The CHIPS Act
Person 1: "I think we need to make more stuff at home. That is why I like the CHIPS Act - billions of dollars proposed investment already!
Person 2: "I don’t want to pay more for something that can be made more cheaply abroad. I am pretty sure the cost of electronics is going to go up if we make it all here. Probably cost of cars as well."
Person 1: "I just think we need to make what we want at home. Why should we depend on others, not to mention the security risk with China, and sending our money to foreigners."
Person 2: "Taiwan, not China should be more worried about the CHIPS Act. By the way, Good Luck trying to buy some homegrown bananas for your cereal tomorrow!"
a. Based internet research verify if each person's understanding of the CHIPS Act is accurate. [Minimum 100 words]
b. Explain how the CHIPS Act and the above conversation relate to this week's material. [Minimum 150 words]
Indicate the two parts (a and b) separately in your response. Be specific and provide links to your sources.
Feel free to respond to others. Replies will count toward bonus points.
Note: 1. Do not "copy and paste". Use your own words.
2. Minimum penalty for not citing sources - 5 points.
3. While there is a political dimension to international business policy decisions, remember to avoid political commentary and stick to course concepts
a. Based on internet research, it is evident that both Person 1 and Person 2 have a limited understanding of the CHIPS Act. The CHIPS Act, or the Creating Helpful Incentives to Produce Semiconductors Act, is a proposed legislation in the United States aimed at bolstering domestic semiconductor production. Its main goal is to address the global chip shortage and reduce dependence on foreign suppliers, particularly China. The Act proposes a $52 billion investment in domestic semiconductor manufacturing and research.
Person 1’s understanding of the CHIPS Act is partially accurate. They are correct in stating that the Act proposes billions of dollars in investment. However, their concern about the security risk with China is not directly related to the CHIPS Act but rather a separate issue concerning the US-China trade relationship.
Person 2’s understanding of the CHIPS Act is also inaccurate. They suggest that the Act will lead to increased costs of electronics and cars if they are made domestically. However, the purpose of the Act is to enhance domestic production capabilities, which could potentially lead to more competitive prices and reduced dependency on foreign suppliers.
Sources:
https://www.congress.gov/bill/116th-congress/house-bill/7178
https://www.reuters.com/world/us/us-senator-introduces-bipartisan-chips-act-2021-06-08/
b. The CHIPS Act and the above conversation relate to this week’s material on global value chains and the impact of government policies on international business. The conversation highlights the ongoing debate regarding the benefits and drawbacks of domestic manufacturing versus global sourcing.
The CHIPS Act reflects a shift towards reshoring production in strategic industries like semiconductors. By investing in domestic semiconductor manufacturing, the US government aims to reduce dependence on foreign suppliers and enhance national security. This aligns with the concept of strategic trade policy, where governments intervene to protect domestic industries deemed crucial for economic growth and security.
On the other hand, Person 2’s argument emphasizes the potential drawbacks of reshoring, such as increased costs and reduced competitiveness. This aligns with the concept of comparative advantage, where countries specialize in producing goods or services they can produce most efficiently and at a lower cost compared to other nations. Person 2’s mention of Taiwan highlights the complex dynamics of global value chains, as Taiwan is a major player in semiconductor manufacturing.
Overall, the CHIPS Act exemplifies how government policies can shape international business dynamics by influencing production locations, supply chains, and trade flows. It underscores the importance of considering both economic and security factors when formulating trade and industrial policies.
Sources:
Hill, C., Hult, G., & Ferrell, O. (2021). International Business: Competing in the Global Marketplace (13th ed.). McGraw-Hill Education.