Why $50 billion in chip funding has stalled in Congress

Passing the law could help make the U.S. a plausible competitor when companies consider where to build new plants. At the moment, it is not.

The capitol building behind a fence

Secretary of Commerce Gina Raimondo urged the House of Representatives last week during a stop in Detroit to pass roughly $50 billion worth of chip-making subsidies.

Photo: Ian Hutchinson/Unsplash

Legislation is sort of like fish: If it lies around too long, lawmakers can start to lose interest.

The billions of funding for much-needed semiconductor manufacturing under consideration by Congress hasn’t quite passed any reasonable expiration date. But the package of legislation it’s tied to, called the U.S. Innovation and Competition Act or USICA, remains just an idea nearly a half year after it was passed by the Senate in June.

To resuscitate efforts, Secretary of Commerce Gina Raimondo urged the House of Representatives last week during a stop in Detroit to pass roughly $50 billion worth of subsidies. Two days later, 59 corporate executives, including Apple CEO Tim Cook, General Motors top boss Mary Barra and Intel chief executive Pat Gelsinger, sent a letter to Congressional leadership with a similar plea: It needs to act—fast—to restore American competitiveness in chip manufacturing.

The $52 billion in funding, known as the Creating Helpful Incentives to Produce Semiconductors, or CHIPS, isn’t controversial in Washington D.C. Most of the money would be earmarked for distribution by the Commerce Department, and it is meant to encourage chip companies to produce more fabrication sites in the U.S. and increase research and development.

As one semiconductor executive put it: Passing the law, coupled with tax incentives tied to fab construction, would help make the U.S. a plausible competitor when companies consider where to build new plants. At the moment, it is not.

“The first thing you have to do is to get someone interested, to entice Samsung, TSMC or Intel to build more foundries here,” Whitman School of Management Professor Patrick Penfield told Protocol. “The ideal situation is to get the really high-end manufacturing of chips here.”

There is broad bipartisan support to pass the legislation, with only a minority in the extreme flank of either party voicing opposition. The supply-chain issues experienced by consumers have presented one compelling reason, as has an increasingly adversarial relationship with China.

“Upping our R&D game to out-innovate China is one of the few truly bipartisan areas of agreement in modern Washington, and I’d expect USICA to pass with full CHIPS funding in the first quarter of 2022,” said Bruce Mehlman, founding partner at Mehlman Castagnetti Rosen & Thomas.

The delay appears to be a matter of priority setting. At the moment lawmakers in Washington are focused on ensuring the government remains funded—the Senate passed a spending bill late Thursday—and the administration’s agenda to help the country recover from the COVID-19 pandemic, in the form of the Build Back Better Act. Funding for semiconductor subsidies is likely now second or third on the agenda after COVID-19 recovery and a defense spending bill.

There have been several reports that China is working to block chip manufacturing subsidies too, which may have further complicated the process. But, two people familiar with lobbying efforts around the bill said such activity was unlikely to persuade lawmakers to slow their efforts. In fact, China’s interest in halting the chip funding would likely only further serve as encouragement.

For House members, there may be an additional policy roadblock. Tucked inside the Innovation and Competition Act alongside the chip subsidy funding is a plan to overhaul how the federal government funds research and development. The bill would increase the funding, but also reorganize the way the cash is doled out and by which agencies, which is a problem for some lawmakers. There is appetite for modernization, but resistance to changing the existing structure.

Part of the objection also lies in the fact that House committee staffers have put a lot of work into their own research and development bills, and don’t want their work to get lost in the Senate’s efforts, according to one person familiar with legislative activity in the House.

It’s possible Congress could broker a deal at the eleventh hour and pass some form of the manufacturing subsidies this calendar year but it appears unlikely, with every day making a last-minute effort even less possible, according to five people familiar with the legislative activity. Those people think passage is more realistic within the first three months of the new year.

But for some people, optimism may be unavoidable. Carl Holshouser, an executive at industry lobby group TechNet, expects that Congress will find a way to squeeze semiconductor manufacturing funding before it returns home for the holidays.

“We have received, in the last week, a high level of confidence and inspiring feedback from the administration and members of Congress on both sides of the aisle that they believe that this will get done, and that it will get done this year,” he said.


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