Senate Passes $280 Billion Industrial Policy Bill to Counter China

· OK to Chips Act to Release $52bn to American Companies, next stop HOR

The bipartisan vote reflected a rare consensus in the otherwise polarized Congress in favor of investing federal resources into a broad industrial policy to counter China.

The Senate on Wednesday, 27 July, 2022 passed an expansive $280 billion bill aimed at building up America’s manufacturing and technological edge to counter China, embracing in an overwhelming bipartisan vote the most significant government intervention in industrial policy in decades.

The legislation reflected a remarkable and rare consensus in a polarized Congress in favor of forging a long-term strategy to address the nation’s intensifying geopolitical rivalry with Beijing. The plan is centered around investing federal money into cutting-edge technologies and innovations to bolster the nation’s industrial, technological and military strength.

The measure passed 64 to 33, with 17 Republicans voting in favor. The bipartisan support illustrated how commercial and military competition with Beijing — as well as the promise of thousands of new American jobs — has dramatically shifted longstanding party orthodoxies, generating agreement among Republicans who once had eschewed government intervention in the markets and Democrats who had resisted showering big companies with federal largess.

The legislation will next be considered by the House, where it is expected to pass with some Republican support. President Biden, who has backed the package for more than a year, could sign it into law as early as this week.

The bill, a convergence of economic and national security policy, would provide $52 billion in subsidies and additional tax credits to companies that manufacture chips in the United States. It also would add $200 billion for scientific research, especially into artificial intelligence, robotics, quantum computing and a variety of other technologies.

The bill calls for pouring $10 billion into the Department of Commerce — which would also dole out the chips subsidies to companies that apply — to create 20 “regional technology hubs” across the country. The brainchild of Senator Todd Young, Republican of Indiana, and Mr. Schumer, the hubs would aim to link together research universities with private industry in an effort to create Silicon Valley-like centers for technology innovation in areas hollowed out by globalization.

The legislation would steer billions to the Department of Energy and the National Science Foundation to promote both basic research and research and development into advanced semiconductor manufacturing, as well as work force development programs, in an effort to build a labor pipeline for a slew of emerging industries.

The effort has marked a foray into industrial policy that has had little precedent in recent American history, raising myriad questions about how the Biden administration and Congress would implement and oversee a major initiative involving hundreds of billions of taxpayer dollars.

The passage of the legislation was the culmination of years of effort that in Mr. Schumer’s telling began in the Senate gym in 2019, when he approached Mr. Young with the idea. Mr. Young, a fellow China hawk, had previously collaborated with Democrats on foreign policy.

In the end, the Senate support was made possible only by an unlikely collision of factors: a pandemic that laid bare the costs of a global semiconductor shortage, heavy lobbying from the chip industry, Mr. Young’s persistence in urging his colleagues to break with party orthodoxy and support the bill, and Mr. Schumer’s ascension to the top job in the Senate.

Many senators, including Republicans, saw the legislation as a critical step to strengthen America’s semiconductor manufacturing abilities as the nation has become perilously reliant on foreign countries — especially an increasingly vulnerable Taiwan — for advanced chips.

Mr. Schumer said it had been not too difficult to rally votes from Democrats, who tend to be less averse to government spending. But he also nodded to support from Republicans, including Senator Mitch McConnell of Kentucky, the minority leader: “To their credit, 17 Republicans, including McConnell, came in and said, ‘This is one expenditure we should make.’”

The legislation, which was known in Washington by an ever-changing carousel of lofty-sounding names, has defied easy definition. At more than 1,000 pages long, it is at once a research and development bill, a near-term and long-term jobs bill, a manufacturing bill and a semiconductors bill.

Its initial version, written by Mr. Schumer and Mr. Young, was known as the Endless Frontier Act, a reference to the 1945 landmark report commissioned by President Franklin D. Roosevelt asking how the federal government could promote scientific progress and manpower.

“New frontiers of the mind are before us, and if they are pioneered with the same vision, boldness, and drive with which we have waged this war,” Mr. Roosevelt wrote at the time, “we can create a fuller and more fruitful employment and a fuller and more fruitful life.”

Enactment of the legislation is considered a critical step to strengthening America’s semiconductor abilities when the share of modern manufacturing capacity in the United States has plummeted to 12 percent. That has left the nation increasingly reliant on foreign countries amid a chip shortage that has sent shock waves through the global supply chain.

The subsidies for chip companies were expected to produce, in the short term, tens of thousands of jobs, with manufacturers pledging to build new factories or expand existing plants in Ohio, Texas, Arizona, Idaho and New York. While chip companies will not immediately receive the federal money, several of them had said they would make business decisions in the coming weeks based on whether they received assurances that the money would soon be coming.

The bill also seeks to create research and development and manufacturing jobs in the long run. It includes provisions aimed at building up pipelines of workers — through work force development grants and other programs — concentrated in once-booming industrial hubs hollowed out by corporate offshoring.

“These technologies are key to our national security,” Mr. Young said. “We’re actually giving rank-and-file Americans an opportunity, as it relates to chip manufacturing, for example, to play a meaningful role, not only in supporting their families, but also harnessing our creativity, talents, and hard work, to win the 21st century.”

The bill is expected to pave the way for the construction of factories across the country and, along with that, an estimated tens of thousands of jobs.

Chip manufacturers lobbied heavily, and often shamelessly, for the subsidies, in recent months threatening to plunge their resources into building plants in foreign countries such as Germany or Singapore if Congress didn’t quickly agree to shower them with federal money to stay in the United States.

The legislation also stipulates that chip manufacturers that take the federal funds and tax subsidies provided by the legislation cannot expand existing factories or build new ones in countries including China and Russia, in an effort to curtail advanced chip manufacturing in nations that present a national security concern.

The Department of Commerce would claw back the funds provided by the bill if companies do not abide by those restrictions, senators said.

Most senators, especially those representing states eyed by chip companies, saw those efforts as reason to quickly pass the legislation. But they particularly infuriated Senator Bernie Sanders, the Vermont independent, who has bluntly and frequently accused the prosperous executives of such companies of shaking down Congress.

“To make more profits, these companies took government money and used it to ship good-paying jobs abroad,” Mr. Sanders said. “Now, as a reward for that bad behavior, these same companies are in line to receive a massive taxpayer handout to undo the damage that they did.”

Several times in the bill’s life span, it appeared doomed to either collapse or be drastically slimmed down. In its narrower form, it could have eschewed the long-term strategic policy provisions, leaving only the most commercially and politically urgent measure, the $52 billion in subsidies for chip companies.

The bill seemed imperiled late last month after Mr. McConnell announced that he would not let it proceed if Senate Democrats continued to advance their social policy and tax plan, the centerpiece of Mr. Biden’s domestic agenda.

In a private conversation, Mr. Young asked Mr. McConnell to reconsider.

Mr. McConnell “saw the near-term value proposition, and frankly, the criticality of getting the chips legislation funded,” Mr. Young recalled.

Still, with Mr. McConnell’s position uncertain and other Republicans refusing to commit to supporting the measure, Mr. Schumer moved last week to force a quick vote on the semiconductor subsidies, leaving open the possibility that the broader bill would be sidelined.

That spurred a last-minute effort by Mr. Young to secure the support of enough Republicans — at least 15, Mr. Schumer had told him — to restore the critical investments in manufacturing and technology. For days, Mr. Young and his allies worked the phones to try to win over Republicans, emphasizing the national security importance of the bill and the opportunities it could bring to their states.

At a private party lunch on Tuesday, Mr. Schumer gave his members a pitch of his own.

“This bill is going to have one of the greatest and most far-reaching effects on America that we’ve ever done,” Mr. Schumer said he told Democratic senators. “A lot of your grandchildren will be in good-paying jobs because of the vote you’re taking.”