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With Funding Stalled, Chip Makers Warn Congress the U.S. Is Lagging

June 18, 2022
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WASHINGTON — Top chip makers are pressuring Congress to quickly pass a measure providing more than $52 billion for companies that build semiconductor factories in the United States, privately warning lawmakers that failure to do so could prompt them to take their manufacturing plants elsewhere.

The bill, known as the CHIPS Act, would deliver semiconductor giants a remarkable injection of government support to build up America’s manufacturing and technological edge amid a global shortage of the critical technology. But despite broad bipartisan support for the measure on Capitol Hill, it has languished for nearly a year after lawmakers chose to package it with sprawling legislation aimed at bolstering U.S. competitiveness with China, which has stalled amid a variety of policy disputes.

As lawmakers in the House and Senate have spent months haggling over more than a thousand other provisions in that larger package, chip executives have become increasingly anxious about if and when their incentives will materialize. And they have become increasingly vocal in warning lawmakers that the United States risks falling behind other nations, which have moved more quickly to pass similar incentives to entice chip manufacturers to their shores.

The lobbying efforts have prompted lawmakers to consider passing the chips bill as part of a narrower measure, dropping the other parts of the legislation that are still in dispute. They are aiming to finalize an agreement on the legislation by next week, according to a congressional leadership aide who discussed the private negotiations on the condition of anonymity.

The talks are unfolding as the United States toils to loosen China’s chokehold on the semiconductor supply chain amid a global shortage of the critical technology that has led to shortages of cars and electronics and fueled inflation. Among the proponents of quick action is the Biden administration, which regards the measure as critical to its efforts to create American jobs.

The urgency is also political. Democrats, eyeing a grim political terrain ahead of the midterm elections, are eager to pass the competitiveness legislation and promote their efforts to fix supply chain issues and create jobs on the campaign trail.

“The stakes couldn’t be higher because the companies are all making their decisions now and in the coming months about where they will be making their next big rounds of capital investments,” Gina Raimondo, the commerce secretary, said in an interview. “Other countries are out there now cutting deals. And if Congress continues to dither, that dithering will send a message that the United States isn’t serious, and we will lose out on these once-in-a-generation investments and all of the jobs and national security benefits that come with it.”

India, Japan and South Korea have all recently passed tax credits, subsidies and other incentives amounting to tens of billions of dollars for the industry, and the European Union may soon finalize its own chips act with $30 billion to $50 billion in funding. China, too, has extended tax and tariff exemptions and other measures aimed at upgrading its chip industry and reducing its reliance on foreign countries.

“Other countries around the globe have mimicked our legislation and are making major investment in innovation and chip production,” said Senator Chuck Schumer, Democrat of New York and the majority leader, who has personally championed the competitiveness legislation. “If we don’t act quickly, we could lose tens of thousands of good-paying jobs to Europe.”

Manish Bhatia, the executive vice president of global operations at Micron, said in an interview that his company, the second-largest semiconductor manufacturer in the United States, was in the process of planning construction through 2030 and evaluating several sites around the United States where it could expand its domestic footprint. But those investments, he said, would be difficult to make domestically without swift congressional action.

“The cost differential that we see today between the United States and other locations around the world make it difficult to expand memory manufacturing,” Mr. Bhatia said. “We would really like to see the CHIPS Act and the investment tax credits pass in the near term — in the next few weeks or before the summer recess — so we can make our manufacturing decisions with confidence.”

Both publicly and behind the scenes, Intel’s chief executive officer, Pat Gelsinger, has emerged as one of the most vocal proponents of quickly passing the legislation. Intel earlier this year announced a $20 billion investment to build two massive new chip factories in Ohio known as “mega fabs.”

Mr. Gelsinger testified before Congress that the investment in Ohio could grow to eight such factories — a $100 billion investment, he said — but only if the competitiveness legislation passed. “We are putting our chips on the table,” Mr. Gelsinger said at a White House event earlier this year. “But this project will be bigger and faster with the CHIPS Act.”

John Neuffer, the chief executive of the Semiconductor Industry Association, said the industry had been under “withering pressure” to build new manufacturing facilities to respond to the explosion of demand for chips.

Mr. Neuffer said that building facilities was often 25 to 50 percent cheaper in foreign countries than in the United States, largely because of the manufacturing incentives foreign countries offered. Some U.S. state governments do offer funding to court chip manufacturers, but the federal government “is not in the game,” he added.

According to the S.I.A.’s tracking, four semiconductor plant construction and expansion projects were announced in the United States in 2021, compared with 25 projects elsewhere, including in Europe, South Korea, Japan, Taiwan and Singapore.

There is little resistance in Congress to providing chip makers with such massive subsidies, with exceptions including Senator Bernie Sanders, independent of Vermont. But Scott Lincicome, the director of trade policy studies at the Cato Institute, a libertarian think tank, described the companies’ lobbying efforts as “a shakedown,” an international version of corporations shopping around for the largest state subsidies as they choose where to relocate their headquarters.

“If I were in their position, I’d be doing the same thing,” Mr. Lincicome said. “But that doesn’t mean as taxpayers we should pay for it.”

But adding pressure on lawmakers to act is the fact that virtually every major industry relies on semiconductors, including automobile makers and the defense industry. Major defense contractors, such as Lockheed Martin and Raytheon, became increasingly vocal about the national security implications of establishing a resilient domestic supply of chips after Russia’s invasion of Ukraine.

Chip companies are “not at a break-glass point, but they’ve sort of identified for us — and it’s pretty consistent with my legislative timeline — a break-glass timeline for some of these investment announcements,” Senator Todd Young, Republican of Indiana and the original co-sponsor of the core legislation, said in an interview.

Still, Mr. Young expressed confidence that lawmakers would be able to resolve their differences and broker a compromise. That may mean cutting out provisions that lawmakers in the House and Senate can’t agree on.

A congressional document breaking down every provision in both the House- and Senate-passed bills showed more than 1,100 independent measures that required being reconciled. Nearly all of the outstanding provisions causing the delay have little or nothing to do with the chips or manufacturing component. Many of the sticking points are trade-focused, such as a provision that would give the government oversight over American companies looking to invest in countries overseas.

In a series of meetings among congressional leaders, lawmakers and administration officials this week, Ms. Raimondo said, the overwhelming sense was, “Let’s negotiate what we can negotiate, let’s be practical, move with speed and get this over the finish line.”

Read the full article here

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