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The writer is an FT contributing editor, chief economist at American Compass and writes the Understanding America newsletter
Conventional wisdom has held that president-elect Donald Trump will cut the Chips and Science Act, which aims to boost US semiconductor production. This is based on an offhand comment he made at the end of October. But a better indicator came later that week when a reporter asked Speaker of the House Mike Johnson about the issue.
Johnson responded as Republicans usually do when asked if they will follow Trump’s lead: “I expect that we probably will.” Within hours he reversed himself, saying the Chips Act would not be repealed. One congressman said Johnson had “apologised profusely”. On no other issue, just days before the presidential election, was agreement with Trump grounds for an apology from Republican leaders.
What’s going on? Conservatives remain committed to “supply side” economic policy, defined broadly as efforts to increase productive investment, in contrast to a Keynesian focus on spurring consumer demand. But the traditional Republican tool, the tax cut, has struggled to deliver in recent times. Economic analyses often conclude that the tax cuts of 2001 and 2003 failed in this regard. So did the $1.7tn Tax Cuts and Jobs Act of 2017, according to the measures preferred by Kevin Hassett, chair of Trump’s Council of Economic Advisers.
By contrast, the Chips Act has prompted a doubling of investment in factories, at a total cost to taxpayers of $39bn. The five largest global logic and memory manufacturers are now investing in the US, according to the Department of Commerce. No more than two are active in any other country.
Vice president–elect JD Vance is a Chips supporter. Trump’s pick for secretary of the Treasury, Scott Bessent, gave a speech in July titled “Industrial policy as innovation military and insurance policy”. Elon Musk says brash things like “end all government subsidies”, but no one understands better the essential role of public financing, subsidies and procurement in spurring innovation and production at scale.
Chips has its problems. The Biden administration was slow to finalise commitments and burdened them with diversity quotas and childcare mandates. The initial law left each project facing the lengthy reviews and permitting processes that accompany federal funding.
Slashing Chips funding in response to such hiccups would be bad economic policy and political malpractice. The opportunity for Republicans is not repeal but measures to improve the Act’s primary purpose, as Johnson put it. This year, Joe Biden signed legislation exempting some Chips projects from environmental review, over strenuous objection from senior Democrats. But Micron Technology’s planned $100bn investment in upstate New York is facing delays anyway, because the Army Corps of Engineers says it is building on a “wetland”. A Trump administration fighting to accelerate construction through broader exemptions from environmental review would tie the president’s deregulatory agenda directly to tangible progress, while splitting his opposition in half.
Doubling down on industrial investment, rather than disowning it, allows Trump to co-opt one of the Biden economic agenda’s few promising elements to his own priorities. A renaissance in the defence industrial base would align with Trump’s America First agenda. Last week saw the launch of the New American Industrial Alliance, which unites many leading-edge defence tech companies committed to re-industrialisation. Mike Waltz, the incoming national security adviser, has just introduced the “Ships for America Act” to spur the domestic shipbuilding industry.
Developing natural resources, from energy to critical minerals, will fit well too. Alongside the push for more oil and gas, support for a domestic battery supply chain should remain robust — even as tax credits to induce the purchase of electric rather than conventional vehicles face the chop. Nuclear will get renewed attention. Fuels and technologies like these are valuable products but also provide a competitive advantage in cheap and abundant energy to the industrial sector.
Trump has the good fortune that investments begun in recent years are poised to come online as he implements his agenda. Ribbon-cuttings, jobs, finished products and follow-on investments will be linked to his administration’s actions. The new American “golden age” that he spoke of at the Republican National Convention and on election night could become reality if he takes the steps that help the nation to build.
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