Why Russia’s war pushed U.S. lawmakers to the brink of a microchip bill
A proposal to spend billions of dollars ramping up semiconductor production in America gained bipartisan momentum over the course of the coronavirus pandemic. But it may be Russia’s invasion of Ukraine that finally convinces Congress to pass the bill into law.
White House officials and lawmakers say that each global shock has limited the availability of a product that is key to running everything from coffee machines and smartphones to fighter jets. The pandemic reminded officials how reliant the United States has been on overseas production of the chips — and concerns have culminated since Russia’s invasion began on Feb. 24.
At the beginning of the pandemic, Americans shifted their purchasing power away from services toward goods that relied on chips. They began buying workout bikes instead of going to the gym and kitchen appliances instead of eating out — just as the global supply chain was breaking down.
But Russia’s invasion of Ukraine revealed even greater strategic vulnerabilities. Half of the world’s neon gas, used when lasers cut into silicon for chip production, comes from Ukraine. Much of the palladium used later in the production process comes from Russia.
And fears have grown in Washington that Moscow’s invasion of Ukraine could serve as a precursor for a Chinese attack on Taiwan, home to the world’s largest chip manufacturer.
Fallout from these two crises has been enough to help ensure bipartisan interest in a legislative solution that had been bandied about for years, despite its potential price tag.
A final vote on the bill remains uncertain, but passage could lead to significant new manufacturing job investment in states like Ohio and Pennsylvania and research opportunities in California and Florida, already home to some of the nation’s largest chip research centers.
“What we see now, first with COVID and then the chip shortage and now Russia’s invasion of Ukraine, is that these aren’t black swan events,” Sameera Fazili, deputy director of President Joe Biden’s National Economic Council, said in an interview. “The frequency of events is increasing. These events have continued to have real micro-shocks that have macro-implications for certain industries.
“What felt like a theoretical risk all of a sudden became something that was hurting companies’ bottom line,” Fazili added, “and hurting consumers and families in a very real way.”
BIDEN PRIORITY
Lawmakers will soon decide the fate of the legislation — known as the America COMPETES Act in the House and the United States Innovation and Competition Act in the Senate — in a so-called conference committee, after both chambers passed their own versions of the bill earlier this year.
While the two bills differed, both authorized more than $50 billion in new spending to incentivize more semiconductor manufacturing in the United States, money White House officials hope can spur development across much of the country and not just the two coasts.
The Senate bill, passed first in June and again in March to send it to conference committee, would authorize $52 billion in government subsidies for semiconductor production and another $190 billion to strengthen U.S. technology and research to compete with China. But Senate Republicans are resisting any additional provisions from House Democrats in the final bill that they argue would be unrelated, such as one that would add $8 billion in U.S. contributions to the Green Climate Fund of the Paris climate accord.
“Democrats and Republicans are in full agreement on the chips part of this,” said one Republican congressional aide involved in the negotiations. “It’s all of the other stuff that could sink the bill.”
Ronnie Chatterji, chief economist for the Commerce Department, said a final version of the bill becoming law would represent an “important pivot” from a decades-long push to move microchip production offshore, one influenced heavily by the pandemic and war in Ukraine.
“I think recent events over the past several years have brought together the economic security and national security issues together in a way that’s really salient,” Chatterji said. “Supply chains have been globalized over the last 30 years, and companies have found ways to make things all around the world. And while a lot of the benefits of that were celebrated, I think we’re starting to see the cost of those increasingly globalized supply chains.”
Biden has made passage of the legislation a priority, arguing that increasing microchip production is a national security and economic imperative. During his State of the Union address in March, he hailed plans from Intel to spend $20 billion building manufacturing centers in Ohio, saying its investment would grow if Congress passed the bill.
The White House has also pushed lawmakers to incentivize various types of chip production in the final bill, noting that the chips required for things like automobiles, medical devices and broadband equipment are different than those required for smartphones and computers.
TAIWAN THREAT
One of the world’s largest contract manufacturers of chips is the Taiwan Semiconductor Manufacturing Company, or TSMC, a longtime partner to companies like Apple and Tesla. Sales for TSMC’s products have reached a record high this year. But reliance on the Taiwanese company has only underscored the U.S. need to diversify production, said Chris Miller, the Jeane Kirkpatrick Visiting Fellow at the conservative think tank American Enterprise Institute.
“We are shockingly, dangerously, worrisomely reliant on one small island to produce around a third of our computer power every year,” Miller said. “And that island happens to be claimed by China.”
Defense officials at the Pentagon and the Joint Chiefs of Staff have warned in recent months that a Chinese attack on Taiwan could come within the next decade. China considers Taiwan a part of China, and officials in Beijing have said since Russia’s invasion of Ukraine that any military action eventually taken against Taiwan would be a sovereign, internal Chinese matter.
Miller said the long-term threat to Taiwan is the most important reason to increase domestic production of microchips. But he emphasized that even a massive investment in manufacturing capacity in the United States won’t make the country invulnerable to geopolitical disruptions.
“There’s actually a lot of scope to increase manufacturing in the U.S. over a decade-long time horizon,” he said. “But we shouldn’t believe that means we can produce all the chips here. And nor should that be our goal.”
White House officials also concede that even if the legislation passes, the United States will still have to rely on other countries for semiconductors and other manufactured items.
“We should not over-interpret what this bill is going to do,” Fazili said. “It’s still important for us to have strong trading partners and strong trading relationships. Our goal is not to take all manufacturing and move it here.”
Still, the deputy director of the National Economic Council said the country must do what it can to insulate itself from global events that show no sign of abating.
“These shocks keep happening,” she said. “We need to move quickly to pass this legislation and Congress needs to pass this legislation to get a bill to the president’s desk, because every day it doesn’t pass, we’re getting weaker and weaker, and we need to start rebuilding. And there’s only so far we can go administratively without Congress taking action.”
This story was originally published April 13, 2022 at 5:00 AM with the headline "Why Russia’s war pushed U.S. lawmakers to the brink of a microchip bill."
