Computer chip subsidy bill faces key moment in Congress

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When the Senate passed a rare bipartisan measure last summer to spend $52 billion to subsidize US computer chip manufacturing and research, it seemed like an easy legislative priority for both parties.

Chips were so scarce that car factories closed for weeks, threatening jobs and driving up prices. New cars have become so scarce that the price of used cars has skyrocketed, often exceeding what they cost when new. Makers of seemingly everything from products as diverse as smartphones to dog wash booths have complained that they can’t get the chips they need. The White House called several emergency meetings, and Republicans and Democrats quickly rallied.

But a year later, funding has still not been enacted. It took the House until February to accept the grants. Since then, the process of merging the House and Senate bills has been bogged down due to disputes over pieces of the legislation unrelated to the chips, including provisions on climate and trade with China. A myriad of other issues, including military aid to Ukraine and inflation in gasoline prices, have also distracted lawmakers.

Supporters of chip funding say they are now racing to save it before Congress recesses for its August recess, after which election season will likely stifle prospects for any major new legislative packages.

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House and Senate leaders met on Tuesday to try to hammer out a deal. They failed to reach agreement on what to include in the final bill, but agreed they needed to act quickly to stop chipmakers from bypassing the United States and investing there. stranger, according to a person familiar with the talks, who spoke on condition of anonymity to discuss sensitive negotiations.

“We have expressed our belief that there is no reason why we should not pass this bill through Congress in July,” said House Speaker Nancy Pelosi (D-California) and House Speaker. Senate Majority Charles E. Schumer (DN.Y.) in a statement. statement afterwards. “Democrats have already made accommodations in the name of reaching a deal, which we are optimistic can happen soon.” The Republican leadership did not immediately provide comment.

The issues that triggered the legislation in the first place are still pressing. A global shortage of computer chips continues to stall manufacturing in the United States and other industrialized nations, driving up prices for automobiles and other electronics.

Limited chip supply will continue to constrain auto manufacturing through 2024 amid pent-up demand for vehicles and the growing popularity of electric cars, which require more chips per vehicle, consulting firm AlixPartners said Wednesday.

The global auto industry produced 8.2 million fewer vehicles last year than it would have without the chip shortage, costing it more than $200 billion in revenue, AlixPartners said. .

House Democrats are eager to pass the legislation because many members, including the most vulnerable representing swing districts, believe it would help them make the case that the party is fighting inflation and blockchain issues. supplies that motivate her.

US government subsidies were never going to provide a quick fix for the global chip shortage. Building a chip factory takes years. Yet as chips, also known as semiconductors, become an essential part of so much modern technology, many tech companies and lawmakers have argued that ensuring greater domestic production is a matter of economic security. and national.

“Anything that has an on/off switch is based on a semiconductor chip,” Sen. Mark R. Warner (D-Va.), a leading grant supporter, said in an interview. “As we see now with shortages of these chips holding back the automotive industry, by not having a secure domestic supply chain, this problem will only get worse as we move to more and more connected devices.”

The fundamental reason for the shortage is that too few companies are willing to invest the $10 billion or more needed to build a semiconductor factory. Countries around the world have provided grants to these chipmakers, hoping to incentivize them to locate new facilities within their borders.

Some of those programs could leave the United States behind, Warner said. “A year ago, the Europeans didn’t have a semiconductor incentive program in place,” but Germany is rolling out subsidies for an Intel manufacturing site, he said. he declares.

“When the German bureaucracy goes faster than the American legislative process, it’s not a good sign,” Warner said.

Intel announced plans in March to invest $20 billion in two chip factories in Ohio, pledging to begin construction this year and finish by the end of 2025. Other major chipmakers including TSMC , Samsung and GlobalFoundries, have also announced plans to expand in the US, although some have said the speed of their investments will depend on subsidy adoption.

“The CHIPS Act makes the US semiconductor industry more globally competitive. For GlobalFoundries, the adoption of CHIPS funding would affect the rate and pace at which we invest in expanding our manufacturing capacity in the United States,” said Steven Grasso, managing director of global government affairs for GlobalFoundries, in an e-mail. -mail, referring to the company’s expansion plans. a site in Malta, NY, where initial authorization is pending.

In the Senate and House, the funding is part of broader bills aimed at bolstering U.S. economic competitiveness amid growing competition from China and other countries. Lawmakers say there is strong support in both houses for semiconductor grants and for increased spending for the National Science Foundation and other research efforts, but the deal broke down on d other policies.

In a letter to Senate and House leaders last week, the chief executives of more than 100 tech companies, including Microsoft, IBM and Google parent Alphabet, urged Congress to pass the legislation, calling semi-funding conductors and other manufacturing and research measures “vital to our entire economy.

“The rest of the world is not waiting for the United States to act. Our global competitors are investing in their industry, their workers, and their economies, and it is imperative that Congress act to improve US competitiveness,” they wrote in the letter, organized by the Semiconductor Industry Association.

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Congressional aides said it’s likely the final bill will look more like Senate legislation, as it passed with bipartisan support, while the House bill only had one. only Republican supporter, Representative Adam Kinzinger (Illinois).

House Democrats had to make concessions along the way on the trade and climate provisions they included in their bill, the person familiar with Tuesday’s congressional leaders’ meeting said.

The House bill’s expansion of the Trade Adjustment Assistance program, which provides assistance to workers who lose their jobs due to offshoring and other adverse effects of foreign trade, is a failure especially for Republicans, according to congressional aides.

Another provision sparking debate would require the federal government to screen and sometimes ban certain U.S. investments in China. The measure, proposed by the senses. Robert P. Casey Jr. (D-Pa.) and John Cornyn (R-Tex.), has some bipartisan support in both chambers but nonetheless “was one of the most contentious issues to reach an agreement” , said Stephen Ezell, vice president of global innovation policy at the Information Technology and Innovation Foundation.

Todd Tucker, director of industrial and trade policy at the Roosevelt Institute think tank, said the House bill included important provisions aimed at protecting U.S. supply chains from external shocks, such as the pandemic, which has caused widespread shortages of medical products.

Among other measures, the bill would establish an Office of Manufacturing Security and Resilience in the Commerce Department with $500 million in appropriations, tasked with tracking the availability of goods and services in real time and promoting manufacturing. criticism in the United States and in allied countries, Tucker said.

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