Congress races to save $52bn in subsidies for chipmakers

    Members of Congress are considering sacrificing billions of dollars’ worth of proposed investment in advanced technologies such as artificial intelligence in a last-ditch deal to fund $52bn in subsidies for chipmakers instead.

    The chip section in the broader China-focused US Innovation and Competition Act was supposed to be Washington’s long-term solution to the huge bottleneck in chip manufacturing that has clogged up international supply chains in recent years. One company in Taiwan — Taiwan Semiconductor Manufacturing Company — accounts for half of all global chipmaking revenues.

    The legislation aims to solve that by offering a range of grants and tax breaks to companies that build chipmaking plants in America. But those subsidies hang in the balance after Mitch McConnell, the Republican leader in the Senate, threatened to block the wider USICA, which is aimed at countering Chinese economic and technological power.

    With lawmakers tussling over the details, companies are threatening to move their investment elsewhere — leaving some in Congress to consider radically reducing the scope of the bill in a bid to get the subsidies through in time.

    One senior Democratic aide involved said: “Members are coalescing around a slimmed-down version of the bill. Everybody agrees we need to do this, but we only have a couple of weeks to do so in order to make sure the planned investments happen.”

    John Neuffer, the chief executive of the Semiconductor Industry Association, which has been helping organise the lobbying effort, said: “This is a scary moment. It is not clear how this is going to play out.

    “There is a window now when companies are making their investment decisions for the next few years, but that window closes in a few months.”

    Washington has been concerned about US reliance on microchips made in Taiwan for years, but the unease has been exacerbated over the past 12 months by China’s increasingly aggressive behaviour around the island.

    Last year members of Congress passed the Chips for America Act, which offers companies grants and tax credits for chipmaking and research. A separate one, known as the Fabs Act, offers tax credits for investment in chipmaking facilities. Congress has passed the Chips Act but not authorised the $52bn needed to fund it.

    That authorisation and the Fabs Act were part of the separate USICA, which also included funding for AI, quantum computing, 5G and US-made drones.

    McConnell put that entire bill in question last month when he wrote on Twitter that he was prepared to block USICA if the Democrats pushed ahead with proposals such as drug pricing reforms through a separate legislative process known as reconciliation, which would prevent McConnell and the Republicans from filibustering it.

    The tweet set off a frantic round of lobbying from the bill’s supporters in the industry and in Congress.

    Pat Gelsinger, chief executive of Intel, warned he would have to delay investment in the company’s planned $20bn plant in Ohio if the money was not approved. He urged chief executives in the automotive and medical device industries to also speak out.

    Sanjay Mehrotra, the chief executive of Micron, has also been a prominent supporter of the bill. He told the Financial Times his company was about to make a decision to build a fabrication plant “for the 2025-26 timeframe”, and needed to know if there would be subsidies available. “This is an urgent matter, we are at a crossroads.”

    The industry points out that many other countries subsidise chipmaking or are planning to do so. Germany, for example, has announced it will fund 32 semiconductor projects using a €10bn fund it announced in May. Japan has approved $6.8bn in funding for domestic semiconductor investment.

    This week, US commerce secretary Gina Raimondo briefed Congress on the importance of domestic chipmaking for military purposes. Much of the US’s military equipment, including F-35 fighter jets, is powered by chips made by TSMC.

    In a letter sent separately to congressional leaders, Raimondo and defence secretary Lloyd Austin said: “This funding is critical for our national security, will advance domestic supply, create good-paying jobs, and will catalyse billions more in private investment.”

    After Raimondo spoke to senators, several voiced support for passing a slimmed-down bill. Mark Warner, the Democratic chair of the Senate intelligence committee, suggested passing only the Chips Act, the Fabs Act and more money for 5G telecoms networks, according to two of those briefed on the meeting.

    But trying to pass the funding for the Chips Act as a standalone bill would significantly reduce the odds that the broader USICA bill would pass this year, given the limited amount of time Congress has to debate legislation before many members hit the campaign trail ahead of November’s midterm elections.

    Lindsay Gorman, a senior fellow at the Alliance for Securing Democracy and former White House science adviser, said the collapse of USICA would be a big step backwards. “If it were to collapse entirely, it would be a complete disaster.

    “The worst thing would be for the US to proclaim loudly that it is in a race with China, but then get caught stopping to tie our shoes while China outruns us.” 

    Ylli Bajraktari, chief executive of Special Competitive Studies Project, a non-profit focused on strengthening US competitiveness in AI and other emerging technologies, said it was critical that Congress moved on both.

    “Semiconductors are critically important for us to stay ahead in AI and other emerging technologies.

    “Both the Chips Act and the China competition bill must be passed as soon as possible as we face a determined competitor in China for our economic and technological security.”

    Congress races to save $52bn in subsidies for chipmakers Republished from Source via

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