CPA’s chief economist emeritus, Jeff Ferry, has gone back to school in his semi-retirement years. This time, though, it was a speaking gig at the University of Florida’s new Semiconductor Institute in Gainesville. The school is looking to attract top STEM students, and be an incubator for tech talent in hopes to bring tech start ups and advanced microchip manufacturers to the area.
“I was asked by the Institute leadership to present and show the engineering students a different view of economics than they had been given when (the school) invited an economics professor to lecture,” said Ferry.
As an example of how to become a semiconductor power by ignoring the usual free trade solution, Ferry used the Taiwanese government’s industrial policy as an example. That policy, of course, gave rise to Taiwan Semiconductor, arguably one of the best in the business of legacy and advanced chip making. “Their strategy was based on rejecting free trade philosophy and creating a comparative advantage in semiconductors through government efforts first,” he said.
Lesson Learned?
One of the main topics of the discussion was the theory of so-called comparative advantages. Greece, for example, is great at tourism. Taiwan is not. But sometimes your advantage is not all it’s cracked up to be. Taiwan was basically an agrarian society until the 1970s,when their government decided to invest in new technologies. Taiwan Semiconductor was founded with government backing in 1987. Fast forward to today, and Taiwan Semiconductor is the world’s largest chipmaker valued at around $90 billion, equivalent to nearly 11% of Taiwan’s GDP. In the 70s, their competitive advantage, if anything, was in export items like textiles and toys.
Greece’s economy is 20% tourism. Now leading Greek economists like Christopher Pissarides, the only Greek-born Nobel Economics winner (2010), is saying the country has to move from tourism to an innovation economy. Manufacturing is only 11% of the Greek economy, the lowest in the European Union.
“Free trade is a short-termist strategy and inherently backward-looking, preached by nations that aim to persuade other nations to open their doors to the advocate’s most competitive industries,” Ferry told the students. “For each nation, long-term economic growth is the main goal, not any level of trade. Each nation can achieve growth by targeting its own high-growth, high-profit, high-wage, industries. Trade policy should support growth and industrial policy,” he said.
Trump’s Tariffs: What Else is Needed?
In his presentation, Ferry told the students that tariffs can allow domestic industries to grow. If the tariff rate is high enough, it protects local producers from imports.
Ferry explained in his presentation where tariffs have a proven track record, and what else is needed including:
Tariffs worked with steel, aluminum, and washing machines.
Favor all U.S.-based companies equally.
Tariffs can disadvantage U.S. manufacturers if they raise the price of imported inputs more than they raise the price of outputs.
Trump’s tariffs are too changeable / unpredictable with Section 232 tariffs on cars and car parts being lowered to 15% from 25% for all the big exporters: South Korea, Japan and the EU.
Biden’s big industrial policies like the ‘CHIPS Act’ stimulated huge investment in microchip fabs.
Tax incentives and long-term government purchase commitments can be more future-oriented than tariffs.
For industrial strategy to work effectively, government policy has to focus on rebuilding multiple stages of production in a sector, with a special focus on the early, often capital-intensive stages.
To choose a specific example, Chinese fast-fashion online retailer Shein is able to be cost-effective because three decades ago China built a cotton industry and a petrochemical (polyester) industry to produce the fabrics Shein relies on. Tariffs on apparel alone won’t deliver results, because there is a chicken-and-egg problem. Which industry takes the risk and invests first in rebuilding? The polyester manufacturer or the apparel maker? The problem is even more complex with a very complex product like a laptop computer or a smartphone.
Donald Trump himself actually recognizes this, Ferry wrote in his Substack post on Oct. 8 titled, “Everything Economists Told You About Tariffs Was Bunk.” (Jeff beat former U.S. Trade Representative Robert Lighthizer by two days on this topic. Lighthizer appeared in the Financial Times on Oct. 10 saying, “Economists have been wrong on everything.”)
Industrial policy for semiconductor expansion in the U.S. has a role to play. Strong executive leadership in the White House also has a role to play. For too long, short-term oriented corporate executives have bullied, bulldozed, and sweet-talked the all-too-gullible stuffed shirts in the White House and in Congress into offshoring everything. In today’s world, strong political leadership is what America needs, Ferry said.
“The University of Florida is building a tech sector and inviting semiconductor manufacturing to Florida,” Ferry said. “I think it’s a great strategy for Florida.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
CPA’s Jeff Ferry Teaches the Next Generation How to Rebuild American Industry
CPA’s chief economist emeritus, Jeff Ferry, has gone back to school in his semi-retirement years. This time, though, it was a speaking gig at the University of Florida’s new Semiconductor Institute in Gainesville. The school is looking to attract top STEM students, and be an incubator for tech talent in hopes to bring tech start ups and advanced microchip manufacturers to the area.
“I was asked by the Institute leadership to present and show the engineering students a different view of economics than they had been given when (the school) invited an economics professor to lecture,” said Ferry.
As an example of how to become a semiconductor power by ignoring the usual free trade solution, Ferry used the Taiwanese government’s industrial policy as an example. That policy, of course, gave rise to Taiwan Semiconductor, arguably one of the best in the business of legacy and advanced chip making. “Their strategy was based on rejecting free trade philosophy and creating a comparative advantage in semiconductors through government efforts first,” he said.
Lesson Learned?
One of the main topics of the discussion was the theory of so-called comparative advantages. Greece, for example, is great at tourism. Taiwan is not. But sometimes your advantage is not all it’s cracked up to be. Taiwan was basically an agrarian society until the 1970s,when their government decided to invest in new technologies. Taiwan Semiconductor was founded with government backing in 1987. Fast forward to today, and Taiwan Semiconductor is the world’s largest chipmaker valued at around $90 billion, equivalent to nearly 11% of Taiwan’s GDP. In the 70s, their competitive advantage, if anything, was in export items like textiles and toys.
Greece’s economy is 20% tourism. Now leading Greek economists like Christopher Pissarides, the only Greek-born Nobel Economics winner (2010), is saying the country has to move from tourism to an innovation economy. Manufacturing is only 11% of the Greek economy, the lowest in the European Union.
“Free trade is a short-termist strategy and inherently backward-looking, preached by nations that aim to persuade other nations to open their doors to the advocate’s most competitive industries,” Ferry told the students. “For each nation, long-term economic growth is the main goal, not any level of trade. Each nation can achieve growth by targeting its own high-growth, high-profit, high-wage, industries. Trade policy should support growth and industrial policy,” he said.
Trump’s Tariffs: What Else is Needed?
In his presentation, Ferry told the students that tariffs can allow domestic industries to grow. If the tariff rate is high enough, it protects local producers from imports.
Ferry explained in his presentation where tariffs have a proven track record, and what else is needed including:
For industrial strategy to work effectively, government policy has to focus on rebuilding multiple stages of production in a sector, with a special focus on the early, often capital-intensive stages.
To choose a specific example, Chinese fast-fashion online retailer Shein is able to be cost-effective because three decades ago China built a cotton industry and a petrochemical (polyester) industry to produce the fabrics Shein relies on. Tariffs on apparel alone won’t deliver results, because there is a chicken-and-egg problem. Which industry takes the risk and invests first in rebuilding? The polyester manufacturer or the apparel maker? The problem is even more complex with a very complex product like a laptop computer or a smartphone.
Donald Trump himself actually recognizes this, Ferry wrote in his Substack post on Oct. 8 titled, “Everything Economists Told You About Tariffs Was Bunk.” (Jeff beat former U.S. Trade Representative Robert Lighthizer by two days on this topic. Lighthizer appeared in the Financial Times on Oct. 10 saying, “Economists have been wrong on everything.”)
Industrial policy for semiconductor expansion in the U.S. has a role to play. Strong executive leadership in the White House also has a role to play. For too long, short-term oriented corporate executives have bullied, bulldozed, and sweet-talked the all-too-gullible stuffed shirts in the White House and in Congress into offshoring everything. In today’s world, strong political leadership is what America needs, Ferry said.
“The University of Florida is building a tech sector and inviting semiconductor manufacturing to Florida,” Ferry said. “I think it’s a great strategy for Florida.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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