US Congress Moves Toward $52 Billion in Subsidies for Semiconductor Firms

July 21, 2022

The Senate this week took a key step toward passing a bill meant to provide $52 billion in subsidies to the semiconductor industry in the United States, part of an effort that lawmakers have characterized as protecting the country from supply shortages such as those that struck during the coronavirus pandemic.

The bill, called the CHIPS for America Act, also seeks to make the U.S. more competitive with China.

Semiconductors, commonly known as chips, are essential elements of modern manufacturing. They are used in computers, cellphones and automobiles as well as in various other capacities. During the pandemic, chip shortages slowed manufacturing in multiple industries to a crawl.

The legislation would create incentives for semiconductor manufacturers to build chip fabrication plants in the U.S. to bring back domestic production levels, which have fallen from more than one-third of total global capacity three decades ago to less than 12% now.

Discussing the legislation on the Senate floor, Senator Rob Portman, a Republican, said, "It is a plan to make America more competitive with China, and a plan to bring good jobs back to America."

In a 64-34 procedural vote Tuesday, with more than a dozen Republicans voting with the overwhelming majority of Democrats, the Senate cleared the way for the legislation to come to a vote as soon as this week. The House of Representatives would need to pass the bill — which is still not in its final form — before President Joe Biden could sign it into law.

Making the case

Before the vote Tuesday, Senate Majority Leader Chuck Schumer told his colleagues that the bill "will fight inflation, boost American manufacturing, ease our supply chains and protect American security interests."

He added: "America will fall behind in so many areas if we don't pass this bill, and we could very well lose our ranking as the No. 1 economy and innovator in the world if we can't pass this."

Senator John Cornyn, the most senior Republican to vote in favor of advancing the bill, used Twitter to make his case ahead of the vote.

"If the US lost access to advanced semiconductors (none made in US) in the first year, GDP could shrink by 3.2 percent and we could lose 2.4 million jobs," he tweeted. "The GDP loss would 3X larger ($718 B) than the estimated $240 B of US GDP lost in 2021 due to the ongoing chip shortage."

The money in the bill comes with significant strings attached. Companies accepting the subsidies must agree not to use the funds for to buy back stock, pay shareholder dividends, or expand manufacturing in certain countries identified in the bill. Provisions allow the government to "claw back" the funds if a recipient violates any of the bill's conditions.

Second try

If the bill advances to the House, it would mark the second time a bipartisan group of senators tried to secure money for the semiconductor industry. Last year, the Senate passed a $250 billion package that included broader research and development funding.

When the House received the bill, it waited nearly a year to pass its own version and made a number of additions that Senate Republicans would not agree to. The bill never advanced.

Now, however, things might be different. In a letter circulated to members of the House Democratic caucus on Wednesday, House Speaker Nancy Pelosi wrote in favor of the bill.

"With this package, the United States returns to its status as a world leader in the manufacturing of semiconductor chips," Pelosi wrote, noting that the bill would create an estimated 100,000 well-paid government contracting jobs in the industry.

"Doing so is an economic necessity to lower costs for consumers and to win in the 21st Century Economy, as well as a national security imperative as we seek to reduce our dependence on foreign manufacturers," Pelosi wrote.

Industry reacts

In an email exchange with VOA, Ajit Manocha, president and CEO of Semi, a global industry trade group, said, "We are pleased to see action to reverse the decline in the U.S. share of global semiconductor manufacturing capacity, which has fallen by 50 percent in the last 20 years and is forecast to shrink further."

"The availability of robust incentives in other countries and the lack of a federal U.S. incentive have been key factors driving the location of more overseas manufacturing facilities," Manocha added. "If the United States wants to maintain or increase its share of global semiconductor manufacturing capacity, the federal government absolutely needs to get in the game."

Semiconductor Industry Association President and CEO John Neuffer said in a statement, "The Senate CHIPS Act would greatly strengthen America's economy, national security, and leadership in the technologies that will determine our future."

He added, "This is America's window of opportunity to re-invigorate chip manufacturing, design, and research on U.S. shores, and Congress should seize it before the window slams shut."