With CHIPS on Table, Leave It to Congress to Drop Ball on Semiconductor Subsidies

In honor of this week's baseball All-Star Game, Congress and the Biden administration look poised to take a swing at the Creating Helpful Incentives to Produce Semiconductors for America Act, a bipartisan technology research and development package that aims to incentivize semiconductor manufacturing within the United States

How Did We Get Here?

• The initial authorization for the CHIPS for America Act came within the fiscal year 2021 National Defense Authorization Act, yet congressional appropriators have not deemed it necessary to fund this program for nearly two years.
• Different constituencies on Capitol Hill and lobbying by outside groups have argued that the nation is harmed from reduced U.S. market share in global production as well as by overreliance on advanced chip nodes from Taiwan in light of possible Chinese aggression in the Taiwanese Strait.

"Downright Scary and Untenable".

• Gina Raimondo has flooded the airwaves and Capitol Hill with dire predictions that previously announced semiconductor investments could depart our shores for European Union nations or other partners in Japan and South Korea due to their own government-backed incentives.
• While previously advocating for the ability to nearshore and find complementary efforts among allies, the secretary has doubled down on the need for the CHIPS for America Act by saying, "We need to move to making chips in America, not friend-shoring."

Recent-year investments are beginning to ease the crunched supply the world saw over the past few years.

• Intel, Samsung, Texas Instruments, and Taiwan Semiconductor Manufacturing have announced projects in Texas, Ohio, and Arizona totaling at least $99 billion, with Intel previously suggesting its investment in Ohio could grow to $100 billion over 10 years.

Back to the Future

• The U.S. can make itself more competitive and resilient in this market, but a Commerce Department-run program likely won't end at its five-year authorization but will come back for more.
• Today's "necessary" semiconductor industry subsidies will be the future gateway for CHIPS 2.0/3.0 on other "critically important" industries with an unsatiable appetite for taxpayer-backed dollars.

The House Minority View

• Congress failed to address long-standing regulatory issues specifically affecting the planning and construction time frames of fabrication facilities.
• The U.S. needs to prioritize reducing regulatory red tape at the local, state, and federal levels by removing redundancies in federal and state rules, "fast tracking" permitting from the Environmental Protection Agency and accelerated National Environmental Policy Act reviews, and reducing regulatory burdens in materials, gases, and chemicals used in semiconductor manufacturing.

Instead of targeting one facet of the tech industry, over which we are in fierce competition and a security fight with China, the U.S. government could double the research and development tax credit for all companies through 2025.

• In addition, Congress could offer 100% immediate expensing and allow any research or development costs to be immediately deducted through 2025

The United States should focus on countering investments by China in the technological space and prioritize investment in sectors in which China has gained ground

• If geographically diversifying U.S. supply chains outside of Taiwan and Asia is a goal, then Congress can right the ship and use its oversight efforts to make sure the Development Finance Corp. is achieving its congressional intent mission
• Congress must get a handle on a functioning export-control regime in an ever-changing Chinese espionage environment

National Security Considerations

• Any government funding should be tailored toward national security-related, cutting-edge semiconductors
• American technological superiority and our ability to counter China require competition in innovation
• The U.S. cannot beat China by becoming more like China
• Semiconductors will not be the last technological paradox faced vis-a-vis China, but we have an opportunity to create the best fundamental economic conditions to thrive against all these challenges from Beijing while resourcing proper national security measures 

https://www.heritage.org/technology/commentary/chips-table-leave-it-congress-drop-ball-semiconductor-subsidies