The chip war comes home

The world runs on computer chips. From the phone in your hand and the fridge in your kitchen to car companies’ manufacturing equipment and the military’s missile systems, almost every part of today’s digitally run society relies on the tiny, intricate devices known as semiconductors.

Semiconductors are also incredibly difficult to make — especially the most advanced chips. They require massive, delicate machines, hard-to-find materials, and a staggering amount of technical know-how. Right now, production of these chips is made up of a complex web of companies and facilities around the globe — with a few key choke points. For instance, Taiwan’s TSMC controls 90% of the physical production of the highest-end chips.

The critical importance of semiconductors and the delicate manufacturing process have combined to turn these chips into the main battleground in a new race between the US and China for the future of technology. If the first Cold War was defined by the development of nuclear weapons, this Tech Cold War is defined by the computer chip.

“Strategists in Beijing and Washington now realize that all advanced tech — from machine learning to missile systems, from automated vehicles to armed drones — requires cutting-edge chips,” Chris Miller, an associate professor of international history at Tufts University, wrote in his recent book, “Chip War.”

The Tech Cold War between the US and China, along with the recent surge in pandemic-induced chip shortages, has triggered a massive push by the federal government to bring semiconductor manufacturing to the US. But the reality of onshoring chip production has been far less glamorous than the patriotic aspirations of outpacing a geopolitical rival.

The rush by states, counties, and cities to get in on the semiconductor gold mine has resurfaced old fights about how best to create jobs and exacerbated local battles over housing, public schools, and business development. While revitalizing parts of the country that are struggling economically is an admirable goal, the frenzied pace of the chip war is resulting in billions of dollars getting funneled to corporations, while locals are left with vague promises and underfunded public institutions. In the scramble to seize the future of technology, governments are ignoring the problems of today — and leaving many of their constituents out to dry. 

Building the ‘Silicon Heartland’

America’s position as a semiconductor powerhouse has been eroding for decades. According to the Semiconductor Industry Association, a lobbying group, the share of chips made in the US fell from 37% in 1990 to just 12% in 2020. To reverse this decline, governments have been pulling out all the stops to attract chipmakers to bring their new factories to the US. On the federal level, Congress passed the CHIPS Act in August, which provides $280 billion in new funding to accelerate domestic research and manufacturing of semiconductors.

This pool of cash, along with a wave of incentives from state and local governments, has already helped push companies to bring projects to the US. Intel, America’s leading semiconductor maker, is spending $20 billion to build the world’s largest chip factory, in a suburb of Columbus, Ohio, which the company says will employ at least 3,000 people after it’s completed in 2025. “We helped to establish the Silicon Valley,” Intel CEO Pat Gelsinger told Time when the facility was announced in January 2022. “Now we’re going to do the Silicon Heartland.” Intel considered 38 other sites across the country before choosing New Albany. In addition to the proximity to plenty of fresh water, which is needed to make computer chips, the suburb is prime for the new middle-class plant workforce. The affluent suburb is home to data centers for Amazon, Google, and Facebook, and the median household income is over $200,000. Early reports say the plant’s average salary will be $135,000, with 70% of the jobs consisting of manufacturing technicians, a position that requires at least a two-year STEM degree.

President Biden walks in front of a patch of dirt that says "Made in America." Behind him are construction vehicles and an American flag.

The massive Intel plant in Ohio is a key part of the race with China for the future of tech.

SAUL LOEB/AFP/Getty Images

Eager to shed the “Rust Belt” label, Ohio lawmakers didn’t hesitate to lay out the welcome mat for Intel’s plant, the biggest private-sector investment in the state’s history. Even before the company’s announcement, Ohio’s state Legislature passed a fiscal budget in June 2021 with incentives to attract megaprojects. And last-minute additions to the 2022-23 budget conveniently expanded tax credits and property-tax abatements — a reduction or complete omittance of property taxes — for projects that exceed $1 billion in investments. “We are in the game for these projects now,” Lt. Gov. Jon Husted of Ohio said in a press conference on the budget. “We have the opportunity with the reshoring that’s occurring, and we are going to aggressively fight for these investments and these jobs in the state of Ohio.” A week after the announcement of the Intel site, Ohio announced an additional $2 billion incentive package, the largest in the state’s history. As a part of the package, the state will spend $700 million on expanding the nearby highway and other infrastructure improvements, $600 million on the plant itself, and an additional $650 million on income-tax incentives.

On the local level, New Albany granted Intel the longest property-tax abatement in its history — 30 years with zero property taxes — and annexed its neighboring township to have enough space to fit the 1,000-acre plant wholly within the city. “New Albany is a strategically-planned community, and this project fits within the parameters of our business park, where 19,000 people already work,” New Albany’s mayor, Sloan Spalding, said in a statement about the plant. In sum, the federal, state, and local subsidies granted to Intel are saving the company billions of dollars.

What does the city get in return? 

But as with any funding decision, the effort to entice Intel comes with some trade-offs. Unlike the federal government, which has a vast ability to fund its initiatives and take on debt, state and local governments are more constrained in where they can put their resources. Giving companies cash or letting them forgo taxes means other initiatives or services miss out on those funds. In theory, the thousands of jobs created by these new businesses are supposed to bring more small businesses and taxpayers to the area — for the Columbus plant, Intel estimates 10,000 jobs in addition to the plant jobs — increasing the tax base and incentivizing growth. But as a 2020 analysis by researchers at the Ohio State University on the benefits of development policies like tax abatements found, instead of growing the base for everyone, these sorts of programs “undermine traditional public institutions, such as schools, who rely heavily on property taxes for their financial needs.”

Even before the Intel plant, the Columbus area was well acquainted with these sorts of trade-offs. Over the past few years, the city has battled over tax abatements given to developers as an incentive to build housing. In 2021 alone, the city’s schools lost out on $51 million because of tax abatements given to developers as part of a push to incentivize new housing developments. The abatements were attempting to address a real problem: Central Ohio’s population is projected to grow from 2 million in 2010 to over 3 million by 2050, so the city needs plenty of new homes. But, the Ohio State study found, Columbus’ residential tax-abatement programs did little to meaningfully address the housing problem, while draining the city’s funds.

President Biden high-fives an Intel worker at the site of the new semiconductor plant in Ohio

Federal, state, and local subsidies add up to billions of dollars that Intel is saving on its new Ohio semiconductor factory.

SAUL LOEB/AFP/Getty Images

“While the abatement programs have helped spur an influx of high wealth households into abatement areas, they degrade the public resources available to the nearly 30,000 children (of which more than half live in households with income under the poverty line) in abatement areas,” the report said.

The budget shifting — and the deteriorating facilities at many local schools — eventually sparked protests from the teachers union in 2022. “Developers get handouts; kids get sold out,” teachers chanted as they marched on developers’ headquarters in April. The battle culminated in a three-day 4,500-teacher strike in August, the union’s first since 1975, that ended only after the school board agreed to a three-year contract that guaranteed some basic provisions, like air conditioning in all school buildings by 2025.

This struggle will get worse since the city has handed out even more property-tax abatements to incentivize the construction of housing to absorb the 3,000 plant workers and 7,000 temporary construction workers needed for the Intel facility. According to the rental platform Zumper, the average rent for a one-bedroom apartment in Columbus has jumped from $600 in 2015 to almost $1,000 in 2023

The development incentives that the city has implemented do require developers who receive tax abatements to set aside a portion of “affordable” units built in designated zones. But the trouble with the policy, called the Community Reinvestment Area Program, is that the city determines “affordable” rent rates based on citywide data, which results in “affordable housing” that costs twice the average rent in lower-income neighborhoods. For example, the median income in Columbus is $57,800, but the median household income in the neighborhood of South Linden is $28,610. A CRA housing development built in Linden would far exceed what the average resident of the neighborhood could afford. There is also a buyout option in the policy where developers can choose to pay a fee to avoid including any “affordable” units. 

Mitchell Toomey, an organizer with Affordable Housing Columbus, told me that while the CRA policy incentivized housing that might be affordable for a six-figure salary, the middle- and low-income workers who need affordable housing are left with no options. Essentially, the affordable-housing policy, he told me, is “making it easier for people coming in from the Intel plant, who have a medium to high income, to price out all of the local people.”

Little chips, big water

Thanks in part to the CHIPS Act, central Ohio isn’t the only region getting in the semiconductor game. Factories are also being built in New York and Texas, and two factories are getting major expansions outside Phoenix. But the chip factories in Phoenix raise an even more serious problem than the battles over housing and tax incentives in Columbus. 

To make semiconductors, chip factories use millions of gallons of water every day. So it may seem odd that Arizona — famous for its desert and multidecade water crisis — would be the focal point of the burgeoning American chip industry. Advocates for the plants see the trade-off between new jobs and high water usage as a net positive. Intel already employs more than 10,000 people in Arizona and contributed $3.9 billion in GDP to Arizona in 2019. And despite the fact that the plants will be the largest water users in the state, the chipmakers say much of that water can be recycled: Intel’s data shows that about 80% of the Arizona plant’s water usage in 2020 was later recycled. “Given all the ways that we could allocate our water, semiconductor plants that recycle most of what they use are not a bad investment,” Joanna Allhands, an editor, wrote in an op-ed in the Arizona Republic. Sarah Porter, the director of Arizona State University’s Kyl Center for Water Policy, told KJZZ that with semiconductor plants, 1 million gallons of water can provide 200 high-paying semiconductor jobs, while a golf course would provide only 50 low-paying jobs.

But that cost-benefit analysis does not address the long-term strain that the plants could place on the region’s already taxed water resources. Intel’s 16,000 acre-feet of water usage in 2020 converts to roughly 14 million gallons a day. Even if 80% of that was recycled, roughly 2.8 million gallons lost each day would still be a significant amount.

Critics argue that the excessive water usage and housing issues are far from net positive. Rashad Shabazz, a professor of geography at Arizona State University and the author of “Spatializing Blackness,” told me that the cultural desire to become the new Silicon Valley and the political drive to create jobs outweighed concerns over housing, schools, and water. “This is what happens when politicians and developers get together to create public policy,” he told me. “Neither one of them has the foresight to see the bigger picture, to understand the impact that this is going to have on the environment, on schools, on infrastructure, on water.”

The discontents of onshoring 

Even if the massive investments in bringing chip production home help to grow America’s domestic semiconductor industry, the US will still have to rely on other countries to complete the manufacturing process. Assembly and packaging will still be shipped abroad, and the technology being manufactured in these plants will be years behind the advanced chips that Taiwan can produce. In the meantime, companies like Intel and TSMC will enjoy billions of dollars in incentives as part of the chip war.

It begs the question whether the onshoring of tech manufacturing can be done sustainably and equitably — without displacing, defunding, or diverting the funds that the most vulnerable and essential workers need. If there’s a way to bring back jobs while securing funds for schools and not jeopardizing communities’ water supply, it’s still up for debate. What is clear is that, as Ashik Siddique, a research analyst for the Institute for Policy Studies, wrote, the bipartisan support for onshoring chip manufacturing “shows that getting an edge over China is apparently our government’s most urgent priority.”

Taylor Dorrell is is a writer and photographer based in Columbus, Ohio.