Semiconductor subsidy strings attached – WSJ


President Joe Biden during a virtual Chips Act meeting in Washington, DC on July 25.


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JONATHAN ERNST/REUTERS

On Tuesday, the Senate voted 64 to 32 to advance a $280 billion “chips plus” subsidy bill, and as always in politics, there’s plenty more. Washington’s money always comes with strings attached, and we hope semiconductor CEOs know what they signed up for.

This message could not have been clearer from President Biden on Tuesday when he told business and labor leaders on a conference call that the bill’s $52 billion in grants for Intel and other chipmakers would not be “a blank check for business”. The president said he “should personally approve the largest grants.”

Hint to companies asking for money: locate this new factory in a vibrant state with more than a handful of electoral votes. Mr. Biden or the vice president may want to pass during the 2024 election campaign.

The president also pointed out that the law requires companies to pay prevailing wages to build the semiconductor manufacturing facilities funded by the bill. Communications Workers of America President Chris Shelton said it would ensure “there is no race to the bottom”. Translation: construction will cost more and non-unionized contractors will not benefit.

Some companies that lobbied for the bill nonetheless expressed frustration that it would bar recipients of federal largesse from expanding production of advanced chips in China. But what did they expect? Politicians are selling the bill as a national security necessity to compete with China to ensure more chips are made in the United States in the event of a dispute with Beijing.

Mr. Biden also made it clear that his administration would impose its own conditions on the money. For example, “we are not going to allow companies to use these funds to buy back stock or pay dividends.” Mr. Biden has threatened to claw back grants from those who do. That means companies that take federal money won’t be allowed to reward shareholders if the investments are successful.

The President also noted that companies whose future innovations stem in part from the $200 billion in spending authorized by the bill for research and development in areas such as green energy and artificial intelligence will be held “to deploy this technology” and to invest “in a facility here in America”. .” This requirement will force CEOs to add a political calculation to their investment choices.

Industrial policy and the political allocation of capital invariably distort investment. Don’t be surprised if the conditions that Congress and the Administration impose on these companies make the firms and the United States less competitive with China.

Jimmy Carter lost the 1980 general election by a landslide to Ronald Reagan, so it’s hard to understand why Joe Biden continues to follow Carter’s “malaise” playbook today. Bettman via Getty Images/Shutterstock Composed: Mark Kelly

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Appeared in the July 27, 2022 print edition.


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