, Tracy, that we've all gotten over here.
If I could heighten.
This realness of the moment just a little bit, I want to point out that my parents are also here in the back slow over from their home in suburban Philadelphia.
They are shy. I hope we can involve them in the bullying.
Adam, are you surprised to be an economist who owns a bowling la and to issue your own tokens?
I'm a little used to it at this point, but I enjoy being an economists who issues.
Okay, that's fair enough.
So maybe just to set the scene. I mean, Joe and I started talking about semiconductors years ago now because of supply chain shortages, which we've since gone on to explore in various ways. But in the years that have passed since, semiconductors have become like a huge policy point. Why is this of interest in particular to someone like Adam? Why does this interest you?
Well, it's part of a broader discussion around industrial policy, and I think that, you know, if we're going to be trying to pick specific industries that we want to grow, I sort of put myself in the camp of I think this is possible, but we have to do it very smartly. It's not easy, and so my interest in the discussion is trying to make sure we're doing this the right way to maximize the odds of success. A lot of times, you know, you sort of find two camps.
There's the critics of industrial policy who just say it can't work, it's impossible, there's public choice problems, it's doomed, and then you sort of have another side that's just like, as long as we're spending the money, we're already mission accomplished. They might not say that, but that's kind of an act sometimes. Sorry guys, but I think we need to be critics who think it can succeed and trying to make it succeed by being critical and ensuring that it's done smartly.
So, you know, one of the things that the first time we ever did a COVID related episode, it was actually with Dan and I think it was before we knew like quite how much it was going to change the world, and it was like very specific, like, well, what's COVID gonna do to like, essentially electronics manufacturing in.
China?
And that was like the extent to which we're thinking. I think it was like February twenty twenty. Obviously, then we you know, the world change. We don't need to go over all of those things, but let's just start with this simple point when it comes to from your perspective, can it succeed? Not like the specifics of the Chips Act yet or whatever, but do you accept the premise that the attempt to turn around domestic manufacturing of high end semiconductors in the US is conceivably possible.
I think it is possible.
I think it is conceivably possible, and I think that we are off to a good start with an emphasis on start. Now, the Financial Times are recently tabulated that there's something like two hundred billion dollars of new investment in clean tech as well as in semiconductors after the passage of the IRA as well as the chip SAC. At two hundred billion dollars is quite a lot. We're seeing these flurries of investments in semiconductors from the likes of Samsung and TSMC as well as Intel.
And we're seeing also a lot of battery makers.
We're seeing a lot of solar photootaeic makers announcing these very large facilities in the US.
So we are off to see a start.
And I think what I really really wonder about is, you know what exactly are the criteria for success? Is spending money really just efficient or as you've had the Chips Act administrators come on tell you know, there has to be a little bit more.
And the test that I would propose for you know, everyone to.
Think about are I would say, you know, probably to focus on these two things. The first is you know what exactly is the economic criterion for success? If we are going to have, you know, a thriving chip industry. If we're going to have a thriving clean tech industry, then you know, the economics have to work out in some big way.
And I think the.
Challenge for a lot of this is that, you know, when I spend a lot of time looking at the clean tech supply chain in China, it is going to be pretty difficult, I think, for the United States to become a lower cost producer in China and a lot of these important manufactured products. But is there some criterion here that could be met in a bit of a lower way. Are we going to see some self sustaining dynamics that is not being primarily.
Driven by foreign investment.
Are we going to be able to see you know, the cost curve, perhaps with some help from tariffs, you know, be able to get us to some competitive products.
And then the second test.
I would propose that you know, we really think about is some threshold of a national security test. Now, you know, this is really up for the national security folks in DC to debate.
What this shouldn't really mean.
But what I would look at is the structure of these investments because a lot of what we see right now in terms of, you know, the actual investments in chips, the actual investments in clean tech that's overwhelmingly going to the downstream industries.
In both of.
These sectors, we're seeing a lot of investments in the battery sells. We're seeing a lot of the investment in solar modules, but really these are only the assemblies of all of the components that you need. There hasn't been quite so much investment in the critical minerals for batteries in the US. There hasn't been quite so much investment in the solar cells, the solar poly silicon.
This is much more difficult stuff.
So if the US is spending a lot of this money, you know, two hundred billion dollars, you know, potentially far more than that, mostly to import products mostly made in Asia, in China, and then assembling a lot of these things here, well, it doesn't look to me like they are really going to have be a you know, pushing past that threshold. So, you know, for ultimate measures of success, I would look at the economics, and I would look at the structure of these investments.
Adam, I kind of want to ask you the same question, which is, how are we judging the success of this program because it does seem, as Dan just laid out, there are all these different targets. So on the one hand, the Chips Act is sort of the poster child for revived, more activist industrial policy. I know that's a negative term in some economic circles. I've heard people call it industrial strategy. Instead, maybe I'll use that people trying to fix supply chain shortages,
create new jobs, geostrategic interests. As Dan just mentioned, like the list of potential goals here is quite long. So how should we be judging the success of this type of program.
Well, I think we need to focus.
I think that's really important, and we need to focus on the goals that actually make sense versus the goals that not only do they not make sense, but they're going.
To be a distraction for achieving our primary goals.
So, if you think about national security interest, I think we have a genuine economic interest in making sure that specific mature node chips that we rely on for our military we have a safe and steady supply with them.
Doesn't necessarily mean they need to be here.
It means they need to be some of them here and some of them on allies that we can trust. That to me seems like a completely reasonable national security concern that I don't see why even you know, you know, libertarian neoclassical style economists wouldbject to. I think having the most advanced production here, there's an argument for that too, at least having some of it for the purpose of,
you know, making it more less geographically concentrated. You know, a lot of the production, ninety percent of advanced chips is made in Taiwan. That's a hugely risky situation. So I think we think of that as like insurance. So we don't want them all the advanced production concentrated one place.
We want it to be insured.
Again, this is an area where we should be relying on allies, and we shouldn't see it just as a goal of producing it here, but a goal of making the supply of that more resilient, less risky. I see those as reasonable policy goals. I see the idea that this is going to be something that creates good jobs, skilled or low skill as being a distraction. I think that the idea that we're going to you know, have more resiliency in a huge variety of chips is not
really realistic. I mean, there's so many chips made so many countries, and you just you're not going to know which ones we need to ensure against. If you look at like the auto industry, the reason they had a chip shortage wasn't because we couldn't make enough chips for them. It's because they canceled all their chip orders early in the pandemic. And then by the time they realized they had made a mistake and they went to the chip makers that actually, we do want those.
Chips classic bull whip effect, right.
And so like, how were we going to solve that? And I don't really hear any clear answers about that, and even when I do hear an answer, it's sort of not fully thought out in my mind. So we're going to create mature node production here. What's going to happen next time something like this happens, right? Are the automakers going to cancel their orders again? If not, then we don't have a problem. And if so, then what are we going to do? Use the Defense Production Act
to seize it? Because it's here. It just it seems like a solution that's a little disconnected from the problem.
Well, this actually gets to another thing, like Dan, I mean let's say we all everyone were just sort of accept the national security case for domestic advanced semiconductor manufacturing. Is there another problem that we need that actually needs to be solved beyond that? I mean, like, can we just sort of like, yeah, I have maybe more diversified globally or something like that, Like it seems like, okay, yes,
it's pretty crucial the military part. Can what about just going back to the status quo outside of that?
Would that be fine?
Well?
The wonderful thing Joe about national security in the US is that no one can ever define it. You know it is, you know it is. You know, the president is very reluctant to define it. The federal judges are always very differential about you know, how the US president defines what national security is. Maybe you should just come up with our own definition.
You know.
I think that I take an expansive view of you know, US national security. I think there should be quite a lot more manufacturing jobs. You know, we're speaking in Pennsylvania. This is, you know, a site of quite a lot of manufacturing. I value manufacturing for.
Its own sake.
I think that I love heavy industry. You know, the heavier the better, and so you know, it is you know, really great that we should be thinking about these sort of things. So, you know, if I were able to, you know, think about, you know, what is a good vision of all of these things, I would ideally like
to see. You know that even if automakers make some big mistakes in the beginning of the pandemic cancel other orders, that was no doubt a mistake that somehow the you know, US manufacturing system is able to be somewhat robust, to be able to be self correcting enough to rescue you know, a lot of these manufacturers from their mistakes.
Because what I was quite surprised by in.
The early days of the pandemic was that, you know, in the earlier days of March twenty twenty, when the US had a pretty big deficiency then of masks and swabs, which we were simple products by any measure, there were a lot of manufacturers that were not able to quickly retool and make these pretty simple products. That manufacturing employment even up until I think something like the last three months, did not you know, surpass the peak in March twenty twenty.
That it is pretty surprising that both the manufacturers and the workforce were not really able to respond in a pretty robust way, be supple enough to make.
A lot of these types of products.
And so I would start there by thinking about, you know, from a workplace issue, less from an optimization, less from an efficiency issue, are we able to build some sort of workforce economic system that response robust.
Link to emergencies.
So just on the national security point, and you know, I take Dan's point that this is sort of like a moving and very flexible goal, but I did see a headline flow by this week basically saying that Germany is in talks to limit the export of certain chemicals that are important to chip production. I guess my question is, like, what is the ultimate goal here? Is it just to
cut off chip production within China? Or is it to limit chip production in other countries that might be interested in developing it is the future goal that we just have, you know, a strategic industry of semiconductors that is concentrated in a few select Western countries. I'm being very careful not to use the word Western bloc, but that kind of feels like we're heading.
Yeah, it's it's a pretty important question, Tracy. And so you know what I wonder about with something like the IRA with something like the Clean Tech Bill, is what exactly is the ultimate objective of the United States government. Is it to decarbonize as quickly as possible or is it to build out a clean tech supply chain in the US as quickly as possible, Because to some extent, these two are somewhat intention You know, China does have all the solar as well as.
Quite a lot of the battery technologies.
It would be much simpler to decarbonize if you just imported all of that. But that is, you know, totally not acceptable. You know in the present day now with respective chips, you know that is a little bit of a different story. But again, the targets here are not terribly clear. You have the National Security Advisor, Jake Sullivan say that, you know that it can't be enough for the United States to be just two generations ahead of China on semiconductors. You know, they really should be seeking
some sort of an absolute advantage. This is someone else in the National Security Council, Tarun Chabra said, you know, we no longer want a comparative advantage against China's technology capabilities.
The US really needs to have an absolute advantage now if you're removing comparative, you know, if you're in the realm of the absolute, then becomes quite a lot more difficult to figure out exactly the degree to which the US really needs to be a hid But you know, I think in general, what it seems like here is that the US really wants, you know, quite a lot of the most advanced stuff, a lot of the everything else as well, and it would be ideal if China did not get that much further out of here.
So I want to go back to something where since there is some disagreement, get some debate going, and that is essentially about employment as a good thing per se. And I could see sort of your argument is like, look, if the goal is we want to have advanced chips here, then the goal should be we want to have advanced chips here, and the fact that it creates jobs jobs are good, but that is a secondary goal and we wouldn't want the job creation aspect to be a distraction from the advanced chip.
To your point, however.
There is this sort of like seems like slightly different take, which is that, no, we want to have an economy in which a lot of people are capable of working in complex heavy industry, and you don't get there if you don't start with employing more people in complex heavy industry and the training. I'm thinking about a recent conversation we had with Henry Williams and David Ox, like economic complexity is a really good thing and is part of what drives well. But maybe we could like explore this
a little bit. Maybe start like, what are your concerns about the degree to which some of these secondary goals may undermine the main goal, and maybe like sort to hear both of your perspective on whether jobs per se is a good.
Part of the ambition.
Yeah, I mean, I think Dan acknowledges that we already are seeing the trade off between domestic employment and the main goal when it comes to clean energy, right, I mean, we could be importing more clean energy, we'd could be getting you know, cleaner, greener, faster, and we're not to preserve jobs. And the reality is the wage premium that a low skilled person earns and manufactured has declined massively over time. It's just not there anymore. These aren't great
jobs anymore. It's just not the case. We don't have an economic interest in taking someone from services to manufacturing anymore. I think a lot of what we're seeing is a relic of ten to twenty years of a bad economy. Like I think, we had a long, long, great recession, and before that we had the China Shock. So it's been a long time since we've seen a legitimately good labor market, and I think people lost faith in that.
They lost faith in basic macroeconomic policy's ability to generate decent wage growth for people with less than a college degree, and I think that's just misplaced. I think the fundamental mistake there is macro policy. I don't think it's industrial policy. I don't think the solution to a ten year recession is getting more people in manufacturing.
And I think if we do that, we don't need to do that.
Dan, you want to defend the idea of Jeff creation as part of industrial policy.
Sure, well, you know, I think it's impossible to disagree with Adam that, you know, the wage premium here is not good in terms of a lot of manufacturing, and I think it is going to be pretty difficult to entice these workers who are working in semi inductors to you know, get out of you know, Silicon Valley, Bean bags, and then you know, go into these fab rooms where you know, if you ever go into one of them, they have a very strange light. It is yellowish purplish light.
You're sitting there, you know, looking at you know, these transistors for eight hours a day. It is pretty strange work, you know, to try to do something like this where, yes, if you can you know, get into those bean bags, or you know, if you are able to just work as a let's say, in as a home healthcare worker, where your wages can be you know, just as high
as working in these grueling factory jobs. You know, I think that is pretty difficult to entice a lot of people to take a look at the situation and say, well, let's do a lot more manufacturing. You know, I'm sitting at a law school now, I'm hardly turning wrenches all day, and so I want to be the first put up my hands and say, you know, this is you know, quite quite challenging for me to envision, you know, myself
as doing something like that as well. But I think, you know, in general, what I would love to do is to you know, imbue manufacturing with a special sense
of dignity. Let's imbue complexity with a special sense of economic dignity, and that you know that we should say that culturally in general, that we should you know, exalt manufacturing, that we should exalt economic complexity, that we should consult the types of technology that involve a lot more of this creation, because I think that is good for both the economy as well as for national security.
So we managed to mention bullwhip effect and bean bag, so we just need to mention mint the coin and then we'll hit like all the traditional.
Talking about you are to talk about his token.
Yeah that's true. Yeah, okay, So just on this point, Dan, maybe you can explain. So one thing I've always wondered is, you know, we talk about US China rivalry when it comes to semiconductors, but China is far behind a lot of other countries when it comes to semiconductor technology, but it's doing pretty well, as you already mentioned with clean tech.
What are the differences between those two industries as they relate to China's economy and social fabric Because I think that'll also give us some insight into whether or not this type of traditional quote unquote industrial policy will actually work in the US.
Sure, So you know, maybe you know, we can think a little bit about where China is on most technology, and so if I can give a very quick snapshot of where China is on most of its technology endeavors, roping up clean tech as well as semiconductors, what I would say is that at this point, I think China is pretty competitive with the US in manufactured products outside
of two big areas. The first is semiconductors, where China is has built pretty much the basics of competition in all of the you know, semiconductor production, but it is leading in absolutely nothing that it is at best ten years behind the market leaders here. China is also really weak in something like aviation, so you know, in terms of China's answer to airbuts and bowing, it is really
really far behind. But outside of these two big areas, again in manufactured technologies only, I would say that China has broadly caught up to you know, the West red
large on most manufactured products. It is leading the US and Europe in most of clean tech, by which I mean solar wind batteries as well as hydrogen electrializers, and it is you know, leading and all sorts of these boring industrial products you know, things like hydraulic pumps, which would never grace the headlines of you know, fine papers like Bloomberg.
But the Hydraulic Pumps Act isn't coming anytime.
Soon, No, but we definitely need something like that. But China is you know, leading in all of these broad manufactured products. Where I think, you know, it is a weak relative to the US is that I think that any scientific area, any technology sector that involves the complex integration of different you know, scientific disciplines, China tends to
be pretty weak. So in semiconductors that involves the integration of chemistry, electrical engineering, computer science, aviation involves the integration of material science, aerodynamics, many other things. This is something where the US is still really really strong at you know, building these vance manufacturing products. Where the US tends to be weak is where the science is pretty mature. But all of the execution risk lies with manufacturing. So you know,
in anything that the manufacturing operation is pretty complex. If I'm thinking about something like putting together a battery cell, involves about a dozen different steps, everything from cell filling into final ceiling. All of these demand you know, perfect handoff between each one of these steps. And this is where the Chinese are really really strong that they learn from building iPhones, building complex electronics. They're just really good
at building products high intricacy at high volume. And so this is where I would love to see the US become a little bit better at this more volume production.
And I want to go back.
To something you said, which I think is like really key, which is that you know, perhaps some of the US, the diagnoses of the US, we forget that we had really many years of slack labor markets, poor demand, maybe ten plus years, and weak economic growth going back to like glob before the economic crisis, the two thousand and
eight two thousand and nine crisis. One thing that strains me now that I've been trying to think about is, Okay, we're in this like tightening cycle with the FED, et cetera, but there's still a lot of money coming, you know, by multiplier money. It seems like building all these factories,
batteries chipped, et cetera. Do you see are you, like to what extent looking from a macro lens, do you see some of this investment allowing the US to maintain robust job growth, strong economic activity, and strong wages, et cetera. Even as a you know, it's sort of like helping us avoid going right back into the gold slump.
Yeah, I mean, I think ongoing capital investments great. It's nice to see that the interest rates haven't fully shut that down. And I think that that's you know, sort of the risks that we're playing with right now.
I think all eyes should be on growing GDP.
How do we increase GDP, how do we do more because the reality is we have had we've had tight labor markets over the last two years, but a substantial part of that has been reduced labor supply and so and also just the speed at which things moved, right. So I think that looking forward the next five to ten years, I think when we think about how many people are working, we can do better.
The labor market can do better.
And so we shouldn't look at the amount of people working down and say, oh, we hit the.
Lab that's the capacity, it's over.
It's really a lot of things happening that you know, short term neighbor was a lot realer than it ever has been, and so I think we should think about capital investment growth and higher employment. All is you know, that's the next five to ten years that's what we should be aiming for.
So just on this note, though, is there a risk that we're front loading capex or pulling forward too much investment at a time when the economy is arguably running hot and at the risk of not having Oh god, I'm about to veer into MMT territory. But at the risk of.
The water's warm, water is warm.
When the economy is slowing, maybe we won't have that fiscal policy or investment lever to pull.
I think the economy is confusing right now and the rezillions of spending, the resilience of durable goods spending, and I wouldn't be surprised that there are a lot of factory owners and a lot of you know, manufacturers across the country who don't know.
Yet what the permanent trajectory looks like.
And so given that there's uncertainty, there's I think, you know, it would be surprising if there weren't people building factories that it's going to.
Turn out that they don't need.
You just hope that the economy has enough strength to sort of reabsorb that stuff as companies do realize some of that malinvestment.
To put my Austrian at on.
DAN going back to actually some of the national security questions like is there a level which the US can feel comfortable?
And so it's in terms of like, okay, we have hit enough.
Is there any may even like knowing or like being able to quantify excuse me, level like okay, the factories are up and running. Yes, probably the majority of manufacturing is going to be in Taiwan or China or elsewhere in Asia. But it's like we're good here, like we actually did. Is like do you do you have any sort of analytical way of like figuring out what that number is?
I think that is pretty difficult to say if I had to come up with my own tests. It is that you know that the United States regularly runs into problems of oversupply of a lot of these things rather than under supply and having you know, basically these spiraling cost curves chasing after fewer and fewer goods that you know at least you know. Again, it is hard to say what the US national government declares to be national security.
But you know what I would say is you know that you know if from I think hopefully that the folks that econ Twitter can agree on is you know something like, you know, to bring down.
The cost curve for infrastructure that you know it is.
It's still kind of mind blowing that these subway extension lines in New York City costs about ten times more than in you know, European countries. That it becomes you know, super difficult to build these upsolar farms, to build these
sorts of transmission grids. I never knew what an obscene four letter word NEPA was until the folks at IFP told me so that Neepa, CEQA, it's close cousin just really block all sorts of development in the US, and that you know, if we don't have, you know, some sort of a robust system to save automakers from their mistakes. Although these automakers make you know, probably too many mistakes
to to really try to save them from. But you know, unless you know, you are able to, you know, have this sort of you know, robustness bring down these cost curves. Have regular problems of oversupply rather than persistent undersupply where you know, prices just keep rising to chase after these goods where it's not at all clear where one hundred million dollars in the New York public school system goes, It's not very clear where you know, tens of billions,
hundreds of billions of dollars of infrastructure investment goes. Then I think we can be a little bit more at ease and thinking about having a robust economic.
System just on this point. I mean, there is a perception out there that when it comes to China, it's a command economy, and you know, Shei Shimpin can wake up up one day and say we're going to make semiconductors a strategically important industry. But actually the way that happens it usually isn't a bunch of money thrown at that problem. It's sort of a wink and a nod to the banks and the credit providers, like, hey, you should lend these guys some more money at cheap rates.
I guess my.
Question is what kind of policy response would we expect to see from China on this front, and would they start to tweak their own way, their own version of industrial policy in response to what the West is doing.
Yeah, I tend to think that, you know, China is mostly pretty focused on building all of these capacity without thinking too much about these other competitive forces. You know, that creates a lot of these problems. You know, it creates these usual issues of oversupply. But I think the Chinese is you know, mostly thinking about its own pernal system rather than you know, trying to figure out how to you know, make the rest of the world more happy.
So when the Chinese decide that you know, semiconductors are a critical technology, where that solar is a critical technology, as you say, the central government would do something like name solar a strategic emerging industry, as the State Council did in twenty ten, it would trigger you know, a vast cascade of subsidies which lead to business creation.
It encourages the local governments to.
Give free land to favorite industries, have the banks lend at very cheap rates, sometimes these you know, direct grants. But you know, in general, what the Chinese tend to do is to you know, have oversupply. They don't they
have no ability to stop themselves from building. And I think, you know, if I had to choose, I would you know, rather choose that set of economic problems that that was the trigger that has made it so that China builds basically as much renewable structure every year as the rest of the world combined that these Chinese local governments cannot stop themselves from building more you know favorite industries in something like solar or wind farms, that what they really try to do.
Is to you know, they can't stop themselvesselves from building.
They build, and they build even when there is no interconnection, when these farms aren't really connected to the grid. They build, you know, hydroelectric dams that displace millions of people. They build even when the central government tells them to stop building, because you know, it just wants this sort of capacity and employment out there, and that is just you know, that's what the US is kind of up against. And I wonder, you know, how these two systems can be more adaptive.
Well this I want that feeds into.
So it really does feel like we have the opposite problem where people are always writing substack posts about how terrible we are at building things, and then you have Dan Turk about no, they literally can't stop the building even when they say.
Stop the building.
Is it really as simple as like, oh, there's some laws from the Carter era that we have to get rid of it. Then suddenly we could like build some way and rail as fast as they do in.
Europe and Asia, Like what do you like.
Just sitting asunde?
Like I said, like, how do we get to do to.
Get the US building again? How do you like rank the priorities.
Or get good at that?
Uh?
Yeah, I mean I think there are important laws to change, But I think what we have to understand is that a lot.
Of the blockers, Like why are those laws there? Right?
Like we can't just like erase them and say they should be going to be gone. A lot of the blockers to lower cost are there because someone wants them to be there. Sure, and because we don't have enough you know, bipartisan't cross ideological.
Agreement that these things should go.
You know what I mean, all we have to do is get enough people to agree that buy America is a problem, and then we can get rid of by American provisions. But like this is the law of the problem, Yes, to an extent. But the problem is, for whatever reason, we can't overcome the force that push for now.
But there's also like I mean, buy America I presume is not why forever with the Second Avenue subway which I don't know, I think it exists or maybe it has a few stops, And why there are like large swaths of the country where they can't put a electrical wires and stuff like that. There seem to be like that seems like.
There's more sure, there's a lot of there's a lot of problems, and behind most of those problems there's some party pushing for them. And I would argue that what we need is more ideological alignment among the people who wish to push back against those things.
You know, like NEPA is a huge issue.
Right, but like it exists for reason, it's defended for a reason. There are people who sue using NEPA because you know, that's that they want those outcomes, and so we need.
To have more agreement.
Here are the set of problems and sort of work in a bipartisan way to push behind them. And you have to be realistic about people are on the other side of the table of the everything bagel problem.
And they that's who we're up against if we're going to get rid of it.
Just going back to the beginning of this conversation when we were talking about the goals of the Chips Act and the IRA as well, it does feel like there is a tension between a recognition that these are strategically important things for the US, whether they're semiconductors or clean energy tech, and then the ability to actually scale these and sell them in a way that is appealing to
American people and corporations. Is that tension insurmountable. I'd like to hear from both of you on this point.
I think it is probably going to be a pretty serious tension, and I think that the US government has to work through, you know, all these sorts of tensions. Some of these things will be resolved through the executive process. So if I think about something like, you know, the Treasury Department will give guidance on which electric vehicles are actually subject to the full seventy five hundred dollars in subsidies from the IRA and so it has to threat
these needles. If it is, you know, a little bit too tight, then you know, the electric vehicle industry uptake will be pretty slow because most of these batteries are used with minerals process in China. On the other hand, if it is you know, if it is too strict, then no one will buy electric vehicles. If it is not strict enough, then none of these automakers feel that they have to, you know, get rid of their China
dependence on all of these batteries. And so these are basically a lot of these tensions that I think are going to be pretty difficult to try to solve.
Adam, I think there's a couple of facts that didn't matter here. One is that we have a huge cost gap, especially when it comes to advanced semiconductor production. You TSMC says it's forty to fifty percent, so it's too expensive to start. We used to make it here and we don't anymore, and that's for a reason. And the reason is because of costs, and you know, it made more sense to make it in other countries. So you have
to be laser focused on those costs. Because of the third reason, which is this is a globally competitive industry. It's ruthless, and you have to be focused on costs and you have to be focused on prices, and policy should reflect that. And if policy doesn't reflect that, I think that's a problem.
If I can amplify that point a little bit, that you know, I think that you know, what is really strange when it comes to something like clean tech in the United States is that I think the US is in a very strange position where it is trying to engage in technological catch up with a lower wage competitor, which is China. That China makes you know, solar photovotaic panels that are both cheaper as well as more efficient.
Than the US.
And uh, you know, often the same goes for batteries, and so you know, usually one of these things is not true that you know, you are either technologically ahead or you are cheaper. But the US really has a hard time here, which is why I want to echo Adam's point that you really have to focus on bringing down this cost card. The other, you know, slightly novel thing is that you know, China developed technologically by embracing
a lot of foreign investment into China. These involved you know, Apple through Fox Con building enormous electronics factories in China. Tesla has a wholly owned factory in Shanghai that you know, Intel, Dell, whatever. All of these American technology giants invested a lot in China, and then Beijing was extremely welcoming into in their investment and has not you know, retaliated against them throughout the
many years of President Trump's trade war. By contrast, the US has been pretty hostile towards attracting investment from you know, what is the technology leader in a lot of these spaces, China when it comes to solar and batteries especially, and so it is pretty hostile towards Chinese battery makers from setting up in Virginia sometimes, you.
Know, including in Michigan.
And so I think, you know, the US is making this beat that it is going to be able to be okay in something like batteries by you know, mostly working with allies.
In Japan as well as South Korea.
And perhaps that is all very fine, but I would also encourage it not to be you know, boxing with one hand TIEDUS behind. It's back to be a little bit more like China and then trying to get as much investment as possible solve mitigate these national security problems where they exist, but don't really you know, reject for an investment from the technology leader.
So going back to Chips specifically mentioned at the top, Tracy and I recently interview two of the top people at running the Chips actor, you guys, and it's totally sloop timing because like a week before that, colleagues on the Bloomberg opinion side, who are like you know, separate wallas, like they totally savaged the state of the Chips Act, and like, you know a lot of these amputations like oh this should becoming like this like progressive Christmas tree
of like environmental concerns and child child care, et cetera. Like outside of like what you see, you know is there's sort of like the tensions goals of like create jobs versus creat events, sermon conductors. How concerned are you about some of these other elements or like how overblown or where do you stand on some of the other priorities that some are saying or seeping into.
The Chips Act.
Yeah, I mean I think one hundred percent that there are other priorities that are just direct.
They're just going to raise costs, like that's what they do.
Like there's no world in which forcing project labor agreements on in the construction of these fabs does the raise costs. And you have to acknowledge that that's the problem. You got to be realistic about that. So I think that they are absolutely intention I want to be too handed economists here, and that there's a lot of stuff that they that they are doing and saying that I think is good there's a there's a recognition, you know, from the administration that we are going to need to nest
semiconductive production within globalization. And there's a realism there and a desire to work with allies on this that I think is missing from a lot of the other discussion around this. So we're not going to make it all and globalization is not the enemy here. Globalization is a key factor in why Moore's Law has continued over time. If we didn't have globalization, More's Law would have been dead a long time ago. And so you cannot run
away from globalization when it comes to semiconductive production. So I do want to say that I do think the administration has been good on that. It's the other things. It's the Christmas tree stuff that I think is a problem. On the other hand, everything bagels are delicious.
I don't order playing bagels myself, and Christmas trees are beautiful. I agree without him that, you know, it is really
difficult to try to make everything here at home. But you know, I wonder at what extent that these childcare provisions, that these other labor provisions are really you know, going to be mostly inconveniences that these companies are going to be able to write off that, you know, or whether they actually are critical, you know, if they actually are crippling may be a little bit too early to tell. But I agree with that, and certainly it is pretty difficult, which is why I go back to the test I
laid out at the beginning. We are seeing as already huge amounts of investments in the US, but you know, is it going to be invested in most of the right things? And you know, is there going to be some way to you know, have the Is the US going to be able to say that these economics are going to be pretty self sustaining over the longer run.
So I just have one last question, sort of a classic interview question, which is in ten years time or I don't even know if ten years is long enough because we're talking about technologies with very very long lead times. But okay, so I guess I have two questions. One, what time frame do you think is reasonable to judge the success?
Ser verdict?
Yeah?
And then two, what are you looking out for? Is there something specific where you would wake up in twenty or thirty or fifty years time hopefully we're all still around and say this has either been a massive success or a desperate failure.
I look forward to getting back into this bowling alley in ten years, one decade from now, and decades perfect yes, or perhaps many decades. And you know, thinking about where we are that you know, ten years is not very long of a time, as you say, Tracy, technologically, politically that also tends to be not too long of a time.
For the Chinese.
That is only two turns of the five year plan, and so I think they judge things on a slightly longer timescale.
Let's give it at least three five year plan cycles.
What I slightly worry about is that, you know, there is quite a lot of investment in things like solar and batteries and also in semiconductors in the US today. What I worry about is that, you know, somehow the TSMC facility in Arizona turns a little bit more like a showcase factory that doesn't end up, you know, producing too much. Then I think the example here is something like Apple's mac pro factory in Texas, which doesn't have a very high volume. And you know, if after all
this investment, a lot of firms will fail. I think that is certainly going to be the case even two three years from now. You know, we take a look back, you know, if you know one of the parties points out a lot of these failures and says, you know, this is why industrial policy cannot work.
We're getting a lot more celendras.
They're still talking about these, the cylindro failure of about you know, fifteen years ago. Now that you know politically, the appetite disappears, continue investing in these sort of things. That is something I am a little bit worried about, and so therefore I would say that, you know, we have to think about these things on the longer time frame.
Adam, I would say, it depends what we're talking about specifically. So if we're talking about advanced semiconductive production, it'd be nice to have a little bit more, you know, less geographic concentration there, both on shore and you know and friendshort. When it comes to you know, mature none chips, I'd love to see more direct accounting for here's why we need it, and here is how we've improved resiliency. When it comes to solar what I'd love to see is
the cost curve come down. I think that's everything that's everything. I don't care about making it here. I don't care where we make and I care that the price comes down, and I care that people install it. And I think that we should think about the technological frontier as being something really important here. And Chips, to be fair, is spending billions of dollars on R and D too, So I'd love to see that some of that money helped move the technological frontier forward.
I think Alan Staffer is here somewhere. He's always posting the solar chart and it always looks very chourage that line is going down, so that does seem to be happening. One last thing and then I want to like open up, and then I think we can go to Q and A. But Dan, you know, like, I'm really struck by the point that you make about it's kind of rare to be trying to catch up to a country that both is cheaper and more technologically advanced. Like usually maybe there's
one the other and you exploit the other. Like should we be doing things like you know, export discipline and subsidizing the companies that can produce here and sell well in the global market. Should we be thinking about that type of thing for the US or should we be thinking about, you know more buyer of last resort things. It seems to be a part of the sort of when we have had successful like sort of like military driven semiconductor policies like back in the Cold War and stuff like that.
Yeah, well, I would love for US firms to have export discipline, which is, you know, a lot of the strategy for firms in Asia to you know, sell to the rich America can market and then you know, get the quality of their products, you know, to to to raise the quality of their products. The challenge for the US is that there is no bigger and more sophisticated market, so it's hard to you know, figure out you know,
who is able to discipline the American firm. And I think to add to the point of you know how you know, the US is in a bit of a tougher position again, I would think, you know, slightly politically. The challenges here to go back to the example of Chips. You know, whether the Chips.
Act is working.
I think about something like TSMC in Taiwan and so TSMC is you know by miles and Miles, Taiwan's everyone's favorite employer in Taiwan that people engineers in Taiwan would say, I would sell my liver to go work for TSMC. You know, it's much more difficult to think that people would say that of any chip firm over here. You know, Taiwan is periodically in a drought. It is a you know, an island where they give the fresh water to TSMC and make the citizens drink the treated water in a trout.
They park a lot of these fire trucks outside of the facilities of TSMC in order to make sure that TSMC has you know, freshwater to produce the chips powering our iPhones, and so you know, this is you know, that is just a different sort of thing where politically also can I is it really easy to imagine that TSMC's facilities in Arizona, a fairly try state, is able to park a lot of fire trucks outside of TSMC's facilities in a trout.
I wonder we're.
Going to be doing an episode soon with the Arizona lfelfa farmer, so you will be.
Making the case that we should not.
You know, they got to get there, they got.
To get their Yeah, but thank you Dan for leaving with us with that wonderful vision of late stage capitalism.
And thank you to Adam Ozomak for joining us for this conversation. We welcomed questions from the audience, and if you'd like to hear those, we invite you to be on the lookout for live recordings where you can be part of our audience in the future.
Joe, I found that conversation fascinating.
It was so great.
I'm so glad. I appreciate both perspectives. I do find like I don't know, I really I appreciate both perspectives. I like Dam's case for we should do big heavy stuff here, right, I guess for.
But now that was I really enjoyed it.
One thing that I think is pretty special about the discussion is it has to be a first for a semiconductor policy discussion in a bowling alley.
No, and the listeners who are not here, like we're on this stage, we're looking out at bowling alley. Well gamed the beautiful light fixture in this old building.
I had the exact same thought. No one is having this.
Conversation about like the world, so nothing.
Else an accomplishment.
No, it's bowling pin America.
Actually, you know, it's like this is what we were We can.
Draw the line between bowling pins and pin diodes. How about all right? Well, this has been another episode of the all Bots podcast. I'm Tracy Alloway.
I'm Joe Wassenthal and big thanks to our guests Dan Wong and Adam Osemaga and of course Adam for this incredible location where we recorded.
A massive thank you to the Economic Innovation Group and the Institute for Progress for allowing us to be here and do this world first of talking semiconductors in bowling Ali Terry Toy. You can follow me on Twitter at Tracy Alloway and I'm.
Joe Wisenthal, and you can follow me on Twitter at the Stalwart. Follow our guests on Twitter, Adam Ozimek He's at Modeled Behavior, and Dan Wong He's at Dan w Wong. Follow our producers Carmen Rodriguez at Carmen Arman and dashall
Bennet at dashbot. And check out all of the Bloomberg podcasts under the handle at podcasts, and for more odd Lots content, go to Bloomberg dot com slash odd Lots, where Tracy and I have a blog, we post transcripts and we have a newsletter that comes out every Friday, and for more Odd Lots content, check out our discord. It's really fun people chatting in there twenty four to seven about all of the things we talk about on the show. Check it out at discord dot, gg slash odd Lots.
Thanks for listening.