House Democrats are poised to vote this week on a massive bill designed to best China in high technology and preserve U.S. access to critical goods. The America Competes Act would direct billions into technological research and manufacturing, improving education, and stockpiling critical items such as prescription drugs and personal protective equipment. A hefty 68-to-32 majority passed a similar bill in the Senate last June, making it likely some version of this legislation will reach President Biden’s desk this year.
But many issues still need to be worked out between the chambers, and the details could make it substantially better — or much worse.
The House bill would pump money into federal agencies to fund a dizzying array of research initiatives: nanoscience, quantum computing, artificial intelligence, climate technology, even biometric identification systems. The bill would also make it easier for scientists and engineers to stay in the country, a long-needed update to the nation’s irrational immigration laws.
More questionable is the bill’s provision allocating $52 billion to onshore semiconductor fabrication. While the United States remains a leader in semiconductor research, the country manufactures only 12 percent of the chips that run everything from toasters to Toyotas. A recent semiconductor shortage has driven up the price of cars and other consumer goods; to many, this painful bout of inflation underlines the risk of allowing China to consolidate control over industries that the United States should consider strategic, such as chipmaking. Indeed, $52 billion may seem like too small a response to China’s recently announced $150 billion program to establish more chip production facilities inside its borders.
In fact, however, the United States cannot meet China dollar for dollar, and it should not try. Much of China’s chips money will be wasted as the country tries to create artificially many of the advantages the United States already has, such as a concentration of expertise, an advanced research and development ecosystem, and the free flow of capital. Congress should double down on these advantages by funding the development of the next generation of chips that might render obsolete the ones lawmakers are currently worried about manufacturing, as other provisions of the bill would do, and cracking down on Chinese intellectual property theft.
Meantime, if lawmakers are going to make chip manufacturing a top national priority, they should pursue a broader strategy. The bill’s backers argue that the United States cannot ignore the possibility that the Chinese regime will corner the market on manufacturing critical components, then use that economic power to bully the world. The best response would be to coordinate with friendly trading partners, such as the European Union, Japan, Korea and Taiwan, to ensure that sufficient manufacturing capacity remains outside China.
The legislation’s proponents argue that the United States must still ensure that more chips are produced here, so that disruption in one link in the supply chain — if, for example, U.S. ports slow, as they did during the pandemic — does not cause another punishing shortage. It is not clear this risk justifies massive new onshoring subsidies. But if lawmakers are determined to approve them, they must attach substantial strings. Federal agencies should have broad authority to manage government aid — and terminate funding to failing firms. Otherwise taxpayers may get paltry returns on their investment.