Senate pushes semiconductor bill to compete with China

Sefa Ozel | E + | Getty Images

The Senate voted in favor of a simplified version of its bill, which is designed to increase U.S. semiconductor competition with China.

The bill passed a key procedural hurdle Tuesday night in a 64-34 vote, even as lawmakers worked to finalize various sections of the legislation.

The bill, which will provide about $50 billion in subsidies to support U.S. computer chip manufacturing, is a multi-faceted bipartisan effort that brings together the interests of several committees, from national security to the economy.

A procedural move by the Senate on Tuesday paves the way for the House to vote on final passage later this week or early next week. The bill would then be sent to the House of Representatives for passage before it was sent to the president. Joe Bidendesk for signing the law.

The broadest goal of the law is to encourage US semiconductor manufacturing to reduce reliance on Asian manufacturers.

Biden administration officials say a larger domestic chip industry will help alleviate supply chain disruptions that have hampered an economic recovery after COVID-19 and isolate the US from supply lines dominated by political rival China.

The global chip shortage has affected several industries over the past two years, including automotive, mobile phone and consumer technology companies, and defense systems manufacturers.

Sen. John Cornyn, Texas Republican and lead author of the original Senate text, emphasized the economic implications of the law in a couple of Twitter posts published on Tuesday.

US Senator John Cornyn (R-TX) speaks to reporters at the US Capitol in Washington, DC.

John Cherry | Reuters

“If the US loses access to advanced semiconductors (not made in the US) in the first year, GDP could shrink by 3.2 percent and we could lose 2.4 million jobs,” he wrote. “GDP losses will be 3 times greater ($718 billion) than the estimated $240 billion of US GDP lost in 2021 due to the ongoing chip shortage.”

The centerpiece of the legislation is the allocation of $52 billion to restore domestic chip production and tax credits to encourage the construction of factories in the US. Chip shares rose on Tuesday ahead of an expected vote. Intel up to 3.9%, Nvidia 5.5% higher and Texas Instruments 3.1% growth, all ahead of broader S&P 500 an increase of 2.8%.

The procedural step forward comes more than a year after the Senate, in a bipartisan vote, first approved a $250 billion bill to strengthen U.S. chip manufacturing and boost U.S. research and development.

But the House never considered the bill after the Senate approved it in June 2021.

House Democrats have drafted their own version of China’s competition law, with a softer tone on national security and more emphasis on climate finance. Republicans opposed the bill.

Democrats in both houses have struggled for months to resolve the differences between the two versions. With annual inflation in excess of 9% and the party poised for a tough midterm election, the Biden administration has proposed a simpler bill aimed only at increasing chip production.

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It remains to be seen whether Senate Democrats can garner the 60 votes needed to bypass the filibuster of the final bill. This will require support from several Republicans, who lament that much of their work in creating conditions for competition with China is likely to be abandoned.

Even senior Democrats, including Foreign Relations Committee Chairman Bob Menendez of New Jersey, denounced the vague bill.

“We’re at a point right now where I don’t think anyone really knows what the final bill might look like or where the votes will be,” Republican Senate member John Thune, RS.D., told Politico last week. “We know where we voted last time. But that was a different time, and it was a different bill than the one we’re talking about today.”

But the Democrats also ran into fresh trouble with the Republicans, who threatened to derail the semiconductor bill if Majority Leader Chuck Schumer, DN.Y., goes ahead with a separate plan to pass the party’s tax and climate policy bill.

Other late-stage policy decisions could further complicate matters, including whether to cut tariffs on Chinese goods first introduced by former President Donald Trump.