US Congress Passes Bill to Subsidise Domestic Semiconductor Sector Amid Competition From China

The bill provides government subsidies for production of semiconductors used in everything from automobiles to electronic devices, video games.

By Reuters | Updated: 29 July 2022 11:29 IST

US Congress Passes Bill to Subsidise Domestic Semiconductor Sector Amid Competition From China

US Congress passes long-awaited bill to boost chipmakers

Highlights

The US House of Representatives passed subsidizing semiconductor industry
They have passed the ‘Chips and Science’ Act
Meanwhile, China had lobbied against the semiconductor bill

The US House of Representatives passed sweeping legislation on Thursday to subsidize the domestic semiconductor industry as it competes with Chinese and other foreign manufacturers, a victory for President Joe Biden and his fellow Democrats hoping to keep their slim majority in Congress in November midterm elections.

The final vote was 243 to 187, with one Democrat - Representative Sara Jacobs - voting present. Twenty-four Republicans joined 218 Democrats in backing the measure. Passage sends the bill to the White House, where Biden is expected to sign it into law as soon as early next week.

The Senate passed the "Chips and Science" act with bipartisan support on Wednesday, after more than a year of effort. A rare major foray into US industrial policy, the bill provides about $52 billion (roughly Rs. 4,10,000 crore) in government subsidies for US production of semiconductors used in everything from automobiles and high-tech weaponry to electronic devices and video games. It also includes an investment tax credit for chip plants estimated to be worth $24 billion (roughly Rs. 2,00,000 crore).

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The legislation would also authorize $200 billion (roughly Rs. 15,90,900 crore) over 10 years to boost U.S. scientific research to better compete with China. Congress would still need to pass separate appropriations legislation to fund those investments.

The bill passed hours after Biden had a telephone call with Chinese President Xi Jinping, in which Xi warned Biden against "playing with fire" over Taiwan. Aides had said the leaders of the world's two largest economies also would discuss supply chain and other economic issues.

China had lobbied against the semiconductor bill. The Chinese Embassy in Washington said China "firmly opposed" it, calling it reminiscent of a "Cold War mentality" and "counter to the common aspiration of people" in both countries.

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Many US lawmakers had said they normally would not support hefty subsidies for private businesses but noted that China and the European Union have been awarding billions in incentives to their chip companies. They also cited national security risks and huge global supply chain problems that have hampered global manufacturing.

Representative Michael McCaul, the top Republican on the House Foreign Affairs Committee, was one "yes" vote from his party. "We need to manufacture (chips) in this country, and not let it go offshore," he told reporters before the vote.

"... This is vitally important to our national security," McCaul said.

At the White House, Biden interrupted a meeting on the economy with corporate executives when told the House had passed the chips bill. "The House has passed it," Biden said, looking delighted, to applause in the room.

House members cheered after the bill passed. The measure had been in the works for more than a year. The Senate passed a bill in June 2021 with strong bipartisan support, only to have it stall for months in the House as Republicans and Democrats disputed whether it should include provisions addressing issues such as climate change and China's human rights record.

The chips bill passed the House by a narrower-than-expected margin after some Republicans pulled support at the last minute.

Republican party leaders told members to vote against the bill after the announcement on Wednesday of an agreement between Senate Democratic leader Chuck Schumer and Democratic Senator Joe Manchin that could pave the way for Senate passage of separate legislation to increase corporate taxes, reduce the national debt, invest in energy technologies and lower the cost of prescription drugs.

Democrats hope such legislative achievements will help them in the November 8 midterm elections. Republicans hope to regain control of the Senate, and some polls have them favored to win a majority in the House of Representatives.

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