Response by the House of Representatives has been anything but hypersonic to pressures for action to pass legislation authorizing semiconductor production. House Democrats fought over the Senate-passed legislation as a reprise of the infrastructure-for-BBB trade that never materialized. Republicans and Democrats argued about the proper role of industrial policy, if any. These intramural and inter-party scrums are easy to initiate these days. But odds of House action on the US Innovation and Competition Act (USICA) perked up a bit this week. However, the House Rules Committee on Tuesday made in order a 2912-page draft bill that will complicate negotiations with the Senate which approved its bill (S 1260) last summer 68 – 32. House Members have until Friday 5:00 p.m. to submit amendments ahead of a Rules Committee meeting (likely next week) to structure floor debate.
House Foreign Affairs staff report leaders are focused on passing the bill as early as next week. The more expansive trade bill posted by the Rules Committee risks shaving off some or all Republican support. House passage of a bill this size would require a real conference committee to reconcile differences, in part because so many stakeholders are tied to enactment. The more likely path to enactment would see a House/Senate conference work with a document that had been “pre-conferenced” by staff to exclude items that might scare off the ten Senate Republicans required for passage.
This may not be the last bipartisan bill of 2022 but there won’t be many more, so lobbyists are circling Rules Committee members to add wish-list items. One area getting plenty of attention is a handful of so-called tax expenditures that expired last year, particularly same-year R&D deductions. The enhanced Child Tax Credit (CTC) also ended last month. Without clarity on extending the CTC many Democrats will be reluctant to add tax provisions to USICA.
Commerce Secretary Gina Raimondo on Tuesday released a report on immediate chip supply problems based on a request for information from the private sector and academia for strategies to address disruptions and shortages. Over the longer run the Department wants Congress to fund a National Semiconductor Technology Center to support microelectronics and semiconductor innovation. Boosting scientific infrastructure “to better integrate [technological] advancements” would be a crucial task of the proposed Center.
The goal of increasing digital fabrication capacity is a related hot topic. Senators Chris Van Hollen (D-MD) and Lisa Murkowski (R-AK) in May introduced legislation (S 1661) to establish a non-governmental agency, the National Fab Lab Network, to foster a network of fabs. The bill also would target greater science, technology, engineering, and math educational and training programs specifically to boost US digital fabrication. One month later a different bipartisan group of senators introduced legislation (S 2107) to create an investment tax credit for semiconductor manufacturing purposes – the FABS Act.
Opponents to industrial policy are confronted with the reality of policy and market failures that have left the US with 11% of global semiconductor fabrication capacity in 2019, down from 13% four years earlier, and about a quarter of what was here in 1990 (US Department of Commerce figures). Opponents of tax inducements for companies to invest in themselves must recognize that the long-term decline in US capacity and growing demand for chips globally won’t be resolved via private investment alone.
The trick here will be to find at least 60 votes in the Senate while maintaining enough House Democrats. We believe there is plenty to trade to make a deal among parties interested in FY22 appropriations for readiness defense spending, new infrastructure investments in the bill enacted last year, and the possibility of combining expired credits and new ones. Legislation of this magnitude of course would benefit many sectors, businesses, and individuals. This began as an effort to bolster US chip production and to improve the nation’s competitive stance versus China’s industrial policy push. It now encompasses much more while still focusing on G2 competition.
New signs of life for USICA and practical challenges related to supply chains for chips and a need to jumpstart longer run investments in fabs capacity are reasons for measured excitement for US-based chip producers such as INTC, TSMC, and others. If passed this quarter, consumer electronics companies in the smartphone, car manufacturing (IC and EV), and other subsectors also gain intermediate-term support as a 2H22 loosening of the global value chain for such products adds a bit of tailwind to the group.
