Op-Ed: Why a semiconductor economy could make Arizona as the next tech hub in America
President Joe Biden speaks about investments in microchip manufacturing in upstate New York at Onondaga Community College on Thursday, Oct. 27, 2022, in Syracuse, N.Y. Source: AP Photo/Joshua Bessex
Editor’s Note:
This piece was written in December 2024. Subsequent events have rendered some details outdated. Readers are encouraged to consult current sources after reading to ensure they have the most up-to-date information.
In the rapidly changing world of digitalization and technology, semiconductors seem to have become the next big thing in tech. Where these microchips for algorithms and digital devices go, is where the money follows. But TSMC’s U.S. division announcement to expand semiconductor production in Arizona has proven that projects like these may implicate more than a gimmick for angel investors and stock market fanatics, rather a sustainable development plan for the long neglected regions of America.
The Biden administration’s recent passing of the CHIPS and Science Act in April marks the incremental boosts America has been making to its semiconductor economy. U.S semiconductor consumption has largely relied on Taiwan’s production of the chips since the 80s. The island territory’s revolutionary policy on encouraging technological innovation has caught up with the U.S’s prowess with the silicon valley’s innovation. The initiative will provide over $7 billion funding towards domestic chip production with its contribution to the over $500 billion worth global market.
But the better news - is how this could be a renaissance for Arizona’s local economy, where the average household income is at $72,000. Compared to its neighboring California’s average at over $90,000, these investments in Arizona could revamp the labor market. The semiconductor business can provide by expanding job markets, creating space for businesses to flourish, bringing in families, real estate opportunities and tax revenue. As businesses and investors see their investment returns, it only encourages opportunities for states like Arizona to grow their technology hub, much like the silicon valley’s boom in the 70s and 80s as a breeding ground for tech entrepreneurs and start-ups.
Companies like TSMC are heavily investing to accommodate semiconductor production in otherwise desolate regions in America. The maintenance required for these processes will introduce jobs, bringing people in who increase the local area’s population. The semiconductor industry could create over 115,000 jobs in America, an increased population that will also cause a ripple effect in other business expansions. The increased need for housing will provide momentum for the real estate market, as evident in the existing data around Arizona house listings rising 13.5% in 2024. This also opens up opportunities for businesses in the service industry as these new residents settle in and require more commodities. This jumpstarts investments in these previously deserted areas in Arizona, urbanizing the region to allow for a larger consumer economy beyond the initial three TSMC production sites.
A person walks into the Taiwan Semiconductor Manufacturing Co., headquarters in Hsinchu, Taiwan on Oct. 20, 2021. The Biden administration pledged Monday, April 8, 2024, to provide up to $6.6 billion so that a Taiwanese microchip giant can expand the facilities it is already building in Arizona and ensure that the world most-advanced chips are produced domestically for the first time. Source: AP Photo/Chiang Ying-ying, File
This may be the opportunity for Arizona to reduce their current reliance on the transportation industry as their main economic engine. Low taxes in the state incentivises tech company owners to develop their business in a silicon-valley like state away from California, which has a much higher tax rate - not an unprecedented move. Previously, Elon Musk had announced that he was relocating the Tesla headquarters to Texas, exempting him from $2.5 billion of capital gains tax. This could similarly apply to Arizona where the capital gains tax rate is at 2.5%, much lower than neighboring California’s rate of up to 13%. As businesses see their investment returns, it only steamrolls entrepreneurship in Arizona, creating an environment that breeds booming technological developments. Reported by the Wall Street Journal in late August, a start-up paid over $136 million for a data center to be built in Phoenix to support the AI boom. These large investments generate a culture of innovation in Arizona as up-and-coming technologies are facilitated in the state.
Arizona is already hopping on the trend, investing in the education sector to train the next generation of tech talent. Governor Katie Hobbs stated that a community college is opening in Phoenix, providing technical training towards semiconductor production. Arizona’s largest state universities, University of Arizona, Northern Arizona University and Arizona State University are all building undergraduate and graduate programs specializing in research and development towards semiconductor production. These educational investments could be the next step for Arizona to attract more tech companies that want to set up their research centers with the growing talent pool available.