Congress Falls for the Long Con

We do not like to add to the heavy load Messrs. Musk and Ramaswamy face at their newborn Department of Government Efficiency.  Yet we fear the standard litany of waste, fraud, and abuse ignores the most self-destructive tendency of government. Government is gullible. Politicians and civil servants are the among most easily conned members of the human race.

Waste, fraud, and abuse all suggest malign intent, victimizers rather than victims.  But that trio is rarely good for more than millions of bucks blown, or maybe hundreds of millions these days.  When billions in their tens, and hundreds, not to mention “trillions for climate change,” are at stake, government is not the crook but the patsy.

Con men look for two things: money and a mark that can be hustled. It’s called hustling because it comes down to persuading the mark to give up his money on impulse with neither the time nor the information to make a serious decision.

To this end, the con will generally create some feeling of urgency, of there being no time to lose. Cons need a crisis. The oceans will boil if we don’t abandon fossil fuels today.

With Republicans in power, happily that one may be fading.

The big con being played on Republicans is that “we are already at war with China,” with the first battle ground being the struggle for dominance in semiconductors. We are engaged in a “chip war.” If we don’t stop them, China is going to make all the world’s microchips and then… refuse to sell them to America! (Because why would the Chinese want hundreds of billions in revenue from chip sales?) Lately, it’s ‘China will seize the future of artificial intelligence.’ A few years ago, “5G” telecommunications were the future of the world economy and China was going to own the game with Huawei and its cheating secret back door routers.

The con plays to a natural weakness, nay, a virtue of Republicans: they take national security seriously. They are susceptible to the implied urgency in the threat, easily persuaded that the clock is ticking.

The ticking clock is con’s friend and the victim’s rationale for acting on all too minimal information.

The allocations of CHIPS act funds, the sanctions against either selling tech to China or buying tech from China, reflect an almost complete ignorance of the semiconductor industry or the global technology ecosystem that for 50 years has been the principal wealth creator of the world.  On almost every point, government policy is getting things exactly wrong.

• Trade wars, however foolish, usually attempt to suppress imports and boost exports, especially in response to foreign tariffs. But China, the world’s largest importer of microchips, doesn’t need to punish American exporters. We do it ourselves, costing U.S. tech firms tens of billions in annual sales.
• The con men want us to be alarmed that only 12% of the world’s chips are manufactured in America, as if where the chips came off the assembly line were economically relevant. The entire semiconductor industry produces about $600 billion a year in revenues, less than 1% of global gross domestic product (GDP). The actual manufacture of chips amounts to less than one third of that number, less than 0.2% of global GDP.
• Splitting manufacturing from chip design has been crucial to American technology dominance. Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA), the two most valuable chip makers in the world with market caps exceeding $3 trillion, design chips but manufacture few. They both outsource all that manufacturing work to Taiwan Semiconductor (NYSE: TSM), with a market cap less than one third as large.
• Advanced Micro Devices (NASDAQ: AMD), long an also-ran to Intel for computer processors, leaped ahead—shortly after giving up on chip manufacturing and outsourcing to Taiwan and Korea. Meanwhile, Intel (NASDAQ: INTC), which long refused to outsource, is suffering largely due to shortcomings on the manufacturing side and sanctions against some 27% of its revenue sources.
• The United States is thrusting 10s of billions of dollars at chip companies to build factories in America, just when the chip manufacturing technology that has dominated the past 50 years is hitting a dead end and is soon to be disrupted by technologies of which no one in the government appears to be aware.
• S. sanctions are already helping the Chinese semiconductor industry more than they hurt as they give new urgency to the search for domestic suppliers. The Chinese have already found technology workarounds to accelerate their catch-up campaign.
• Over the next decade, the newest $640 million photolithography machines for inscribing circuits will face competition from new planar tools such as massively parallel electron beam technology from Multibeam. Microchips themselves increasingly will be replaced by vastly more powerful and efficient wafer-scale electronics from Cerebras and other companies. As of now, you can bet on the Chinese to adopt such innovations long before U.S. companies that are receiving multibillion dollar bribes to stand pat.

Is this some esoteric knowledge grasped by us only because we write about technology every day? We’re flattered by the thought, but every fact in this article could have come from a Google search. Even a Congressman given a one-hour briefing could grasp self-destructive American technology nationalism.

Alas, few congressmen have an hour to spare after a long day of being whipped into nationalist fevers by lobbyists whose mortgages may be paid or geopolitical fantasies fanned by anti-Chinese hysteria.

Government waste, fraud, and abuse convey a tidy living to small-time crooks. The long Chinese con costs us hundreds of billion of dollars in government bucks and will do incalculable damage to America’s most important companies.