Congress races to save $52bn in subsidies for chipmakers

Members of Congress are considering sacrificing proposed billions of dollars worth of investments in advanced technologies like artificial intelligence in a last-ditch deal to instead fund $52 billion in subsidies for chipmakers.

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

The legislation aims to solve this by offering a range of grants and tax breaks to companies building chip factories in America. But those subsidies hang in limbo thereafter Mitch McConnell, the Republican leader in the Senate, threatened to block the broader USICA, which aims to counter China’s economic and technological might.

As lawmakers bicker over the details, companies are threatening to shift their investments elsewhere — and some in Congress will need to consider radically reducing the scope of the bill to get the subsidies through in time.

A senior Democratic adviser involved said: “Members are rallying around a stripped-down version of the bill. Everyone agrees we need to do this, but we only have a few weeks to make sure the planned investments are made.”

John Neuffer, the managing director of the semiconductor The industry association, which helped organize the lobbying, said: “This is a scary moment. It is not clear how this will develop.

“There’s a window now for companies to make their investment decisions for the next few years, but that window is closing in a couple of months.”

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

Last year, members of Congress passed the Chips for America Act, which offers corporations grants and tax credits for chip manufacturing and research. A separate piece of legislation known as the Fabs Act provides tax credits for investments in chip manufacturing facilities. Congress passed the Chips Act but failed to authorize the $52 billion needed to fund it.

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

McConnell questioned that whole bill last month he wrote on Twitter that he was willing to block USICA if Democrats pushed ahead with proposals like drug pricing reforms through a separate legislative process known as reconciliation, which would prevent McConnell and Republicans from preventing it.

The tweet prompted frenzied lobbying by supporters of the bill in the industry and in Congress.

Pat Gelsinger, Intel’s chief executive officer, warned that if the money isn’t approved, he may have to postpone investment in the company’s proposed $20 billion Ohio plant. He called on executives from the automotive and medical device industries to also comment.

Sanjay Mehrotra, Micron’s chief executive officer, was also a prominent supporter of the bill. He told the Financial Times his company is about to make a decision to build a manufacturing facility “for the 2025-26 period” and needs to know if subsidies are available. “This is an urgent matter, we are at a crossroads.”

The industry points out that many other countries are subsidizing or planning to subsidize chip production. Germany e.g. has announced It will fund 32 semiconductor projects with a €10 billion fund announced in May. Japan has approved $6.8 billion in financing for domestic semiconductor investment.

This week, US Secretary of Commerce Gina Raimondo briefed Congress on the importance of domestic chip manufacturing for military purposes. Much of US military equipment, including F-35 fighter jets, is powered by chips manufactured by TSMC.

In a separate letter to Congressional leaders, Raimondo and Secretary of Defense Lloyd Austin said, “This funding is critical to our national security, will spur domestic supplies, create high-paying jobs and mobilize billions more in private investment.”

After Raimondo spoke to senators, several voted in favor of passing a slimmed-down bill. Mark Warner, the Democratic chair of the Senate Intelligence Committee, suggested passing just the Chips Act, the Fabs Act and more money for 5G telecom networks, according to two of those briefed on the meeting.

But attempting to pass funding for the Chips Act as a standalone piece of legislation would greatly reduce the likelihood of the broader USICA bill being passed this year, given the limited time Congress has to debate legislation before many members before the November campaign draw midterm elections.

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

“The worst thing would be if the US loudly announces that it is in a race with China, but then gets caught stopping to tie our shoes while China runs away from us.”

Ylli Bajraktari, executive director of the Special Competitive Studies Project, a nonprofit focused on boosting U.S. competitiveness in AI and other emerging technologies, said it’s critical that Congress advance both.

“Semiconductors are critical for us to stay at the forefront of AI and other emerging technologies.

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

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