> The world is so interconnected and everyone depends on everyone so much that there is basically no point in planning for this scenario

There's always a point in planning for a scenario if you think the risk is high enough and there is something you can do to better prepare for it.

In this scenario, the ones most impacted immediately will be the ones most dependent of the global economy. If you can't get the basics like food, water, and shelter if war with China breaks out then sure you'll be in a bad spot. But is it really an impossible task to prepare at all?

I mean .. if you want to waste a bunch of money and prepare for an unlikely war then it still doesn't make sense to worry about chips. You probably should build fallout shelters and secure things like domestic fertilizer production and the make sure agricultural equipment can be entirely made domestically

Even in the most benign case, if China is for whatever reason peacefully cut off from the global economy and we haven't been nukes into the stone age - having to move back to 22nm chips is going to be the least of our problems. To put it in perspective.. this is going to be a world where we no longer have cellphones and toiletpaper (b/c those are all made in China) and most equipment/machinery/refrigerators/washing-machines/cars/trains will overnight become at least in part unrepairable. Basically ever sector of the economy depends at least in some small part on the Chinese supply chain.

Preparing for supply chain issues during wartime and peacetime look very similar other than defence spending. Simplifying supply chains and reducing dependencies helps whether your concern is war, a pandemic, or economic change.

We put chips in almost everything today. If we can live without chips them so be it, but assuming we'd rather not feel the full impact of have zero chips for whatever reason we'd be smart to start building some level of manufacturing capability at home.

We already saw toilet paper supply chains crumble and all it took was a (potentially over-) reaction to a potential global pandemic. It wasn't a war with China that made it clear we really could do some good with a simplified toilet paper supply chain, it was scientific concern amplified but scared/concerned politicians and herd mentality when the public realized they weren't prepared for such a possible future.

What your proposing would basically entail countries indefinitely subsidizing a huge fraction of their economies so that everything is made domestically. You would just keep doing it and keep waiting for a war. It would be incredibly inefficient and make things significantly more expensive and your nation would fall behind (see North Korea). More importantly, by eliminating economic interdependence you create a much more dangerous world where demagogues can easily start wars b/c they can be sustained by these independent domestic economies

But even in this horror parallel reality of yours, cutting edge chips would still be very far down the list of things that are important. Can you provide basic sanitation without anything made in China? Transport? Medical care? Can you feed your nation? Can you maintain your nations basic infrastructure?

Having to go back a few generations in chips is just irrelevant at the scale of disaster you're envisioning

Why do you assume it must be driven by subsidies? Changes in demand can move the needle too, if our consumers prioritize domestic production it wouldn't matter if technically someone could import it for cheaper.

If you are going government intervention, they could reach for tariffs and import taxes rather than subsidies. Forcing prices high enough for domestic production is painful at first but would eventually work all the same.

I fully agree with you that too much of our current infrastructure is dependent on China and other countries. It isn't really a problem if we aren't concerned with major shocks though. It sounds like the difference is that I see the risks high enough to invest in domestic production if possible, you see that solution as unrealistic and that we're better off avoiding/preventing all shocks.

I meant "subsidy" in a more general sense. All goods will be more expensive. More people will be in poverty

Imagine how much more expensive everything would be, and now imagine the cumulative amount of money that represents. Money that could be used to fund education or improve people's lives, or even build armaments if you really are worried about the commies. You're in effect paying an huge "tax"/premium indefinitely for a threat that's very theoretical. In so doing youre seriously slowing down the rate of progress and prosperity

But that goes a bit away from the original point. That even if you want to have a self reliant north Korean model for the economy, chips are not a sensible place to start. You'd probably want your local hospital to be able to run without anything made in China. Going back to 22nm (circa 2014 tech) would be a minor annoyance.

Subsidies and tariffs have very specific meanings. They get at the same goal of increasing domestic production, but one increases government spending while the other increases government revenue through an import tax. Ultimately the domestic consumer pays either through taxes or increased prices, but they are very different mechanisms.

Its overly simplistic to assume that a subsidy will increase prices and harm the economy. We have been subsidizing corn for decades and it has kept prices artificially low. Prices for corn and downstream products like beef are artificially low specifically because of federal subsidies.

If a subsidy creates domestic jobs it could have a net benefit. The ultimate question is what metrics are impacted and at what rate. If domestic jobs are created fast enough to increase demand for employees, wages could rise faster than prices.

I have no idea what the end result would be, but that's ultimately my point. Economic models are just that, models. Models are based on analysis of past events and assumptions if the future. We don't know what we don't know, and we often don't recognize how inaccurate models are when we simplify them down to a handful of measurements.

To your original point, hospitals do seem reasonable to focus on with regards to stability through simplified supply chains. Chips may help there, our hospitals are dependent on a huge amount of tech today. Paper, silicon, and metal products would also likely be high on the list as they are often treated as consumables - the consumable nature of those products may make them more important than chips.

I mean that just goes against the very basics of economics.. Adam Smith, comparative advantage - and goes against the failed history of protectionist policies. You're basically advocating a version of mercantilist theory in the 21st century.. it's incredible anachronistic. But it's hard to argue when you're dismissive of all models

But I'm glad you see that chips are not really the top priority if this was really an issue of national safety. So one then has to wonder what are the real drivers of these jingoistic policies

I may have dove down to many rabbit holes there, sorry if I did.

To wind it back a bit, are you disagreeing that with the idea that subsidies are meant to reduce consumer prices and tariffs are meant to increase prices on imported goods?

Or are you disagreeing with my argument that economics isn't that simply and pulling one lever can have multiple impacts that together may move prices in an unexpected way?

the first point is semantic, but sure. In effect a tariff functions as a subsidy for domestic companies. If it's a net income or expense is kind of irrelevant and matter of taxation or putting the expense on consumers...

To the second point... it's so vague to be meaningless. What you're advocating is basically mercantilism - which is widely seen as ineffective and counterproductive since.. the 19th century. "unexpected ways“ .. is it like the law of gravity and always going to hold? Probably not. But when you are talking about blocking international trade across whole sectors of the economy then it seems like a valid simplification. If you want to argue mercantilism is going to be a net benefit to the domestic economy then the onus is on the advocate of the outdated theory. All past historic experience points to the opposite and to the development of a stagnant backwards economy

Mercantilism is a top-down approach, I was never promoting that. My earlier comments specifically called out what may be possible if consumers prioritized domestic products, the government only came into the conversation when you raised concerns over subsidies.

With regards to subsidies and tariffs I disagree the distinction is semantic and unimportant, though it likely is irrelevant here since I started with the concept of a change in demand at the consumer level.

In the modern world, chips are how you fight wars.

> The world is so interconnected and everyone depends on everyone so much that there is basically no point in planning for this scenario

This sentiment was very prevalent right before WWI.