despite what rhetorically cold water from Senate Leader Mitch McConnell (R-Ky.), lawmakers and officials are hopeful that the America Competes Act is almost over. The legislation would send billions into technological research, from artificial intelligence to quantum computing to nanoscience, and to help foreign scientists and engineers stay in the United States. Perhaps most notably, it would use a whopping $52 billion to support domestic semiconductor production, of which $39 billion would subsidize new factories through $3 billion in subsidies. While this type of industrial policy has yielded questionable benefits in the past, argument for the investment arrives every day.
Under the current status quo, 75 percent of production of these critical computer chips take place in East Asia – making this economy all too vulnerable to supply shocks, be it pandemics, extreme weather events or geopolitical tensions. The latter of these risks seems greater than ever as China takes an increasingly threatening stance on Taiwan, whose chipmaker TSMC is only makes up 50 percent of the world market. Meanwhile, President Xi Jinping’s regime has announced that $150 Billion Program to strengthen its own domestic semiconductor industry. This fund, combined with similar offerings from countries in Europe and elsewhere, could even lure US companies away from home. Already, TSMClike major US manufacturers Intel and GlobalWafers have warned that they could scale back their plans to build facilities here if promised incentives are put on hold.
Still, that doesn’t mean Congress should handout these companies a handout without doing everything possible to make sure the money benefits the nation and its taxpayers, rather than just the manufacturers and their shareholders. Some safeguards are already in place, but there is plenty of room for tightening. Especially important are safeguards that screen companies’ outbound investments to make sure they don’t funnel money to keep competitors afloat; so is a robust process for assessing whether proposed projects will provide the United States with a national security advantage. Restrictions on share buybacks by grant recipients would also keep this strategic giveaway from turning into a daze.
The biggest mistake Congress could make right now is to focus solely on the tens of billions in factory building subsidies and ignore the rest of the America Competes Act. These subsidies alone will not catch up with the United States relative to its East Asian counterparts. Other changes, some of which are included in the bill, will prove even more significant — from cultivating and retaining STEM talent here to coordinating with allies to keep enough chip manufacturing capacity outside of China. But as long as Congress is committed to giving money to manufacturers, lawmakers must also make sure that manufacturers eventually give back.