The Senate passed a $280 billion “CHIPS and Science Act,” — the culmination of several years’ efforts to create a modern industrial policy for the U.S. The bill will also give $100 billion to support regional technology hubs to support start-ups in areas of the country that haven’t traditionally drawn big funding for tech.
The bill would give $52 billion in subsidies to microchip manufacturers like Intel Corporation and will allow them to compete on a somewhat even playing field with China.
Considering the polarization in Congress, it’s remarkable that the bill received as much Republican support as it did — 17 GOP Senators voted for the bill. The bill now moves on to the House where Speaker Nancy Pelosi promises to bring it to the floor quickly. It’s expected that there will be Republican support for the bill in the House as well.
The bill, a convergence of economic and national security policy, would provide $52 billion in subsidies and additional tax credits to companies that manufacture chips in the United States. It also would add $200 billion in scientific research, especially into artificial intelligence, robotics, quantum computing and a range of other technologies.
The real impetus for passage was the pandemic when America’s chip shortage contributed to the supply chain problems suffered by many industries.
In the end, it was made possible only by an unlikely collision of factors: a pandemic that laid bare the costs of a global semiconductor shortage, heavy lobbying from the chip industry, Mr. Young’s persistence in urging his colleagues to break with party orthodoxy and support the bill, and Mr. Schumer’s ascension to the top job in the Senate.
Many senators, including Republicans, saw the legislation as a critical step to strengthen America’s semiconductor manufacturing abilities at a time when the nation has become perilously reliant on foreign countries — especially an increasingly vulnerable Taiwan — for advanced chips.
But a Wall Street Journal editorial points out the perils of allowing the government to subsidize any industry. Companies are going to have to play by different rules, including paying workers the “prevailing wage” in the region.
The President also underscored that the law requires companies to pay union prevailing wages to build the semiconductor fabrication facilities funded by the bill. Communications Workers of America president Chris Shelton said this will ensure “there isn’t a race to the bottom.” Translation: Construction will be more expensive, and non-union contractors won’t benefit.
The administration is going to prevent companies from using funds from the bill to manufacture chips in China — a reasonable restriction given the growing competition between Washington and Beijing.
Nor will the administration allow companies to use the cash to buy back stocks or issue dividends.
With that many strings attached, will companies still want the subsidies?
The President also noted that companies whose future innovations derive in part from the bill’s $200 billion in authorized spending on research and development in areas like green energy and artificial intelligence will be required “to deploy that technology” and invest “in a facility here in America.” This requirement will make CEOs add a political calculation to their investment choices.
Industrial policy and the political allocation of capital invariably distort investment. Don’t be surprised if the conditions that Congress and the Administration impose on these companies make the firms and the United States less competitive with China.
This could be a huge boost to America’s high-tech industries. Or it may be a $300 billion boondoggle that will tie companies in knots, making it even harder for them to compete. Given who’s president, it’s really not much of a mystery.
