The most advanced class of mass-produced semiconductors — used in smartphones, military technology, and more — is known as 5nm. One company in Taiwan, known as TSMC, manufactures about 90 percent of it. American factories don’t make anything.
The US, struggling to keep pace with semiconductor manufacturing, has already had its economic downsides: many jobs in the industry pay more than $100,000 a year, and the US has lost it. In the long run, the situation could also cause a national security crisis: if China invaded Taiwan and cut off semiconductor exports, the U.S. military would be in danger of being overtaken by its main competitor for global supremacy.
For these reasons, a bipartisan group of senators and the Biden administration negotiated a bill last summer that included $52 billion to start a domestic semiconductor industry, as well as other measures to help the United States compete economically with China. The bill would introduce the kind of semiconductor support that other countries — including China, South Korea, Japan, India and Germany — are providing. Without such subsidies, companies like Intel and Broadcom would likely choose to build new plants outside the United States
But the Senate semiconductor bill has yet to become law. The House spent months negotiating its own bill, passing a bill in February. Since then, the House and Senate have failed to resolve differences between the two bills, and Mitch McConnell, the Republican leader in the Senate, recently threatened to derail the talks.
The confrontation has become another example of dysfunctional congressional policies that have weakened the US’s global standing.
There is broad consensus — among many experts, President Biden, the overwhelming majority of Democrats in Congress and a large number of Republicans — that the federal government must act. But she still hasn’t.
Today’s newsletter looks at the controversy over the bills and recent efforts to find a solution before Congress leaves for August recess.
The strongest objective argument against subsidies is that they are handouts to the semiconductor industry. The bills will use taxpayer dollars to benefit large companies that can actually make a profit from the products they sell.
From an economic point of view, this argument is very logical. But geopolitics is also important. Political leaders in other countries have already decided to subsidize semiconductor manufacturing, because they want some of this manufacturing to take place in their own countries.
If the US also does not provide subsidies, it may continue to struggle to attract factories. Already, the US market share for all semiconductor manufacturing has fallen to about 12 percent from 37 percent three decades ago.
It costs about $10 billion to build a typical plant, said Intel CEO Pat Gelsinger, and that subsidies from some countries cover 30 percent to 50 percent of that cost. Chinese subsidies cover nearly 70 percent. “It is not economically viable for us to compete in the global market if everyone else we are competing with is seeing a 30 to 50 percent reduction in cost,” Gelsinger said.
Senator Rob Portman, an Ohio Republican who helped write the Senate bill, acknowledged that it goes against the free market philosophy he usually favors. But, Portman explained at the Aspen Festival of Ideas last month, “If we continue to follow a political philosophy that generally makes sense but doesn’t work in the practical world, I think we’ll end up with much less competitive economics and national security risks.”
Biden and his top aides agree. “We are now in a very dangerous situation where we are completely dependent on Taiwan for the vast majority of the most advanced semiconductors, which is the exact kind of semiconductor you need for military equipment,” Commerce Secretary Gina Raimondo told me. “You can’t be a global superpower if you don’t make any of these.”
What does China want?
Why, then, did the Senate and the House of Representatives not agree on the bill?
House Democrats added provisions to the Senate bill that Republicans didn’t like, such as additional money to retrain workers. House Democratic leaders appear willing to remove most of those from the final bill, but it remains unclear whether the two sides can agree on a compromise.
McConnell—despite being one of 19 Republican senators who voted for the original bill—appears to be reluctant, too. He sent a tweet on June 30 suggesting that he might stop the semiconductor bill if Democrats keep trying to pass a separate bill, on climate change and drug prices, that Republicans oppose.
McConnell may have been taking sides, hoping to scare House Democrats into dropping provisions in his version of the semiconductor bill. On the other hand, his history suggests that he may be willing to defeat the politics of his preference in order to make the Democratic president appear weak.
To help the bill’s chances, Chuck Schumer, the Senate Democratic leader, held a classified briefing for all senators yesterday. Raimundo and Avril Haines, Biden’s director of national intelligence, discussed the current US military’s dependence on Taiwan. Big business is also pushing for the bill, as my colleague Katie Edmondson noted. “Many powerful industries desperately want this law to pass, from chip makers to defense contractors to manufacturers,” she said.
There is still outspoken opposition to the bill: the Chinese government. State media criticized the idea, calling it “bullying” and part of the “Cold War mentality”. In recent decades, no country’s share of semiconductor manufacturing has increased as rapidly as China.
The end of the power lunch?
The pandemic has disrupted the expense-counting lunch business, and upscale restaurant owners aren’t sure how or if they will reopen their doors.
Brett Anderson writes in The Times that lunchmakers close deals and make “computer screen calls at home while eating salads from fast-food boxes.” The slow return of office workers has made it difficult for sit-down restaurants to justify hiring employees to serve lunch.
It wasn’t like it was before Covid,” said Ashok Bajaj, owner of the Bombay Club restaurant near the White House. “The energy has been sucked out from downtown.” Instead, sales at quick-service joints have surpassed those at table-service restaurants since the start of the pandemic. Bajaj himself opened an Indian fast food street food restaurant.