Industrial Policy Made in Arizona
How a modern American System can accommodate regional differences
by Jacob Chacón
At the frontier of America, the Grand Canyon state is showcasing the power of a regionally diverse national industrial strategy to drive a manufacturing renaissance.
In March 2020, the Taiwanese giant TSMC announced it would expand its operations with a new plant in America. Amidst rising Chinese aggression, this development would relieve international chip consumers whose demand for semiconductors depends on Taiwan’s precarious sovereignty. With the future of Taiwan uncertain, the country’s vast chip manufacturing sector has been a considerable variable in America’s ambiguous defense of the island.
If a nation is unable to guarantee the availability of the world’s most valuable commodity against authoritarian powers, it is difficult to argue that the country is truly sovereign. National sovereignty is not a guaranteed proposition in the era of globalization and monumental questions of self-determination from immigration to trade emerge as important but not unfamiliar challenges of the 21st century.
Fortunately, today’s industrialists and statesmen have a strong precedent of distinctly American economic nationalism that has implemented varying degrees of industrial policy. Early nationalists committed to transforming the nascent United States into a manufacturing nation, independent of undue foreign influence. These federalists, later Whigs and Republicans assumed the mantle endowed to them by Alexander Hamilton, the chief visionary for an industrial America. This adherence to industrial growth would become the American System, a project that set the nation on track to be the world’s preeminent economic power. Hamilton and his intellectual successors like Henry Clay and Theodore Roosevelt understood that innovation, economic security, and self-determination — though integral for a strong republic — were made possible by a strong national government.
Proponents of this American System hold that the national government is in the best position to align private with common economic interests. Additionally, the American System’s industrial policies and internal improvements allowed each state to combine its productive talents in pursuit of national unity. Hamilton rejected the notion that the agrarian South and industrial North were incompatible forces.
Today, most of the country has benefited from the American System’s domestic nation building, particularly America’s frontier. The Western United States owes a great deal of its economic success to Hamiltonian-inspired industrialists.
To safeguard America’s sovereignty and restore its industrial capital we must reinvigorate our imagination by looking to the American System’s record. Luckily, the state of Arizona’s advanced manufacturing boom offers a successful case study in modern industrial policy that synthesizes regional diversity and national unity.
The success of Arizona’s semiconductor industry is not the product of spontaneous market forces but instead Cold War-era industrial policy. Almost 70 years ago major aerospace and electronics manufacturers like Motorola built facilities in the fledgling desert at the direction of the national government. These expansion endeavors were a part of the Defense Production Act’s manufacturing dispersion plan. Aside from mobilizing America’s critical industries for national defense, the DPA incentivized major manufacturers to construct plants inland.
Arizona and similar interior states benefited from an aligned vision of business leaders and the national government amidst the existential threat of Soviet communism. Today’s US-China conflict mirrors the geopolitical uncertainty of yesteryear quite well, it is time to adopt similar mobilization efforts.
Arizona’s economic development strategy offers the most pragmatic application of the American System for two major reasons. The state’s advanced manufacturing sector has been historically linked to strategic mobilization. However, this success could not have come without a pro-business ecosystem. Arizona’s business friendly tax code has created a development atmosphere that rewards productive rather than speculative investment. From broad based tax relief, targeted credits that incentivize R&D spending to additional local infrastructure investment. The chips industry is among the most R&D intensive and technologically sophisticated manufacturing endeavors. If nationalists are serious about reindustrializing America, they must reward the best aspects of the market system by wielding the tax regime.
Second, AZ showcases how a modern American System can be flexible to regional eccentricities. Today more than ever, Arizona retains the heart of the West’s frontier spirit, a pioneering attitude that built America. Like its neighboring states of California and Colorado, AZ has traditionally been a hub of emerging technology and a knowledge-based workforce. The Grand Canyon state maintains its traditional mining sector but has leveraged existing infrastructure, history, and most importantly its nationally fostered manufacturing capital to build a dynamic economy. Other states can do the same under a refined American System that recognizes regional diversity and manifests an effort to build in places that are willing and able to embrace new industries.
Legislation like the CHIPS Act, while not perfect, demonstrated the national government’s role in protecting a strategic sector vital to our sovereignty, and has made the TSMC-Arizona deal possible. TSMC and Intel —the world’s second largest chip manufacturer and fellow AZ resident — are preparing to mass produce 3-nanometer microchips and research next generation 2 and 1-nanometer processes. These innovations will continue to increase computing power, even proving to be instrumental in powering the revolution in artificial intelligence. Harnessing the power of ingenuity and building frontier industry is at the heart of the American System.
Reshoring a critical industry as technologically intensive as the chip sector will come with growing pains. TSMC Arizona is now one year behind its production schedule due to a need for more properly trained workers. This setback emphasizes how workforce development and industrial policy are inextricably linked. Despite this shortage, Arizona is in an ideal spot to still get the job done. The state is a nexus of applied sciences including Arizona State University ranking fourth in the nation in terms of STEM undergraduates and first in innovation. Additionally, TSMC is partnering with the local Maricopa Community Colleges to train semiconductor technicians. Talent to operate these semiconductor facilities can be found and made domestically, overturning decades of precedent abdicating our responsibility to invest in Americans by importing foreign workers.
A strong national government that mobilized strategic industry in the 1950s helped build modern Arizona, the same nationalist policy, that today, attracted the world’s top semiconductor foundry to make one of America’s largest foreign direct investments. By wielding the power of industrial policy, Arizona has attracted technological giants like Intel and TSMC to export American innovation. Arizonan leaders may not be conscious practitioners of economic nationalism, but they have charted a path for policies that can restore America’s sovereignty and industrial greatness.
This article is part of the American System project edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors and the views expressed are not necessarily those of their employers.
Jacob Chacón is an Arizona State alumnus and former fellow at American Moment.