Policy

Chip subsidies are popular in Congress. They still might fail.

The Democrats have an ambitious legislative agenda following the July recess. Chip subsidies hang in the balance, and Sen. Mitch McConnell wants Democrats to stay focused on them.

Chips

USICA — and its $52 billion in subsidies for domestic chip manufacturing — no longer seems to be a sure thing.

Photo: Chris Ratcliffe/Bloomberg via Getty Images

Congressional Democrats are in need of a signature legislative win ahead of the midterms, and the United States Innovation and Competition Act could be exactly that. Chipmakers including Intel, Samsung and TSMC have forged ahead with plans to build fabrication facilities in the U.S., trusting that Congress will eventually sort things out and pass the bill.

But with Congress currently suspended for a tense July recess, the USICA — and its $52 billion in subsidies for domestic chip manufacturing — no longer seems to be a sure thing.

The industry’s patience is wearing thin. In June, Intel made the largely symbolic move of delaying its groundbreaking ceremony for its Ohio fabrication facility, which ultimately could involve an investment of around $100 billion. A TSMC board member also recently warned the timing of the $12 billion Arizona factory completion would depend on Congress passing subsidies.

Major industry players are heading to D.C. to lobby for the subsidies, which have significant bipartisan support but are ensnared in thousand-page-long bills, their political baggage dragging them down.

IBM’s vice president of government and regulatory affairs, Chris Padilla, said the company plans to fly employees to D.C. in the coming weeks to hold hundreds of meetings with policymakers. “We’re planning to spend this month making an all-out push,” he told Protocol.

Unfortunately for Democrats, Senate Minority Leader Mitch McConnell understands their need for a legislative win and intends to use it against them. At the end of June, he tweeted: “Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill.”

Meanwhile, Senate Majority Leader Chuck Schumer is forging ahead with an ambitious legislative agenda that includes USICA and a new version of the failed Build Back Better bill. The resurrected Build Back Better deal is expected to introduce prescription drug pricing reforms, extend Affordable Care Act subsidies, raise some taxes and provide as much as $300 billion in subsidies for green energy initiatives. Further complicating things, Democrats also face pressure to make good on long-awaited promises to pass their tech antitrust bills and to codify Roe v. Wade.

“What could happen from all this is that you wind up getting nothing,” said Padilla. He added that as Congress nears the end of session, “everything gets linked to everything else — and then what you get usually is a grand bargain or nothing.”

Even if the Democrats go along with McConnell’s demand to only focus on USICA, the reconciliation process won’t be easy. The House and Senate both already passed versions of the bill, but with major differences in partisan slants: The House’s COMPETES Act passed with only one Republican vote in February, while the Senate USICA bill passed with a healthy bipartisan coalition of 68 votes at the end of March.

“It is critical to get the bipartisan Innovation Act to the president’s desk before the end of August,” Rep. Ro Khanna, one of the bill’s co-sponsors, told Protocol. “We cannot continue to blow by deadline after deadline for a bill to create thousands of good, paying jobs and ensure the United States remains competitive with China.”

Key differences between the House and Senate versions center on trade and immigration: Only the House version of the bill includes a renewal of trade adjustment assistance programs and plans to expand the immigration system for high-skilled tech workers. The proposed immigration reforms exempt foreign-born workers with doctoral degrees in STEM fields from annual green card limits that often force them to leave the U.S.

These difficulties won’t easily be resolved, so the chip industry has a backup plan: get the subsidies stripped out and passed on their own.

One Republican staffer told Protocol the USICA package seems to be falling down the priority list for Democrats. The staffer said Democrats are now more inclined to focus on issues that would appeal to voters ahead of midterms, such as the drug pricing reforms.

The semiconductor subsidies aren’t likely to do much for voters, unless maybe they happen to live near proposed facilities. Congressional approval ratings have continued their steady decline to just 16% in June. Inflation, gun control and abortion access have emerged as key issues heading into elections. McConnell’s bargain would force the Democrats to prioritize USICA, with the intended consequence of hamstringing a bill that includes tax hikes.

That leaves the possibility that nothing at all gets passed — not USICA, and not the skinny package focusing on subsidies. In that case, the chip industry would likely find itself working with a Republican, business-friendly Congress after midterms, and it would still have a shot at getting the subsidies then.

That makes it all a question of timing: The chip industry and its champions in government have argued that nations such as Japan, Germany and France will lure chipmakers away from the U.S. with their own subsidy packages, which are already on the table.

“Mark my words ... if Labor Day comes and goes and this Chips Act isn't passed by Congress, these companies will not wait, and they will expand in other countries,” Commerce Department Secretary Gina Raimondo warned at the end of June.

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