The most advanced category of mass-produced semiconductors – used in smartphones, military technology and more – is known as 5nm. A single company in Taiwan, known as TSMC, manufactures around 90%. American factories don’t make them.
America’s struggles to keep pace with semiconductor manufacturing have already had economic downsides: Many jobs in the industry pay more than $100,000 a year, and the United States has lost them. In the longer term, the situation also has the potential to cause a national security crisis: if China were to invade Taiwan and cut off semiconductor exports, the US military would risk being overtaken by its main rival for supremacy. world.
For these reasons, a bipartisan group of senators and the Biden administration negotiated a bill last summer that included $52 billion to revive the domestic semiconductor industry, as well as other measures to help United States to compete economically with China. The bill would offer the kind of semiconductor subsidies that other countries — including China, South Korea, Japan, India and Germany — provide. Without these subsidies, companies like Intel and Broadcom would likely choose to build new factories outside the United States.
But the Senate semiconductor bill has yet to become law. The House spent months negotiating its own bill, passing one in February. Since then, the House and Senate have failed to resolve the differences between the two bills, and Republican Senate leader Mitch McConnell recently threatened to scuttle the talks.
The standoff has become another example of dysfunctional Congressional policy weakening the United States’ global position.
There is a broad consensus — among many pundits, President Biden, an overwhelming majority of Democrats in Congress, and a significant number of Republicans — that the federal government should act. But this is still not the case.
Today’s bulletin looks at the debate over the bills and recent efforts to find a solution before Congress goes into recess in August.
The strongest substantive argument against subsidies is that they are a handout for the semiconductor industry. The bills would use taxpayers’ money to benefit large corporations that can already make a profit on the products they sell.
In economic terms, this argument makes a lot of sense. But geopolitics matters too. Political leaders in other countries have already decided to offer subsidies for semiconductor manufacturing, because they want some of that manufacturing to take place in their country.
If the United States does not also offer subsidies, it could continue to struggle to attract factories. Already, the U.S. market share of all semiconductor manufacturing has fallen to around 12%, from 37% three decades ago.
Pat Gelsinger, Intel’s chief executive, said a typical factory costs around $10 billion to build, and subsidies from some countries cover 30-50% of that cost. Chinese subsidies cover more than 70%. “It’s not economically viable for us to be competitive in the global marketplace if everyone else we compete with sees 30-50% lower cost structures,” Gelsinger said.
Sen. Rob Portman, a Republican from Ohio who helped draft the Senate bill, admitted that it goes against the free-market philosophy he usually prefers. But, Portman explained at the Aspen Ideas Festival last month, “if we continue with blinders on to follow a political philosophy that seems to make sense in general but doesn’t work in the practical world, I think we end up with a lot minus a competitive economy and a national security risk.
Biden and his top aides agree. “We are now in a very dangerous situation where we are totally dependent on Taiwan for the vast, vast majority of our most advanced semiconductors, which are exactly the kind of semiconductors you need for military equipment” , Commerce Secretary Gina Raimondo told me. “You can’t be a global superpower if you don’t do any of this.”
what china wants
Why, then, did the Senate and the House not agree on the bill?
House Democrats added provisions to the Senate bill that Republicans did not like, such as additional funds for retraining workers. House Democratic leaders seem willing to drop most of them from the final bill, but it’s unclear whether the two parties can agree on a compromise.
McConnell — despite being one of 19 Senate Republicans who voted for the original bill — also appears to be hesitant. He tweeted on June 30 suggesting he could block a semiconductor bill if Democrats continue to try to pass a separate bill on climate change and drug pricing, to which Republicans oppose.
McConnell may have acted, hoping to intimidate House Democrats into dropping the provisions of his version of the semiconductor bill. On the other hand, his history suggests he might be willing to defeat a policy he would otherwise favor in an effort to make a Democratic president look weak.
To help the bill’s chances, Chuck Schumer, the Democratic leader in the Senate, yesterday held a classified briefing for all senators. During it, Raimondo and Avril Haines, Biden’s director of national intelligence, discussed the US military’s current reliance on Taiwan. Big business is also lobbying for the bill, as my colleague Catie Edmondson notes. “So many powerful industries really want this bill passed, from chipmakers to defense contractors to manufacturers,” she said.
There is still one vocal opponent to the bill: the Chinese government. His state media called the idea “bullying” and part of a “cold war mentality”. Over the past few decades, no country’s share of semiconductor manufacturing has grown as rapidly as China’s.
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