Congress Is Giving Billions to the Chip Industry. The strings Are Attached.

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By georgeskef

The industrial policy debate is back in Washington and a massive semiconductor and science bill grants the government new authority over a strategically important industry.

WASHINGTON Amid an escalating shortage of semiconductors and while lawmakers debated the need to increase U.S.-based manufacturing of chips, Intel went to the Biden administration with a plan that some officials considered to be deeply alarming.

Intel has informed Commerce Department officials that it is considering expanding its production capacity of chips by acquiring an old factory located in Chengdu, China. The new plant, the company claimed could help reduce the chip shortage which was causing the closure of car manufacturing and electronics plants and causing inflation.

Intel decided to scrap the idea. However, for legislators and the administration, it served as a compelling illustration of the necessity to pass legislation that aimed at attracting the world’s chipset industry to the United States. This was also a case of giving to the Federal government substantial control over the industry according to official aides to the president and congressional staff who, in many cases, requested anonymity when discussing private discussions.

The massive measure that Congress eventually passed this week, the CHIPS and Science Act, grants the federal government the sole decision-making authority in determining which chip companies are going to receive the funding provided by the law. The legislation is comprised of 522 billion in tax and subsidy credits for any chip maker that decides to start new or expand their operations inside the United States, along with more than $200 billion for research into areas such as robotics, artificial intelligence, and quantum computer. President Biden is scheduled to take the bill into law on Tuesday.

As concerns mount about China’s technological and economic potential The bill includes new safeguards for businesses looking to expand into China. Chip makers that wish to accept U.S. funding cannot make new high-tech investments in China or any other “countries of concern” for at least a decadeor if they’re making low-tech “legacy chips” destined only to be used in local markets.

The law will give substantial authority in the business sector over to the Commerce Department, which will decide which companies are eligible to receive the cash. In the past, it has announced it will give priority to those which invest in research, new facilities, and workforce training, as opposed to those that take part in the type of buybacks on shares that have become commonplace in recent times.

“This is not a blank check to these companies,” Gina Raimondo, the secretary of commerce, stated during an interview. “There are a lot of strings attached and a lot of taxpayer protections.”

Ms. Raimondo’s office is also able to scrutinize future investments by companies in China and also to recover the funds of any company that they believe has broken its regulations and also ability to make changes to the rules for foreign investment as time passes by.

To those who favor the bill, this legislation is a testament to the advantages of massive government spending. The new law will not only support cutting-edge research and manufacturing, which has suffered across the United States in recent decades but will also grant Washington more power in establishing the rules that define cutting-edge industries worldwide.

It’s an acceptance of industrial policy that’s not been found in Washington for many decades. Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics who has studied U.S. industrial policy and commented that this bill was the most substantial investment into industrial policy made in the United States had made in at least 50 years.

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