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Politics Congress's semiconductor legislation won't hurt China, but it will hurt taxpayers

08:11  01 august  2022
08:11  01 august  2022 Source:   washingtonexaminer.com

‘It looks terrible’: Dems prep a tax cut for business as broader agenda stalls

  ‘It looks terrible’: Dems prep a tax cut for business as broader agenda stalls After Sen. Joe Manchin killed their more ambitious tax plans, they are left with legislation that includes a multibillion dollar tax credit for semiconductor makers.Their efforts to expand the Child Tax Credit and beef up green energy breaks, not to mention their plan to raise taxes on the rich, are all dead.

microchip integrated on motherboard © Provided by Washington Examiner microchip integrated on motherboard

Opportunists have never failed to take advantage of a panic, which is why some of the most profitable U.S. companies are looking to capitalize on China's hawkishness to extract massive subsidies from taxpayers. Not wanting to appear weak on China, a bipartisan Senate voted Tuesday to hand $52 billion in subsidies to chip companies, which are enjoying historic revenue, are experiencing record investment in research and development, and are already in the process of building new domestic fabrication plants.

Industrial policy — the use of tariffs, subsidies, or similar measures to benefit a specific industry deemed vital — is alive and well in America. It shouldn’t be. Industrial policy such as subsidizing the semiconductor industry is rarely justified, rarely works as planned, and is always costly to either taxpayers or consumers. Congress need look no further than China.

This week: Congress awaits movement on semiconductor bill

  This week: Congress awaits movement on semiconductor bill The House and Senate this week are awaiting movement on a highly anticipated bill to bolster the domestic semiconductor industry, which lawmakers say will improve the United States’ competitiveness with China. The bill, which advanced in the Senate with bipartisan support last week, would allocate tens of billions of dollars to increase computer chip manufacturing…The bill, which advanced in the Senate with bipartisan support last week, would allocate tens of billions of dollars to increase computer chip manufacturing in the U.S., and provide tax credits for investments in semiconductor manufacturing.

Notwithstanding billions of dollars in subsidies and support since 2014, “semiconductors represent a rare area in which the Chinese economy is dependent on the rest of the world — rather than the other way around,” according to a 2021 Brookings Institution report. China still has no company that can produce cutting-edge semiconductors and remains a net importer to the tune of $300 billion. Even if China were able to make good on its stated goals, its companies would still “generate less than 15% of the industry’s overall R&D capacity,” according to Brookings. Contrast that to the U.S., where the industry has almost 50% market share by revenue and has reached an all-time high for R&D investment, trailing only pharmaceutical and biotechnology firms in the ratio of R&D to sales. America’s leaders should accept victory, not get into an “arms race” with Beijing on who can spend the most on a failed policy.

The country has a major microchip problem -- and the Senate has a $52B solution

  The country has a major microchip problem -- and the Senate has a $52B solution The Senate is poised to take action on the CHIPS+ legislation this week, which would provide billions to spur research and development of semiconductors . Here are answers to a few key questions on the issue that impacts almost every piece of technology you touch. © Brendan Smialowski/AFP via Getty Images Secretary of Commerce Gina Raimondo in the South Court Auditorium of the Eisenhower Executive Office Building in Washington, D.C, on July 25, 2022. What is a semiconductor anyway? A semiconductor, sometimes referred to as a chip or microchip, is only about the size of a dime.

Industrial policy creates perverse incentives for companies, and that is certainly the case with CHIPS. In March 2021, the CEO of Intel announced the company would invest billions to create a new manufacturing base in Arizona. At the time, he said, “It does not depend on a penny of government support or state support or any other investments to make it successful.” Fresh from hitting record revenue, the CEO testified before Congress this year that without billions of taxpayers’ money, Intel may abandon its on-shoring strategy. The CEO gave the game away in January when he told Bloomberg, "Let's not waste this crisis.” The semiconductor industry has spent tens of millions of dollars to lobby for the passage of CHIPS as well as other measures to benefit them. They have every right to do so. But too often, industrial policy amounts to little more than corporate welfare.

The federal government’s ability to discern businesses vital to national security is sketchy at best. The Trump administration imposed Section 232 tariffs on both steel and aluminum in cases that “threaten to impair national security,” a broad imperative that eventually led officials to declare that the domestic auto industry qualified for Section 232 tariffs. Can one really sustain the argument that the Toyota Camry or the Volkswagen Jetta represent a threat to national security? Such legal gymnastics are bipartisan. In June, President Joe Biden authorized the use of the Korean War-era Defense Production Act to support the solar panel industry. The solar panel industry? If these industries pass the “vital to national security” test, soon every widget maker in America will be lobbying Washington for the designation as well.

Nancy Pelosi's Taiwan Visit: Chinese Military to Conduct Drills Around Taiwan

  Nancy Pelosi's Taiwan Visit: Chinese Military to Conduct Drills Around Taiwan The White House warns China not to use the trip as a "pretext to increase aggressive military activity" near Taiwan.Before arriving in Taiwan, U.S. House Speaker Nancy Pelosi stopped in Malaysia.

Industrial policy comes at a high cost. According to some estimates, Trump administration tariffs cost consumers $51 billion, and a recently released Cato Institute study found that industrial policy protectionism has cost $620,000 per job saved, again much of that borne by consumers who can ill afford a $52 billion handout to tech giants at a time when inflation has hit a 40-year high.

Industrial policy has been debated in America ever since Alexander Hamilton submitted his Report on the Subject of Manufactures to Congress in 1791. Nearly every democratic country is grappling with this debate, but leaders in many other countries are working to unravel their yearslong wasted investments on industrial subsidization and policy. Japan gave up industrial policy decades ago; European attempts at creating national industrial leaders have largely failed; in India and Latin America, these policies have arguably hampered economic growth. The White House should avoid the same mistakes. Biden could send a clear signal by vetoing the $52 billion taxpayer windfall to the semiconductor industry, but if you believe that he'll do it, I have a semiconductor plant in China to sell you.

These are the 24 House Republicans who broke with the party to support chips and science bill

  These are the 24 House Republicans who broke with the party to support chips and science bill Two dozen House Republicans helped pass a $280 billion bill on Thursday to bolster the domestic chip manufacturing industry and subsidize scientific research, bucking GOP leadership’s recommendation to vote against the measure. The House passed the CHIPS and Science Act in a 243-187-1 vote, with 24 Republicans joining most Democrats in supporting the measure. One…The House passed the CHIPS and Science Act in a 243-187-1 vote, with 24 Republicans joining most Democrats in supporting the measure. One Democrat, Rep. Sara Jacobs (D-Calif.) voted present.

Brent Gardner is chief government affairs officer at Americans for Prosperity.

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Original Author: Brent Gardner

Original Location: Congress's semiconductor legislation won't hurt China, but it will hurt taxpayers

Bill to boost semiconductor industry passes key Senate test .
WASHINGTON (AP) — The Senate has advanced a $280 billion bill designed to boost the semiconductor industry in the United States and to accelerate high tech research that backers say will be critical to the economy in future decades. The Senate needed 60 votes to advance the bill and the vote was 64-32. The legislation is now on a glidepath to final passage in the Senate later this week. The House is also expected to take up the package this week. The White House has led support for the bill, along with industry leaders who say government subsidies are necessary to compete with other nations that are also spending billions of dollars to lure manufacturers.

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