Why China Has U.S. Congress Focused on Computer Chips

(Bloomberg) -- A rare point of bipartisan consensus in Washington is the desire to spend more than $50 billion to bolster U.S. chip production. That’s a key part of bills pending in both houses of Congress intended to increase U.S. competitiveness with China. The bills are similar, but not identical, and differences on auxiliary issues threaten to stall their progress.

1. What does Congress propose to do?

Both the Senate bill, passed last June, and the House bill, passed on Feb. 4, provide $52 billion over five years in emergency appropriations to support semiconductor research and development, legacy chip manufacturing, packaging research and microelectronics development. (Legacy chips are frequently used in cars, aircraft and a variety of military hardware.) The vast majority of that money, $50 billion, would be distributed through a new fund overseen by the Commerce Department; the other $2 billion would be overseen by the Defense Department. On top of that, the House version authorizes $45 billion for grants and loans to support supply chain resilience and manufacturing of critical goods in the U.S. Both measures authorize billions more for research and development at the National Science Foundation, the Energy Department and the National Institute of Standards and Technology.

2. Why is this necessary?

While the U.S. is a leader in chip design, roughly 90% of global chip manufacturing capacity is elsewhere -- primarily in Taiwan and South Korea. That puts the U.S. at high risk of supply chain disruptions in the event of trade disputes, military conflicts or, as seen in the past two years, a pandemic. China’s state-led industrial policies, which aim to achieve self-sufficiency in all stages of chip production, also threaten U.S. competitiveness. The Chinese government plans to boost its domestic production using government subsidies and tax preferences.

3. How are the House and Senate bills different?

The House bill would authorize $8 billion over two years in contributions to the Green Climate Fund, a United Nations-overseen initiative to help developing countries address climate change. Republicans are opposed; Representative Michael McCaul of Texas said the money would go to an “unaccountable U.N. slush fund.” The two bills also take different approaches to creating a new directorate at the National Science Foundation, the federal agency that funds basic research in science and engineering. The Senate’s version would focus it on technology issues. The House bill would focus it on research and development to address societal issues such as climate change and inequality.

4. In what way are the bills aimed at China?

Neither bill explicitly states the U.S. is in a race with China for semiconductor sovereignty, but lawmakers regularly describe the bills that way. The Senate bill “will allow the United States to out-compete countries like China in critical technologies like semiconductors,” Majority Leader Chuck Schumer said last May. Any doubt that China is the real target of the bills is put to rest by the many provisions unrelated to semiconductors.

5. What are those provisions?

Both bills include funding to develop alternatives to Chinese 5G telecommunications equipment, which the U.S. worries could be used to carry out cyberattacks or espionage. (China denies that.) Both bills would impose sanctions on China for its treatment of the predominantly Muslim Uighurs in the far-western region of Xinjiang and elevate the rank of U.S. special coordinator for Tibetan issues at the State Department. The Senate bill would require U.S. agencies to treat Taiwan’s elected government as the “legitimate representative of the people of Taiwan” and to stop using China’s preferred term, “Taiwan authorities.” The Senate would also impose additional sanctions on China for cyberattacks and theft of trade secrets. The House bill would allow Hong Kong residents to apply for temporary protected status in the U.S. and extend an export ban on certain crowd control equipment to the Hong Kong police. After the Senate passed its bill last June, Chinese lawmakers said the legislation “smears China’s development path and domestic and foreign policies” and “interferes in China’s internal affairs under the banner of innovation and competition.”

6. What are the prospects?

There is broad agreement on the need to support domestic chip production and research, as both bills would do. A bipartisan group of over 140 lawmakers wrote to House and Senate leaders to urge them to make sure the $52 billion for chips is included in whatever final bill emerges from negotiations. House Majority Leader Steny Hoyer, a Maryland Democrat, said in March that he was hopeful the legislation would be finished in the coming months. The Biden administration stated its support for both chambers to reconcile differences and put a bill on the president’s desk “as soon as possible.”

The Reference Shelf

• Bill summaries for the Senate (S. 1260) and House (H.R. 4521) measures.
• There are concerns that the push to make the West more competitive in semiconductors might backfire.
• The Semiconductor Industry Association’s 2021 report.
• QuickTake explainers on the global chip shortage and the many points of conflict between the U.S. and China.
• The Biden Administration’s 100-Day supply chain review report.

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