Intel to Build Chip Plant in China

Intel, the biggest chip maker in the computer world, has decided to build a $2.5 billion plant in the People’s Republic of China. It will be Intel’s first Asian plant, and it brings the chips closer to their users. It will also damage America’s balance of trade with China even further, and it could possibly have national security implications. The Bush administration isn’t about to fuss, though. This is what free trade means to them.

The plant is to be built in Dalian, north and east of Beijing, sort of on the way to North Korea. Starting in 2010, the plant will start cranking out 300 millimeter wafers for chipsets. It won’t be a state-of-the-art plant, but rather a reliable producer of run-of-the-mill chips. The plant will have a monthly capacity of 52,000 wafers, and it will use 90-nanometer technology to make the chipsets. The company has US government approval to export this technology under a license that is good until 2009. Since 2010 is the start-up date, analysts believe Intel could petition for more advanced technology once the plant is built.

This project would be Intel’s eighth plant. It already operates out of the US, Ireland and Israel. The US trade deficit is hardly affected by changes in the terms of trade between it and Ireland and it and Israel. The trade deficit with China runs into the billions each and every month, and this will only make things worse for America. Long-term, it represents China’s rise up the manufacturing ladder, as America climbs off. Intel’s CEO Paul Otellini said, “Our goal in China is to support the transformation from manufactured in China to innovated in China.” So much for good old Yankee ingenuity.

In the short-term, chips made in Dalian will replace chips made elsewhere. They will likely supply electronics plant production elsewhere in the People’s Republic. So, instead of buying Intel chips from a factory in the US, electronics makers will buy them from the Intel plant in the PRC. This is all a wash for Intel; it still sells chips to customers. However, the US doesn’t export the chips anymore. Meanwhile, the finished product is still imported by American stores for purchase by American consumers. US exports drop, imports remain constant, therefore, the trade deficit worsens.

This is a good deal for the people of Dalian, and it may well be a good deal for Intel. At some point, however, one has to ask just how America benefits. Cheaper electronic goods? Just how much cheaper? Enough to justify the increased trade deficit that will have to be financed by higher long-term interest rates, which will choke off economic growth? Maybe this is to read too much into the construction of a single chip plant in one town in China by one company. However, it perfectly illustrates what current policy achieves.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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