Love the video, but one doesn't have to be a military strategy expert to oppose an authoritarian regime of murderous criminals whose industry subsidies are not only financial, but also paid for with the blood of innocent Chinese people.
i dont think the chip ban is an economic policy, it's a national security policy. china may be not enemy today. but chinese hypersonic missiles are not pointed at russia or north korea.
Patrick doesn’t increasing corporate tax directly increase research and innovation as business are more likely to fund these pre-tax, eg 1950’s America
and then everyone over 60 tries to tell you how much better things use to be....... Amazing times really and the internet for allllll of its downsides has really been a blessing for freedom of thought and ideas.
I think we forget how much of the u.s. chip industry was government supported. Cray for example was saved from bankruptcy by the NSA. And how before the internet, which was a government program, the private companies all had their own individual networks (compuserve, AOL, MSN). An enormous amount of corporate profits comes from public universities in the US doing the R&D. The BSD operating system is another example
Was thinking the same thing. A lot of incredibly valuable discoveries which led to profitable technologies came from government funded and/or subsidized research and companies. Just look at GPS and various types of encryption for other examples, besides the Internet and other valuable technologies we take for granted today.
Historically, the greatest strength of the US government in this regard (compared to the USSR and other more totalitarian goverments) has been its willingness to spend money on rigorous R&D without any expectation of profit, and then share the fruits of that R&D early on with the private sector in order to commercialize it, make it cheap and reliable, and mass-produce it.
Having worked in China based factories for 20 years I can agree that a huge part of the reason factories are built in China is financing. Both local and some national loans finance a huge amount of building. A $5-10B fab is easy and the infrastructure (roads, residential, water/power, etc are at least another 20%) surrounding it. The goal was to build enough capacity to supply the entire world demand even if it was never be fully utilized or profitable. Speaking to executives, I was told that generally a new factory needed to break even within 3 years of being brought operational (on an accelerated schedule). Repayment of financing costs was considered secondary to jobs created and local land tax revenue based on improved value. Profit exceeding ~8% annual of the loan would be distributed directly to ~100 senior executive and technical staff. That could easily amount to >$M each and loans to failing factories were either rolled over or forgiven since they were often politically motivated in the first place. Suppliers were also often family of the leaders and of course party connections were key to getting such loans in the first place (factories had political representatives reviewing costs/profits). The infrastructure and supply chain around the buildings is incredibly important as well but those can also be financed/subsidized. The only real challenge is getting equipment allocation and application engineers to deliver, bring up, and maintain the production process. That was usually done by foreign companies. Zero Covid has had huge effects on all of this and the various Geopolitical effects are likely to be even larger.
They build a factory for the country for the people. China is a communist country. When they move to the country, the factory building is owned by the government.
you hit hit the nail on the head. the problem with China is not with the subsidies to get it off the ground. easy financing and development regulations are required to build a multi billion dollar fab. the different is that TSMC' s supply chain and customer base is grown more organically than China, therefore more robust when faced with economic challenges.
@@leanael2140 You are the original commentator is correct, however, when the CPC makes it a political goal to get the chip industry off the group then it's a different story. Things get much more organized and companies get green lights from the government. You can't look at Chinese economy using a Western lens, it's much more different than economies in the West.
@@HEEHEEBOII All economies (human behavior) at the end of the day are always the same. It's not about a western lens. The incentives you are exposed to everyday will determine your behavior. If your incentive is to secure government approval and money then you'll play the game of bribery and instead of investing all in R&D that money is better spent on giving political leaders gifts. Because the company that keeps the money and uses it exclusively to make better and better products is going to make a lot of enemies when they aren't sharing their wealth. In fact if you don't do it you might be seen as a rogue outsider threat.
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Dumping doesn't need to be sustainable. It just needs to last long enough to drive out all other competitors and provide such a commanding market position that no other competitors can arise, especially if subsidies can be restarted to choke out that try. Even the threat will discourage people from trying.
Indeed. You only need subsidies until you reach economies of scale, and once those work for you instead of against you, you can let market forces take over again...
@@samsonsoturian6013 The much larger manufacturer would benefit from economy of scale and a massive market share at that point making challenges from any new venture very unlikely to succeed. The challengers will also be few and far between since the cost of setting up Solar Panel factories is so high, investors will also have to worry that the moment they do attempt to challenge the Chinese Government will restart the subsidies and undercut them out of business.
The book Chip War by Chris Miller is a must-read for anyone who wants to know more about this, it also explains the humble beginnings of the semiconductor industry, the accelerated growth over 50 years, and the ongoing geopolitics that surround it.
I am going to buy a copy if for no other reason than to thumb my nose at the New York Times, whose review claimed that the whole story was good for the "conservative boy reader afraid of wokeness or women". But fortunately it also sounds like a great read.
There's a few problems with this video's explanation of what's happening. First, the video contradicts itself. Such as at the beginning where you talk about "can technology even be limited" and then towards the end where you note a major reason why the Soviets fell behind in integrated circuits was because the West refused to trade with it. High tech is often very controllable due to the complexity of building up to produce it locally, which by the time a country has done that the tech-export controlling country has developed entirely new tech that puts them hugely ahead. Now if the tech export happens and technological advancement in that area stops or is sufficiently slow, then blocking export is only a temporary delaying measure. Next you spent all this time talking about market allocation of resources without once mentioning externalities? Externalities are not a minor side note, they're enormous! And there non-market actors have a direct advantage in recognizing and being held accountable for since non-market mechanisms can punish them for inaction or reward them for action. Spending so much time talking about the advantages of market mechanisms without even mentioning their single biggest weakness is a disservice to your audience. Finally, it seems a bit premature to say that Chinese growth slowing below the Asian average invalidates the Chinese economic model. Especially when many of those Asian countries also work with huge government intervention into picking winners and losers. That's like arguing the Great Depression or the 08 Financial Crisis invalidate the very idea of market economies. This is so over-simplified as to be actively unhelpful to understanding in a way that I typically don't expect from your channel. I think it's fine to argue the Western model is better or that tech exports shouldn't be blocked, but these subjects deserve considering counter-arguments and more nuance than this video provides.
Thank you for articulating my thoughts on this video as well. There was an overemphasis on free market capitalism without recognising how subsidies and government intervention enable fair trading. A lot of large corporations/incumbents can distort the market because they have so much more capital than startups, yet again is something enabled by free market capitalism.
Appreciate your counterarguments. Could you give me an example of cases where there was higher accountability by non-market actors for externalities in a non-free-market case? I'm not sure the zero-Covid policy would apply... Just to specify: I have no intention of being critical to your points, just for my own understanding, as I am far less expert than the average audience here. Thanks!
@@coscinaippogrifo The removal of CFCs from use globally to stop the expansion of the hole in the ozone layer. The clean air and clean water act. Effective infrastructure effectively everywhere. Support of basic research again basically everywhere. Open source software programs. Those last three are examples of non-market actors promoting positive externalities, including non-market actors outside the government in the case of open source software provided freely without expectation of exchange. This is WHY it's vital for a channel like this to have a more nuanced set of explanations. People who only have a basic understanding of economics/finance often have not been exposed to the arguments or examples of the importance non-market forces in maintaining markets. Too often they arrive at sophomoric understandings. Which is what is happening whenever people online say "that defies economics, you learn that's bad in econ 101" ignoring that econ 102 and beyond might have insight well beyond what 101 provides. Now, does China's policies have anything to do with externalities? In some cases yes! Solar panels are a great examples where the benefits of their use are beyond benefits received by either the supplier or purchaser (in the form of fewer emissions for climate change most particularly). Some of the controls on tech companies might even count too, particularly the controls on social media given the impacts of social media on harmful forms of political polarization (the book by Max Fisher, "The Chaos Machine" does a good job providing examples and data on this in both the developing and developed world). And emphasis on transit infrastructure from the flashy high speed rail to local metro systems is another piece of that. This is why this video's dismissal of decades of Chinese investment in these things as "malinvestment" (as opposed to sticking with the bad enough malinvestment in real estate) is frustrating.
@@coscinaippogrifo Securing of sea transport (security of sea transport could be seen as an externalities and access to the sea generally as a non-market) via the military (non-market actor) would be such an example?
Another important reason for outsourcing semi production is that when Morris Chang was founding TSMC, the minimum efficient scale of a fab was growing faster than semi companies were growing. Thus, it was no longer economical for them to build their own fabs.
There is a lot of ignorance out there in regards to this subject. The US did not outsource chip manufacturing to Taiwan. When it comes to the manufacture of chips based on value the US is the world's largest manufacturer but when it comes to raw chip numbers China is number one but they are chips of the lowest value and easiest to manufacture. Taiwan predominantly specializes in the manufacture of ARM based chips which are used in smart devices the world over. When it comes to chips that are the backbone of the internet, weapons systems, industrial control systems and so on they are from the US. The US has not focused on mid level and low end chips and has put its emphasis on high end but is now starting to focus on those lower end systems.
This isn't monotone. It's subtle tone, the type of tone that you have to use deeper listening to understand. Everything is not in the words; listening for intention and emphasis tells you what they want you to understand.
I just finished reading Aizek Asimov's Foundation book and this chip story reminds me of a method of control the Foundation was using on less advanced civilizations by ways of hooking them up on their advanced technologies, but conveniently omitting how the technologies works, so that these civilizations after switching over and becoming dependent would forever remain under control.....
My first full time job was in an office without computers. Client data was written on paper forms and then all those forms were stored in a card wallet. These wallets moved all around the building to the person working on that client. When not being processed they were stored in steel cabinets. In my job I was given a list of names and then I would hunt around the building to find their card wallet. I never found 10% of them. All this was replaced by simply typing into a computer and pulling the client wallet from a database. Several years later I became a computer programmer.
That sounds like how a network switch works. Maybe the 10% wallets went around like a network loop. Going round and round all day long looking for somebody who spent the day in the jacks.
This really was Patrick's best video yet. Well done. I'd prefer to understand the complexity to the issue rather than be told how it needs to be fixed. It'd be great to see Patrick speak this over with a national defense expert and attempt to create a creative solution to the current problem.
This is a really fantastic video, I have always thought that subsidies were the most effective way of growing priority sectors. I had never thought about most of the point you raised before. Thanks for explaining so clearly and teaching me the other side of the argument
Morris Chang founded Taiwan Semiconductor Manufacturing Company (TSMC) after hitting the bamboo ceiling at Texas Instruments. His innovations of separating chip design from foundry work and pricing Semiconductor ahead of the cost curve made TSMC the dominant manufacturer it is today.
@@turbodewd1 Morris Chang did say in one of his interviews that he was told by TI mgmt that he will never ascend to the role of CEO. It disappointed him greatly as it was his ultimate career goal. The world would've been quite different if Morris actually became the CEO of TI.
I have lived and worked in Beijing, Guangzhou and Foshan for 8 and a half years and you are absolutelly right about everything! I just love your analyse, I've learn so much from you, Patrick!!!
@@davidwesternall873 lol, as a Chinese, I really doubt CCP wants to 'control the world by force', that is a lot of work and money; power hegemony over the globe is an obsession of the west, not really a Chinese hobby.
To understand the entire thing and make me feel smart afterwards, is a tribute to just how effective and clear your delivery is. Excellent video, should be mandatory for a bunch of people I know.
Wasn't expecting half the video to be railing against government subsidy of business after it praised Samsung semi and TSMC. Two firms that received massive government subsidy and protection and both of which have dramatically outpaced the innovation seen in unsubsidized American firms. If Intel is your example of the power of the market to create innovation then the last two decades must just not exist.
Yeah, I think he overextended the market-oriented growth argument a bit with these examples. During the heyday of US semiconductor manufacturing Silicon Valley and the like would not be the powerhouses they were (many ways still are) without massive govt investment, either directly or indirectly via research/education/military/space program spending.
A free market still needs to be guided. For example, without antitrust and regulations, the large winners of the previous generation become too big to defeat, yet they ossify and suck all the oxygen out of the room for new upstarts. Like ecology, certain technologies can be thought as "keystone". They're the bricks atop which everything else is built, and without them the house crumbles. Semiconductors feed the knowledge economy, automotive, aeronautics, defense, industrial equipment, ... - they're the direction everything is headed. Like agriculture, it makes sense to prop up so that we always have something to fall back on. Every other industry depends on it. Allowing one company or region to monopolize the most critical technology of modern society puts a dagger at our jugular. We know how important this field is, so we should stay in the game instead of dipping out and leaving fate to chance. Even if these subsidies are inefficient, they prevent a major systemic fragility. It's not like we're wholesale adopting a non-free market approach. Or that when we grow up a lot of new semiconductor talent, that we won't loosen these policies. And though subsidy is inefficient, it sometimes hits the ball out of the park. Say what you will about Elon Musk, but SpaceX changed the aerospace industry. Costs have dropped dramatically, and there's more competition and innovation in that sector than ever before. Historically subsidy produced big technological gains in WWII and the Cold War era. It's the correct choice to keep silicon fabrication around.
I have to disagree with you. AMD has been competing with Intel and even with government support, Intel cannot afford to lose their innovative edge. The same thing with Samsung and others. There is a somewhat healthy competition. Also, demand for higher processing power is strong and gets stronger every year, so this sector is heavily influenced by the market more than the government can help. What Patrick suggests is, the lack of competition and heavy subsidies will cause companies to lose their innovative edge and become apathetic to their decline as the taxpayers will pay the bill. Banks especially comes to mind as well as giant like Amazon and Google.
Delaying a country's access to the wheel for 5 years is nothing. Delaying a country's access to a new conventional weapon system by 5 years might decide the outcome of one war. A 5 year head start in semiconductors, infosys, and AI might as well be an eternity, am I wrong?
Speaking with a foot in the defense industry and having had access to large players, the technology a 5 year advantage can win a war outright. The tech export block has other aims as well: 1. Encourage local manufacturing and capabilities. If tech cannot be export, it is in itself a subsidy especially when supplying military tech. 1a) Military tech is often forced to rely on expensive custom fabs that produce less capable but more resilient devices. 1b) Force local knowledge bases to exist and development of experts for those industries. 1c) Envourage parts of a supply chain to occur on shore, see Russia. 2) Security of devices and technology through divergence. One major complication when dealing with someone else's tech is that it may use a different paradigm or basis. Many industries will converge tech for all users. Forcing some technology to spend time at home means the devices naturally function differently and its harder to have cross experts. 3) As you mentioned, there is an imbalance in manufacturing and perceived imbalance in technology. The US doesn't trust that there isn't tech behind closed doors that is not being restricted while the US tends to be more open overall. It is easy to get a "feel" for the industry with more open media and information, which again feeds the same experts and design patterns.
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TIL more from this video then in the past 5 years of reading global tech and econ news and articles. Thank you kind sir.
You've convinced me that we should get rid of most, if not all, subsidies. But I'm left highly skeptical when politicians claim they're "reducing red tape", "making improvements to the business environment", or "reducing taxes". Given recent history I take those as red flags to mean, reduce consumer protections, restrict workers rights/power, and reduce taxes for the well off but raise them for the worse off. Due to poor memory I don't have specific examples for the first two but i would turn to regan era policies to justify my concerns. As for unjust, unwarranted, and or nonsensical tax changes I'd turn to trumps 2017 tax cuts and the recent "fair tax act" currently being pushed by Republicans that would replace all income, payroll, and corporate taxes for a 30% sales tax. Both policies disproportionately affect the lower and middle class while making things easier for the well off, but the sales tax is uniquely nonsensical given how it would stifle consumption and make the us economy less competitive. That is not to say that I'm opposed to sensical reforms that fall under the umbrella of reducing red tape, improving the business environment, and tax improvements, but i highly doubt it'd be possible unless we first untangled corporate interests from our politicians finances. An alternative idea I think would simultaneously encourage competitive entrepreneurship and appease doubters of the private sector's willingness to invest in R&D. Why don't we create an independent agency that hires and funds researchers across numerous industries and patents innovations under the name of the US government so that any US based corporation (or rather corporation subject to US regulations) is free to use said innovations. I'd like to hear your thoughts on this idea, as it could be argued that many crucial parts of the internet were publicly funded by the military.
That was a robot that musk showed which is their next development platform that they hoped to have up and running in 6 weeks time. It is intended to be a robot that has human levels of upper body dexterity such as finger movement and so on. It is not a product as of yet and is their intended research platform. There is no point mocking it unless you actually have a detailed level of understanding.
A bit disagreement here: 1. TSMC is due to Taiwanese Gov subsidizing at the priming stage. 2. Private sectors innovation is usually at utilization/customer-facing side. Eg. Fundamental knowledge/demonstration of semiconductor is funded at university level. Private side fill in the application side and made it sustainable financially after fundamental(or physic) level problems had been cleared. 3. HongKong and Chili were pretty much laissez faire but they are hardly known for any technology innovation. 4. West subsidize at the knowledge generation level (university/national labs). Developing countries do at manufacturing level. West is just one level ahead.
Many countries e.g. Germany subsidized semi manufacturing and failed to compete. China is rapidly innovating e.g. BOE supplying OLED displays to Apple et al. and China employs more patent examiners than the US.
My brother used to work for the US patent office in DC. He told me that they are rewarded on how many patents they turned down rather than approved. As an engineer who has applied for many patents, I can affirm that, since most of my first filings are rejected and I have to work with our lawyers to get the next filing through
@@andile5945 This is a fact. The founding of TSMC was led by the government of the Republic of China. The main promoter was the President of the Executive Yuan of the Republic of China. By the way, let me tell you the fact that the founder of TSMC was born in Zhejiang Province, China, before the age of 50. , have never been to Taiwan.
been a morning brew subscriber for about 6 months. fully recommend. no adds, no crap. pat is one cool, calm, concise intelligent nerd. i enjoy your perspective greatly. keep it up
Incredible video, the second half I actually forgot we started with semiconductors as it’s a brilliant deconstruction of the way the Conservative party in the UK has operated the last three years, apparently as pro-business/economy but actually in their own self interests and their mates. Fantastically prescient! 👏👏👏
The second half illustrates exactly how the Canadian Govt. is subsidizing the fossil fuel industry. Then guaranteeing loans for pipelines or outright buying pipelines when industry avoids them because the financials don't make sense.
All these US semiconductor restrictions will slow down the technology development in China for a short period of time. I'm positive in the medium to long-term China technology development will prevail and surpass the Western countries. 👏👏👏
Not when they steal everyone else’s IP and have no R&D of their own. Their population is taught to memorize and replicate, China doesn’t have an innovative bone in its body.
@@doctorwilly The world recognizes Taiwan is part of China including Taiwan's own Constitution. So in other words TSMC is in China which would technically mean China has the most advance semiconductor industry.
Thank you very much. I don’t listen so intensively to such dull topics often. I think I agree with your stance on government subsidies, but I see vast difficulties with levelling a globally accepted stance. The spectrum of globalisation-related issues is similar to, say, workforce safety, environmental footprint and transparent book-keeping facilitating fair taxation. I understand you promote a Laisser-faire-approach that accepts temporary legislative imbalances for the benefit of the (arguably vast) insight of a free market on the long term. What I don’t understand is what policy you propose for moderating competition that is, for lack of energy to type out exactly what I’m after, ‘unfair’. Myself, I’m leaning toward a more diligent stance, meaning that ‘my’ country would have to expect the same level of (fill in your choice of free market limitation) from foreign suppliers. Same level of government subsidies, comparable environmental regulations, acceptable workforce conditions. Cheers!
I really hate how this issue has affected the world. I work on delivering computers for several municipalities. Due to the chip shortage we have backlogs that date back to nearly a years, and there is no way to catch up unless we get the things we have ordered +8 months ago. This cause so much stress headace and unnecessary problems. And it is issues that can not even be resolved by working hard alone.
I believe there needs to be a balance and a separation of the needs analysis of national security decisions and the profit margins of participation in global economic markets. Every major company needs to be aware and able to interrupt the profit margin if their products interface to national defense products of their country, and insure they are not willingly disabling the national defense. These are two disjoined and conflicting economic environments, and have totally different success criteria.
2:22 With Patrick being so well spoken, you know it’s not a slip up when he says country and he won’t back down, that why I love this channel. Thx for the great video
Taiwan is a de facto country. Internationally not officially recognized for geopolitical benefits. If China was weak, Taiwan would be internationally recognized. Taiwan is also the legitimate and continuous Chinese state, while the PRC is literally a separatist state with legal recognition
As a Chinese, I couldn’t careless what other people call Taiwan, as it doesn’t affect my life nor my country. As long as China remains strong, it will continue to claim ownership over Taiwan. If it grows weak, Taiwan will surely proclaim independence. It’s just the natural order of things, no right or wrong to it.
I understand your point on subsidies. However, The airline industry benefited from the government helping early aircraft manufacturer by carring mail post. Tesla, used a large amount of government money for his car business, including money for the space rockets that Musk make for NASA usage. The list is large.
using Elon Musk as an example on subsidies is a correct way to prove the claims of the video, it is not a coincidence that after Tesla and SpaceX maximized gov. money, Musk started to pitch stuff like the solar roofs, or the hyperloop, which is a textbook example of government decision maker targeted scam: as stated in the video, it is more profitable to go for the free money than coming up with something which actually makes sense. Those project which did not get funding by the state are dropped, like the solar tile based roof stuff, and where there is state or federal money, they go for it, like the Vegas loop construction.
@@bighands69 Yes, they are a form of subsidies when they are used to support an industry against an other, or to counter an other country that use direct subsidies from their government giving them a financial advantage. I am not implying that the government should not defend itself against such foreign entities, but lets recognize what is happening in our own backyard.
The arguments you make to explain why government intervention stifles innovation are the same ones many tout to as the reason bankruptcy laws promote innovation. 🤔
Brilliant explanation of classical economics as they apply to efficient use of capital in tech and the mal investment decisions of politicians , public servants
I do not think it is a great explanation at all. It has put the idea into peoples heads that the international trade market is a free market and that the government of the US is about to interfere in that marketplace. The semiconductor market outside of the US is one of the most heavily subsidized markets there is. The US built that international marketplace to use the trade to create stability. There has been thinking in Washington DC that goes back several decades that the Chinese could be brought over to the western liberal culture by economic trade hence why everything has developed.
Good to see Greek Myths in the spotlight after its background role in the previous video. Probably the most fun way to learn about the foundations of Western culture. A must-read
With the increasing isolation, China got no choice but to develop the required technologies themselves. Short term they maybe in a disadvantage position, however long term, China can now grow stronger while US weaker.
Hey Patrick just a note about the autofocus issue I’ve seen in the last couple of your videos I’ve seen. I think your camera is using a contrast detect system but a phase detect system will be able to lock onto the focus better.
Another great video, thank you Patrick! I don't entirely agree with everything you've put forth here. First, the extremely high initial investment costs make the semiconductor industry very different from other industries, so it's not like competitors are ready to jump into this market. The market can't support more than a few players. In cases like this where there's a natural monopoly/oligopoly, the government generally steps in and regulates the market to at least a certain extent. Second, on the topic of subsidies, the US currently provides substantial subsidies to farmers and reaps substantial benefit in doing so. It's very possible that the US could gain a similar benefit by subsidizing semiconductors. Finally, the political necessity underlying these decisions is too important to ignore. You mentioned that the US holds the majority of the value of the semiconductor industry via designs and patents--unfortunately, these aspects are easy to steal, ignore, or reverse-engineer. In a hypothetical world where Taiwan is integrated into China without the use of force, China would have access to much of the world's semiconductor manufacturing, and should China choose to manufacture products designed in the US, the US would have limited options for recourse and the rest of the world would have little choice but to continue purchasing Chinese semiconductors. That's why it's so important that the US encourages local semiconductor manufacture. Even if companies are already attempting to diversify, increasing investment will get things moving and at scale much faster. As always, really appreciate your analysis and looking forward to future videos!
I do not agree about the "substantial benefits" from subsidizing farmers. These subsidies drive the over-production of certain crops - such as corn and soy - for mass production of heavily processed, and in many cases cancerous, foods and create artificial scarcity through the under production of much more nutritious and desireable options. They reduce the number of small and privately owned farms and in doing so stifles innovation and competition in all areas. Additionally, it increases the cost of getting the food from farm to table as product must be transported, often over large distances, to reach market. China reaps compounding benefits from societal norms and government power that are in no way desirable in the west. It's not just government subsidies. It's cheap materials, slave-like labor conditions, highly reduced R&D costs due to IP theft, and a government that can dictate what it's companies do on whim. The fact is we've conveniently ignored these aspects in order to enjoy cheap consumer goods from the east for decades. Maybe it's appropriate that we re-evaluate our demand for these in conjunction with prices that reflect fairer competition. I don't agree on subsidization. Our government should just get out of the way. We can incentivize by simply reduce taxes and overbearing regulation that discourages growth. The companies will find new ways of driving down the bottom line on their own. Nothing good has ever come from the government picking who wins and who loses. Please stop advocating for things that will result in more crony capitalism and corruption and wasteful expenditure of American's hard earned tax dollars.
@@timsteinkamp2245 By reap substantial benefits, I did not mean making money. The government obviously does not make money from giving out subsidies XD
The funny thing about dumping is that China is actually subsidizing consumers in the US, but the US businesses want the consumers to believe that's bad for them.
It is only bad for the companies that cannot compete. The US does it a lot in the aeronautic industries. The bad bit comes when the last local company closes and then the prices surge.
it is bad in long term. China is subsidizing consumers in usa until there is no competition, once the companies competing are all Chinese then you can charge anything you want. Its bad for usa consumers. Dumping is targeted at domestic companies, aim is to kill them and replace with ours.
I don't think the national govt of China is playing a one-period game when it subsidizes industries. It may be employing the same strategy as Amazon: lose money until competitors are out of business or you've achieved a scale that cannot be matched. It may also be trying to achieve technological independence. When the US and Europe subsidize, it doesn't seem like there's this kind of strategic thinking. Western economists never seem to recognize the long game China is playing. Policymakers are worse. Trying to shut down China's development only gives it more incentive to achieve independence. What endgame is the US govt working toward? I don't think it knows.
The long game is that China has to do it on their own because China is considered a development country and now they remove the 3rd wheel and hope China won't foster position.
Patrick’s comments sound very reasonable and make perfect sense EXCEPT that look where those ideas have led us? It assumes that we are in a world where there are no counties planning to take over others for irrational reasons (from a most efficient economic perspective). Economists always have the assumption that parties behave rationally in their own (economic) self interest. But this ignores the fact that individuals and countries do not always behave in an economically optimal manner. Patrick’s arguments clearly have led us to a difficult spot since the corporations have made rational decisions to optimize their wealth without considering strategic geopolitical concerns. How should it have ever made sense to concentrate crucial chip production by a single company in a single country ever? Isn’t this an example of when the free market philosophy has failed? Yes, it was cost effective. Just like clear cutting a forest can be, at least until you run out of forests.
@@ruggeddiscipline6026 It might get there, unfortunately. But the best strategy to prevent that is to break their economy. It's expensive to maintain nuclear arsenal
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It's all about the Pentiums Patrick ;) Weird Al Yankovich was already on this years ago. :)
Really insightful Patrick! Thanks for sharing your knowledge.
Love the video, but one doesn't have to be a military strategy expert to oppose an authoritarian regime of murderous criminals whose industry subsidies are not only financial, but also paid for with the blood of innocent Chinese people.
i dont think the chip ban is an economic policy, it's a national security policy.
china may be not enemy today. but chinese hypersonic missiles are not pointed at russia or north korea.
Patrick doesn’t increasing corporate tax directly increase research and innovation as business are more likely to fund these pre-tax, eg 1950’s America
If Patrick were to show us how to derive a demand curve, we would have covered just about everything I learnt in second year economics.
man did a whole ad for “real” capitalism
Yeah this was a densely packed episode that is perfect for teaching at universities. Like most of his videos are.
@@NilsJakobson 00uh u 7tú7 huh 87⁷Hu iutuikuuu7j j uukkkkukù tu uuu I u ikíùù I
@@NilsJakobson he teaches at king’s college business school.
@@samuel9607 I thought he taught at LBS in Marylebone
I love living an age where access to information and commentary of such high quality is trivial
Thank you Patrick for another awesome video
Agreed. (Nerdgasm)
I hope we never take this for granted. I'm only 30 but I remember having to have a giant encyclopedia set to get info on a whim
But subsidies created Silicon Valley.
and then everyone over 60 tries to tell you how much better things use to be....... Amazing times really and the internet for allllll of its downsides has really been a blessing for freedom of thought and ideas.
@@thryce82 it’s the worse thing to ever happen according to tyrants and the WEF
I think we forget how much of the u.s. chip industry was government supported. Cray for example was saved from bankruptcy by the NSA. And how before the internet, which was a government program, the private companies all had their own individual networks (compuserve, AOL, MSN). An enormous amount of corporate profits comes from public universities in the US doing the R&D. The BSD operating system is another example
Was thinking the same thing. A lot of incredibly valuable discoveries which led to profitable technologies came from government funded and/or subsidized research and companies. Just look at GPS and various types of encryption for other examples, besides the Internet and other valuable technologies we take for granted today.
Historically, the greatest strength of the US government in this regard (compared to the USSR and other more totalitarian goverments) has been its willingness to spend money on rigorous R&D without any expectation of profit, and then share the fruits of that R&D early on with the private sector in order to commercialize it, make it cheap and reliable, and mass-produce it.
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Having worked in China based factories for 20 years I can agree that a huge part of the reason factories are built in China is financing. Both local and some national loans finance a huge amount of building. A $5-10B fab is easy and the infrastructure (roads, residential, water/power, etc are at least another 20%) surrounding it. The goal was to build enough capacity to supply the entire world demand even if it was never be fully utilized or profitable. Speaking to executives, I was told that generally a new factory needed to break even within 3 years of being brought operational (on an accelerated schedule). Repayment of financing costs was considered secondary to jobs created and local land tax revenue based on improved value. Profit exceeding ~8% annual of the loan would be distributed directly to ~100 senior executive and technical staff. That could easily amount to >$M each and loans to failing factories were either rolled over or forgiven since they were often politically motivated in the first place. Suppliers were also often family of the leaders and of course party connections were key to getting such loans in the first place (factories had political representatives reviewing costs/profits). The infrastructure and supply chain around the buildings is incredibly important as well but those can also be financed/subsidized. The only real challenge is getting equipment allocation and application engineers to deliver, bring up, and maintain the production process. That was usually done by foreign companies.
Zero Covid has had huge effects on all of this and the various Geopolitical effects are likely to be even larger.
They build a factory for the country for the people. China is a communist country. When they move to the country, the factory building is owned by the government.
Interesting comment. Why is infra another 20%? Billions for roads & water?
you hit hit the nail on the head. the problem with China is not with the subsidies to get it off the ground. easy financing and development regulations are required to build a multi billion dollar fab. the different is that TSMC' s supply chain and customer base is grown more organically than China, therefore more robust when faced with economic challenges.
@@leanael2140 You are the original commentator is correct, however, when the CPC makes it a political goal to get the chip industry off the group then it's a different story. Things get much more organized and companies get green lights from the government. You can't look at Chinese economy using a Western lens, it's much more different than economies in the West.
@@HEEHEEBOII All economies (human behavior) at the end of the day are always the same. It's not about a western lens. The incentives you are exposed to everyday will determine your behavior. If your incentive is to secure government approval and money then you'll play the game of bribery and instead of investing all in R&D that money is better spent on giving political leaders gifts. Because the company that keeps the money and uses it exclusively to make better and better products is going to make a lot of enemies when they aren't sharing their wealth. In fact if you don't do it you might be seen as a rogue outsider threat.
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Dumping doesn't need to be sustainable. It just needs to last long enough to drive out all other competitors and provide such a commanding market position that no other competitors can arise, especially if subsidies can be restarted to choke out that try. Even the threat will discourage people from trying.
Indeed.
Except the moment uou turn profitable is the moment you lose the monopoly
Indeed.
You only need subsidies until you reach economies of scale, and once those work for you instead of against you, you can let market forces take over again...
@@samsonsoturian6013 The much larger manufacturer would benefit from economy of scale and a massive market share at that point making challenges from any new venture very unlikely to succeed.
The challengers will also be few and far between since the cost of setting up Solar Panel factories is so high, investors will also have to worry that the moment they do attempt to challenge the Chinese Government will restart the subsidies and undercut them out of business.
@@georgeaird4637 if that were so, then there be no benefit to dumping in the first place.
The book Chip War by Chris Miller is a must-read for anyone who wants to know more about this, it also explains the humble beginnings of the semiconductor industry, the accelerated growth over 50 years, and the ongoing geopolitics that surround it.
just finished it, fantastic
I am going to buy a copy if for no other reason than to thumb my nose at the New York Times, whose review claimed that the whole story was good for the "conservative boy reader afraid of wokeness or women". But fortunately it also sounds like a great read.
This is actually in my Audible now. Ty for the recommendation
Released a week ago. The timing...
@@zxborg9681 please tell me that your quote was not literal. please.
There's a few problems with this video's explanation of what's happening. First, the video contradicts itself. Such as at the beginning where you talk about "can technology even be limited" and then towards the end where you note a major reason why the Soviets fell behind in integrated circuits was because the West refused to trade with it. High tech is often very controllable due to the complexity of building up to produce it locally, which by the time a country has done that the tech-export controlling country has developed entirely new tech that puts them hugely ahead. Now if the tech export happens and technological advancement in that area stops or is sufficiently slow, then blocking export is only a temporary delaying measure.
Next you spent all this time talking about market allocation of resources without once mentioning externalities? Externalities are not a minor side note, they're enormous! And there non-market actors have a direct advantage in recognizing and being held accountable for since non-market mechanisms can punish them for inaction or reward them for action. Spending so much time talking about the advantages of market mechanisms without even mentioning their single biggest weakness is a disservice to your audience.
Finally, it seems a bit premature to say that Chinese growth slowing below the Asian average invalidates the Chinese economic model. Especially when many of those Asian countries also work with huge government intervention into picking winners and losers. That's like arguing the Great Depression or the 08 Financial Crisis invalidate the very idea of market economies. This is so over-simplified as to be actively unhelpful to understanding in a way that I typically don't expect from your channel.
I think it's fine to argue the Western model is better or that tech exports shouldn't be blocked, but these subjects deserve considering counter-arguments and more nuance than this video provides.
Thank you for articulating my thoughts on this video as well. There was an overemphasis on free market capitalism without recognising how subsidies and government intervention enable fair trading. A lot of large corporations/incumbents can distort the market because they have so much more capital than startups, yet again is something enabled by free market capitalism.
Appreciate your counterarguments. Could you give me an example of cases where there was higher accountability by non-market actors for externalities in a non-free-market case? I'm not sure the zero-Covid policy would apply... Just to specify: I have no intention of being critical to your points, just for my own understanding, as I am far less expert than the average audience here. Thanks!
@@coscinaippogrifo The removal of CFCs from use globally to stop the expansion of the hole in the ozone layer. The clean air and clean water act. Effective infrastructure effectively everywhere. Support of basic research again basically everywhere. Open source software programs. Those last three are examples of non-market actors promoting positive externalities, including non-market actors outside the government in the case of open source software provided freely without expectation of exchange.
This is WHY it's vital for a channel like this to have a more nuanced set of explanations. People who only have a basic understanding of economics/finance often have not been exposed to the arguments or examples of the importance non-market forces in maintaining markets. Too often they arrive at sophomoric understandings. Which is what is happening whenever people online say "that defies economics, you learn that's bad in econ 101" ignoring that econ 102 and beyond might have insight well beyond what 101 provides.
Now, does China's policies have anything to do with externalities? In some cases yes! Solar panels are a great examples where the benefits of their use are beyond benefits received by either the supplier or purchaser (in the form of fewer emissions for climate change most particularly). Some of the controls on tech companies might even count too, particularly the controls on social media given the impacts of social media on harmful forms of political polarization (the book by Max Fisher, "The Chaos Machine" does a good job providing examples and data on this in both the developing and developed world). And emphasis on transit infrastructure from the flashy high speed rail to local metro systems is another piece of that. This is why this video's dismissal of decades of Chinese investment in these things as "malinvestment" (as opposed to sticking with the bad enough malinvestment in real estate) is frustrating.
@@coscinaippogrifo Securing of sea transport (security of sea transport could be seen as an externalities and access to the sea generally as a non-market) via the military (non-market actor) would be such an example?
Another important reason for outsourcing semi production is that when Morris Chang was founding TSMC, the minimum efficient scale of a fab was growing faster than semi companies were growing. Thus, it was no longer economical for them to build their own fabs.
There is a lot of ignorance out there in regards to this subject. The US did not outsource chip manufacturing to Taiwan.
When it comes to the manufacture of chips based on value the US is the world's largest manufacturer but when it comes to raw chip numbers China is number one but they are chips of the lowest value and easiest to manufacture.
Taiwan predominantly specializes in the manufacture of ARM based chips which are used in smart devices the world over. When it comes to chips that are the backbone of the internet, weapons systems, industrial control systems and so on they are from the US.
The US has not focused on mid level and low end chips and has put its emphasis on high end but is now starting to focus on those lower end systems.
@@bighands69 there are gains to be derived in know how from manufacturing chips across the value stack. Took the US 20 years to realize this.
@@cyberft
The US has used its trade to create stability hence why it helped to build Japan, Korea and Taiwan's electronics industries.
You’re the only person that I happily listen to your ads all the way through. It’s that beautiful monotone, it’s hypnotic.
This isn't monotone. It's subtle tone, the type of tone that you have to use deeper listening to understand. Everything is not in the words; listening for intention and emphasis tells you what they want you to understand.
I just finished reading Aizek Asimov's Foundation book and this chip story reminds me of a method of control the Foundation was using on less advanced civilizations by ways of hooking them up on their advanced technologies, but conveniently omitting how the technologies works, so that these civilizations after switching over and becoming dependent would forever remain under control.....
state of our world
Asimov was a visionairy IMO. Besides and above that an excellent storyteller.
_Isaac_ Asimov. I saw him at a sf convention once. He was a tall commanding figure.
My first full time job was in an office without computers. Client data was written on paper forms and then all those forms were stored in a card wallet. These wallets moved all around the building to the person working on that client. When not being processed they were stored in steel cabinets. In my job I was given a list of names and then I would hunt around the building to find their card wallet. I never found 10% of them. All this was replaced by simply typing into a computer and pulling the client wallet from a database. Several years later I became a computer programmer.
That sounds like how a network switch works. Maybe the 10% wallets went around like a network loop. Going round and round all day long looking for somebody who spent the day in the jacks.
This really was Patrick's best video yet. Well done. I'd prefer to understand the complexity to the issue rather than be told how it needs to be fixed.
It'd be great to see Patrick speak this over with a national defense expert and attempt to create a creative solution to the current problem.
This is a really fantastic video, I have always thought that subsidies were the most effective way of growing priority sectors. I had never thought about most of the point you raised before. Thanks for explaining so clearly and teaching me the other side of the argument
Morris Chang founded Taiwan Semiconductor Manufacturing Company (TSMC) after hitting the bamboo ceiling at Texas Instruments. His innovations of separating chip design from foundry work and pricing Semiconductor ahead of the cost curve made TSMC the dominant manufacturer it is today.
are u sure about this bamboo ceiling? whats the version of that for Europeans in, say, Japan btw?
@@turbodewd1 Bamboo ceiling or glass ceiling is real in America.
@@turbodewd1 you did something there buddy
@@turbodewd1 Morris Chang did say in one of his interviews that he was told by TI mgmt that he will never ascend to the role of CEO. It disappointed him greatly as it was his ultimate career goal. The world would've been quite different if Morris actually became the CEO of TI.
@@doctorwilly now TSMC is worth much more than TI
I have lived and worked in Beijing, Guangzhou and Foshan for 8 and a half years and you are absolutelly right about everything! I just love your analyse, I've learn so much from you, Patrick!!!
@@davidwesternall873 lol, as a Chinese, I really doubt CCP wants to 'control the world by force', that is a lot of work and money; power hegemony over the globe is an obsession of the west, not really a Chinese hobby.
This channel is pure gold, university-level info in a relatively short time span
i wouldnt say university level, but certainly informative
@@UnderscoreZeroLP well he is a university lecturer on business
To understand the entire thing and make me feel smart afterwards, is a tribute to just how effective and clear your delivery is. Excellent video, should be mandatory for a bunch of people I know.
Wasn't expecting half the video to be railing against government subsidy of business after it praised Samsung semi and TSMC. Two firms that received massive government subsidy and protection and both of which have dramatically outpaced the innovation seen in unsubsidized American firms. If Intel is your example of the power of the market to create innovation then the last two decades must just not exist.
Yeah, I think he overextended the market-oriented growth argument a bit with these examples. During the heyday of US semiconductor manufacturing Silicon Valley and the like would not be the powerhouses they were (many ways still are) without massive govt investment, either directly or indirectly via research/education/military/space program spending.
Subsidizing anything is the wrong choice but times of war, potential war, it can be rationalized.
Correlation doesn't equate causation. In other words your claim that they innovate because of or despite of subsidies is a bridge too far.
A free market still needs to be guided. For example, without antitrust and regulations, the large winners of the previous generation become too big to defeat, yet they ossify and suck all the oxygen out of the room for new upstarts.
Like ecology, certain technologies can be thought as "keystone". They're the bricks atop which everything else is built, and without them the house crumbles. Semiconductors feed the knowledge economy, automotive, aeronautics, defense, industrial equipment, ... - they're the direction everything is headed. Like agriculture, it makes sense to prop up so that we always have something to fall back on. Every other industry depends on it.
Allowing one company or region to monopolize the most critical technology of modern society puts a dagger at our jugular. We know how important this field is, so we should stay in the game instead of dipping out and leaving fate to chance.
Even if these subsidies are inefficient, they prevent a major systemic fragility. It's not like we're wholesale adopting a non-free market approach. Or that when we grow up a lot of new semiconductor talent, that we won't loosen these policies.
And though subsidy is inefficient, it sometimes hits the ball out of the park. Say what you will about Elon Musk, but SpaceX changed the aerospace industry. Costs have dropped dramatically, and there's more competition and innovation in that sector than ever before.
Historically subsidy produced big technological gains in WWII and the Cold War era.
It's the correct choice to keep silicon fabrication around.
I have to disagree with you. AMD has been competing with Intel and even with government support, Intel cannot afford to lose their innovative edge. The same thing with Samsung and others. There is a somewhat healthy competition. Also, demand for higher processing power is strong and gets stronger every year, so this sector is heavily influenced by the market more than the government can help. What Patrick suggests is, the lack of competition and heavy subsidies will cause companies to lose their innovative edge and become apathetic to their decline as the taxpayers will pay the bill. Banks especially comes to mind as well as giant like Amazon and Google.
My least favorite subsidy is the one in the U.S. where we give wealthy sports teams the money to build stadiums.
Moving the center of chip manufacturing from Asia to America or Europe will only mean one thing - an increase in chip prices.
Thanks Patrick.
Wars chips is the real future. But the raw materials of rare metals is the real core of the Big Bosses. Good video thanks for the information.
Also water.
@Kronecker
Not really, they just don’t have any law to regulate how much pollutions resulted from processing the raw materials.
Delaying a country's access to the wheel for 5 years is nothing. Delaying a country's access to a new conventional weapon system by 5 years might decide the outcome of one war.
A 5 year head start in semiconductors, infosys, and AI might as well be an eternity, am I wrong?
The US has a 60 year head start when it comes to semiconductors and integrated circuits over everybody else.
The us will not be able to stop china the us will still lose world hegemony
Speaking with a foot in the defense industry and having had access to large players, the technology a 5 year advantage can win a war outright. The tech export block has other aims as well:
1. Encourage local manufacturing and capabilities. If tech cannot be export, it is in itself a subsidy especially when supplying military tech.
1a) Military tech is often forced to rely on expensive custom fabs that produce less capable but more resilient devices.
1b) Force local knowledge bases to exist and development of experts for those industries.
1c) Envourage parts of a supply chain to occur on shore, see Russia.
2) Security of devices and technology through divergence. One major complication when dealing with someone else's tech is that it may use a different paradigm or basis.
Many industries will converge tech for all users. Forcing some technology to spend time at home means the devices naturally function differently and its harder to have cross experts.
3) As you mentioned, there is an imbalance in manufacturing and perceived imbalance in technology. The US doesn't trust that there isn't tech behind closed doors that is not being restricted while the US tends to be more open overall. It is easy to get a "feel" for the industry with more open media and information, which again feeds the same experts and design patterns.
TIL more from this video then in the past 5 years of reading global tech and econ news and articles. Thank you kind sir.
You've convinced me that we should get rid of most, if not all, subsidies. But I'm left highly skeptical when politicians claim they're "reducing red tape", "making improvements to the business environment", or "reducing taxes".
Given recent history I take those as red flags to mean, reduce consumer protections, restrict workers rights/power, and reduce taxes for the well off but raise them for the worse off.
Due to poor memory I don't have specific examples for the first two but i would turn to regan era policies to justify my concerns.
As for unjust, unwarranted, and or nonsensical tax changes I'd turn to trumps 2017 tax cuts and the recent "fair tax act" currently being pushed by Republicans that would replace all income, payroll, and corporate taxes for a 30% sales tax. Both policies disproportionately affect the lower and middle class while making things easier for the well off, but the sales tax is uniquely nonsensical given how it would stifle consumption and make the us economy less competitive.
That is not to say that I'm opposed to sensical reforms that fall under the umbrella of reducing red tape, improving the business environment, and tax improvements, but i highly doubt it'd be possible unless we first untangled corporate interests from our politicians finances.
An alternative idea I think would simultaneously encourage competitive entrepreneurship and appease doubters of the private sector's willingness to invest in R&D. Why don't we create an independent agency that hires and funds researchers across numerous industries and patents innovations under the name of the US government so that any US based corporation (or rather corporation subject to US regulations) is free to use said innovations.
I'd like to hear your thoughts on this idea, as it could be argued that many crucial parts of the internet were publicly funded by the military.
That referenced book is awesome. Thanks for sharing your knowledge!
The random cuts to Musk's questionable products are my personal highlights in these videos.
Except when talking about government subsidies which Tesla had received some at the starting of its business I think.
That was a robot that musk showed which is their next development platform that they hoped to have up and running in 6 weeks time.
It is intended to be a robot that has human levels of upper body dexterity such as finger movement and so on.
It is not a product as of yet and is their intended research platform. There is no point mocking it unless you actually have a detailed level of understanding.
Outstanding! Thank you
A bit disagreement here:
1. TSMC is due to Taiwanese Gov subsidizing at the priming stage.
2. Private sectors innovation is usually at utilization/customer-facing side. Eg. Fundamental knowledge/demonstration of semiconductor is funded at university level. Private side fill in the application side and made it sustainable financially after fundamental(or physic) level problems had been cleared.
3. HongKong and Chili were pretty much laissez faire but they are hardly known for any technology innovation.
4. West subsidize at the knowledge generation level (university/national labs). Developing countries do at manufacturing level. West is just one level ahead.
yeah exactly. misleading vid.
Would make for a good read, except What are your credentials?
Many countries e.g. Germany subsidized semi manufacturing and failed to compete. China is rapidly innovating e.g. BOE supplying OLED displays to Apple et al. and China employs more patent examiners than the US.
My brother used to work for the US patent office in DC. He told me that they are rewarded on how many patents they turned down rather than approved. As an engineer who has applied for many patents, I can affirm that, since most of my first filings are rejected and I have to work with our lawyers to get the next filing through
@@andile5945 This is a fact. The founding of TSMC was led by the government of the Republic of China. The main promoter was the President of the Executive Yuan of the Republic of China. By the way, let me tell you the fact that the founder of TSMC was born in Zhejiang Province, China, before the age of 50. , have never been to Taiwan.
been a morning brew subscriber for about 6 months. fully recommend. no adds, no crap. pat is one cool, calm, concise intelligent nerd. i enjoy your perspective greatly. keep it up
Another great video, thanks for the content as always
My pleasure!
The real business school right here👍🏾.. Brilliant analysis
Incredible video, the second half I actually forgot we started with semiconductors as it’s a brilliant deconstruction of the way the Conservative party in the UK has operated the last three years, apparently as pro-business/economy but actually in their own self interests and their mates. Fantastically prescient! 👏👏👏
The second half illustrates exactly how the Canadian Govt. is subsidizing the fossil fuel industry. Then guaranteeing loans for pipelines or outright buying pipelines when industry avoids them because the financials don't make sense.
Excellent video! Very clear and concise. Easy to understand and follow. Great explanations all the way through. Really enjoyed it Thank you!
Brilliant discussion, Patrick - thank you for sharing your fascinating thoughts.
great tie!
All these US semiconductor restrictions will slow down the technology development in China for a short period of time. I'm positive in the medium to long-term China technology development will prevail and surpass the Western countries. 👏👏👏
Definitely not in semiconductors
Not when they steal everyone else’s IP and have no R&D of their own. Their population is taught to memorize and replicate, China doesn’t have an innovative bone in its body.
Pride goes before a fall
@@doctorwilly The world recognizes Taiwan is part of China including Taiwan's own Constitution. So in other words TSMC is in China which would technically mean China has the most advance semiconductor industry.
Wow, and bravo! So many things I knew but never put my finger on till you said it so clearly.
Thank you very much. I don’t listen so intensively to such dull topics often. I think I agree with your stance on government subsidies, but I see vast difficulties with levelling a globally accepted stance. The spectrum of globalisation-related issues is similar to, say, workforce safety, environmental footprint and transparent book-keeping facilitating fair taxation. I understand you promote a Laisser-faire-approach that accepts temporary legislative imbalances for the benefit of the (arguably vast) insight of a free market on the long term. What I don’t understand is what policy you propose for moderating competition that is, for lack of energy to type out exactly what I’m after, ‘unfair’. Myself, I’m leaning toward a more diligent stance, meaning that ‘my’ country would have to expect the same level of (fill in your choice of free market limitation) from foreign suppliers. Same level of government subsidies, comparable environmental regulations, acceptable workforce conditions. Cheers!
Thank you Sir
Thanks
Thanks Martin!
This YT channel is a discovery of my lifetime😃incredible amount of knowledge passed along . Many Thanks👌
ASML is so important
Thanks for putting this rather special topic in the most possible broad and historic context. This was very informative indeed.
Thanks much for the wrap up!
How is this going to affect the price of suit pants with elasticated waistbands?
You are extremely good at explaining convoluted topics.
Yes, as a country you should invest in education and re-education of the people, so you have a smart workforce to start with
People generally allocate money best when it is their own money.
I really hate how this issue has affected the world.
I work on delivering computers for several municipalities. Due to the chip shortage we have backlogs that date back to nearly a years, and there is no way to catch up unless we get the things we have ordered +8 months ago.
This cause so much stress headace and unnecessary problems. And it is issues that can not even be resolved by working hard alone.
Brilliant presentation, sir. Thank you, Patrick.
I believe there needs to be a balance and a separation of the needs analysis of national security decisions and the profit margins of participation in global economic markets. Every major company needs to be aware and able to interrupt the profit margin if their products interface to national defense products of their country, and insure they are not willingly disabling the national defense. These are two disjoined and conflicting economic environments, and have totally different success criteria.
Might as well expect to see an end to corporate greed. Even Adam Smith didn't like corporations.
Actually, this is the only channel i don’t skip the promoted part.
2:22 With Patrick being so well spoken, you know it’s not a slip up when he says country and he won’t back down, that why I love this channel. Thx for the great video
Taiwan is a de facto country. Internationally not officially recognized for geopolitical benefits. If China was weak, Taiwan would be internationally recognized. Taiwan is also the legitimate and continuous Chinese state, while the PRC is literally a separatist state with legal recognition
@@jtgd By your definition, the Ukraine government in Kyiv would also be a ' separatist state with legal recognition.'
@@LLAALALA the Kievan Rus would disagree.
As a Chinese, I couldn’t careless what other people call Taiwan, as it doesn’t affect my life nor my country. As long as China remains strong, it will continue to claim ownership over Taiwan. If it grows weak, Taiwan will surely proclaim independence.
It’s just the natural order of things, no right or wrong to it.
@@thomaszhang3101 FREE TIBET
Outstanding presentation!
What an incredible overview on the chip making industry. I still feel i don't understand a lot about it but thanks anyway
This is a video in two parts. The second part is also excellent but deserves its own billing.
Very interesting analysis as always. Have a good day!
I liked the old title, chip as a new oil have me a new perspective I hadn't thought before
Great analysis! I wish more people would were aware of this.
The fluidity of expression is exceptional. I'd like a video on how you do that.
This is the best invest-channel! Please don't sell any courses!
Great take on markets versus tariffs. Well said.
I understand your point on subsidies. However, The airline industry benefited from the government helping early aircraft manufacturer by carring mail post. Tesla, used a large amount of government money for his car business, including money for the space rockets that Musk make for NASA usage. The list is large.
using Elon Musk as an example on subsidies is a correct way to prove the claims of the video, it is not a coincidence that after Tesla and SpaceX maximized gov. money, Musk started to pitch stuff like the solar roofs, or the hyperloop, which is a textbook example of government decision maker targeted scam: as stated in the video, it is more profitable to go for the free money than coming up with something which actually makes sense. Those project which did not get funding by the state are dropped, like the solar tile based roof stuff, and where there is state or federal money, they go for it, like the Vegas loop construction.
Government contracts are not a free ride nor are they subsidies.
@@bighands69 Yes, they are a form of subsidies when they are used to support an industry against an other, or to counter an other country that use direct subsidies from their government giving them a financial advantage. I am not implying that the government should not defend itself against such foreign entities, but lets recognize what is happening in our own backyard.
Great job.
The arguments you make to explain why government intervention stifles innovation are the same ones many tout to as the reason bankruptcy laws promote innovation. 🤔
Its b.s., the us has been subsidising innovation for ever.
Thank you!! nice jacket and tie 🙂
I think subsidization only makes sense if it targets the own region, like public transport but nothing that you export
Thanks for your timely reviews. Regards.
Brilliant explanation of classical economics as they apply to efficient use of capital in tech and the mal investment decisions of politicians , public servants
I do not think it is a great explanation at all. It has put the idea into peoples heads that the international trade market is a free market and that the government of the US is about to interfere in that marketplace.
The semiconductor market outside of the US is one of the most heavily subsidized markets there is. The US built that international marketplace to use the trade to create stability. There has been thinking in Washington DC that goes back several decades that the Chinese could be brought over to the western liberal culture by economic trade hence why everything has developed.
This video is fantastic, especially the second half.
Good to see Greek Myths in the spotlight after its background role in the previous video. Probably the most fun way to learn about the foundations of Western culture. A must-read
YMTC wasn't that a song?
Thank you for a real good channel and your humor only makes it better !
With the increasing isolation, China got no choice but to develop the required technologies themselves. Short term they maybe in a disadvantage position, however long term, China can now grow stronger while US weaker.
I learn something new every time I watch one of your videos. Thank you.
Thanks Patrick! Very informative. You're my go to source over traditional news now .
Thank you for this fascinating summary
Great video
Hey Patrick just a note about the autofocus issue I’ve seen in the last couple of your videos I’ve seen. I think your camera is using a contrast detect system but a phase detect system will be able to lock onto the focus better.
Another great video, thank you Patrick! I don't entirely agree with everything you've put forth here. First, the extremely high initial investment costs make the semiconductor industry very different from other industries, so it's not like competitors are ready to jump into this market. The market can't support more than a few players. In cases like this where there's a natural monopoly/oligopoly, the government generally steps in and regulates the market to at least a certain extent.
Second, on the topic of subsidies, the US currently provides substantial subsidies to farmers and reaps substantial benefit in doing so. It's very possible that the US could gain a similar benefit by subsidizing semiconductors.
Finally, the political necessity underlying these decisions is too important to ignore. You mentioned that the US holds the majority of the value of the semiconductor industry via designs and patents--unfortunately, these aspects are easy to steal, ignore, or reverse-engineer. In a hypothetical world where Taiwan is integrated into China without the use of force, China would have access to much of the world's semiconductor manufacturing, and should China choose to manufacture products designed in the US, the US would have limited options for recourse and the rest of the world would have little choice but to continue purchasing Chinese semiconductors. That's why it's so important that the US encourages local semiconductor manufacture. Even if companies are already attempting to diversify, increasing investment will get things moving and at scale much faster.
As always, really appreciate your analysis and looking forward to future videos!
I do not agree about the "substantial benefits" from subsidizing farmers. These subsidies drive the over-production of certain crops - such as corn and soy - for mass production of heavily processed, and in many cases cancerous, foods and create artificial scarcity through the under production of much more nutritious and desireable options. They reduce the number of small and privately owned farms and in doing so stifles innovation and competition in all areas. Additionally, it increases the cost of getting the food from farm to table as product must be transported, often over large distances, to reach market.
China reaps compounding benefits from societal norms and government power that are in no way desirable in the west. It's not just government subsidies. It's cheap materials, slave-like labor conditions, highly reduced R&D costs due to IP theft, and a government that can dictate what it's companies do on whim. The fact is we've conveniently ignored these aspects in order to enjoy cheap consumer goods from the east for decades. Maybe it's appropriate that we re-evaluate our demand for these in conjunction with prices that reflect fairer competition.
I don't agree on subsidization. Our government should just get out of the way. We can incentivize by simply reduce taxes and overbearing regulation that discourages growth. The companies will find new ways of driving down the bottom line on their own. Nothing good has ever come from the government picking who wins and who loses. Please stop advocating for things that will result in more crony capitalism and corruption and wasteful expenditure of American's hard earned tax dollars.
@@timsteinkamp2245 By reap substantial benefits, I did not mean making money. The government obviously does not make money from giving out subsidies XD
Super important topic not many are talking about. Thanks for bringing attention to this issue!
Thanks again for your excellent content and delivery.
Lex Fridman: I dont need a new suit. One is good.
Patrick Boyle: Hold my beer
This was really informative.
Thank you Patrick, high quality content I have truly enjoyed.
The funny thing about dumping is that China is actually subsidizing consumers in the US, but the US businesses want the consumers to believe that's bad for them.
It is only bad for the companies that cannot compete. The US does it a lot in the aeronautic industries.
The bad bit comes when the last local company closes and then the prices surge.
it is bad in long term. China is subsidizing consumers in usa until there is no competition, once the companies competing are all Chinese then you can charge anything you want. Its bad for usa consumers. Dumping is targeted at domestic companies, aim is to kill them and replace with ours.
That makes no sense at all on any level.
Always good to hear your insights!
This is becoming my favorite channel on youtube. I'm aways improved by watching them. Thanks dude!
Excellent Analysis!
I don't think the national govt of China is playing a one-period game when it subsidizes industries. It may be employing the same strategy as Amazon: lose money until competitors are out of business or you've achieved a scale that cannot be matched. It may also be trying to achieve technological independence. When the US and Europe subsidize, it doesn't seem like there's this kind of strategic thinking. Western economists never seem to recognize the long game China is playing. Policymakers are worse. Trying to shut down China's development only gives it more incentive to achieve independence. What endgame is the US govt working toward? I don't think it knows.
The long game is that China has to do it on their own because China is considered a development country and now they remove the 3rd wheel and hope China won't foster position.
Well said sir!
From the Semiconductor Island Taiwan, I thank you for your credible program and the importance to protect intellectual property.
Grant analysis thanks
Patrick’s comments sound very reasonable and make perfect sense EXCEPT that look where those ideas have led us? It assumes that we are in a world where there are no counties planning to take over others for irrational reasons (from a most efficient economic perspective). Economists always have the assumption that parties behave rationally in their own (economic) self interest. But this ignores the fact that individuals and countries do not always behave in an economically optimal manner. Patrick’s arguments clearly have led us to a difficult spot since the corporations have made rational decisions to optimize their wealth without considering strategic geopolitical concerns. How should it have ever made sense to concentrate crucial chip production by a single company in a single country ever? Isn’t this an example of when the free market philosophy has failed? Yes, it was cost effective. Just like clear cutting a forest can be, at least until you run out of forests.
I am very dumb but I love how smart this channel is.
I think we're going into a new cold war with China, so we should use WW1 and Cold War as references when talking about geopolitics.
😆 😆 😆 you mean a hot nuclear war
@@ruggeddiscipline6026 It might get there, unfortunately. But the best strategy to prevent that is to break their economy. It's expensive to maintain nuclear arsenal