Biden Administration Warns of Dire National Security Ramifications as Bill to Boost US Chipmaking Stalls

The Biden administration and congressional Democrats are warning of dire ramifications for the economy and for national security if Congress fails to pass a bill by the end of July that is designed to boost semiconductor manufacturing in the United States.

Their appeals have grown increasingly urgent as Senate Republicans led by Mitch McConnell threaten to block the computer chips legislation, creating a standoff that threatens to derail one of the biggest bipartisan initiatives in Congress. Republicans have tied their cooperation to Democrats not moving forward with a separate package of energy and economic initiatives that GOP lawmakers warn would increase taxes on small businesses and hurt the economy. It’s a demand that Democrats dismiss out of hand.

Commerce Secretary Gina Raimondo said computer chipmakers are being offered lucrative incentives from other countries such as South Korea, Japan, France, Germany and Singapore to locate plants there. She cited Monday’s announcement by STMicroelectronics and GlobalFoundries to build a semiconductor factory in France as an example of other countries moving faster than the U.S. on the issue.

“Bottom line is there are very real, very devastating consequences if Congress doesn’t do its job in the month of July,” Raimondo told The Associated Press.

Those consequences mean not only lost job opportunities for the U.S., but an overdependency on other nations for semiconductors that could become a critical vulnerability because they are so important for products ranging from cars and cellphones to modern weapons systems.

Raimondo was part of a closed-door briefing with senators Wednesday to discuss the national security implications of the semiconductor legislation. Joining her were Deputy Defence Secretary Kathleen Hicks and Director of National Intelligence Avril Haines. The meeting lasted for nearly two hours.

Raimondo told reporters afterwards that, based on the questions senators asked, “the urgency was clear.” She also said “the time for talking is done, the time for action is here.”

McConnell did not respond to questions from reporters after attending the briefing. Sen. Ron Wyden, D-Ore., said it underscored that Congress needs to act soon.

“The legislation we’re trying to pass is a major national security issue. It is a major economic issue, and it is one where you cannot afford to delay,” Wyden said.

Raimondo and Secretary of Defence Lloyd Austin, in a letter to congressional leaders, said semiconductor companies need to get “concrete in the ground” by this fall to meet increased demand. The Cabinet members said it was their assessment that further delays in passing the legislation will “result in a deficit of semiconductor investment from which we may not be able to recover.”

Both chambers of Congress have passed bills that include about $52 billion (roughly Rs. 4,15,400 crore) in financial support for the U.S. semiconductor industry, but they are struggling to merge the legislation into a final compromise that could gain 60 votes in the Senate, the number needed to overcome procedural hurdles.

McConnell, R-Ky., on Tuesday suggested the House could work from the Senate-passed version, which would allow it to move to President Joe Biden’s desk to be signed into law. Or the two chambers could just take up a much narrower bill focused on semiconductor incentives, leaving out provisions on trade and new research priorities.

Both options face major hurdles. Maryland Rep. Steny Hoyer, the House majority leader, said McConnell’s call for the House to go with the Senate bill was “an arrogant, unreasonable demand.” Meanwhile, senators from both parties are wary of settling for the $52 billion (roughly Rs. 4,15,400 crore) in financial incentives after working for years on other priorities in the bill.

“It’s just that there’s too many other things that we worked so hard on. Why would we cut that down?” said Sen. Tim Kaine, D-Va. “If it’s about being truly competitive, why would we say we just want to be a little competitive.”

Sen. Charles Grassley, R-Iowa, said he could support legislation just focused on the financial incentives, “but it’s got problems with other members of the conference” who are insisting on additional provisions.

Democrats have blown past their goal of reaching agreement on principles of the final bill by the end of June so that staff could prepare text and the two chambers could vote in July. Raimondo said she had been speaking with several Republicans on narrowing differences between the House and Senate before McConnell tweeted about the bill, known by the acronym USICA, for United States Innovation and Competition Act: “Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill.”

“Obviously, Senator McConnell’s tweet a couple of Friday’s ago has slowed down work,” Raimondo said.

Still, she said she considers the bill at the “5-yard line” and that negotiators could finish within a week to 10 days if both parties cooperated. She said if lawmakers cannot get the bill completed, “it’s not Republicans who win. China wins if this doesn’t get passed.”

Raimondo is trying to appeal to lawmakers’ concerns about how the U.S. depends upon foreign countries, namely Taiwan, for the production of advanced computer chips.

“Look, I mean, I know a lot of these Republicans. They’re patriots. They want to do the right thing for America. They’re scared that we’re so dependant on Taiwan for exactly the kind of chips our military depends on,” Raimondo said.

Sen. Thom Tillis, R-N.C., was one of the Republicans who voted for the Senate’s version of the semiconductor legislation. Before he makes a decision on a final compromise bill, he wants to see the price tag of the separate energy and economic package that Democrats are pursuing through a process called reconciliation, which would allow them to pass a bill without any Republican support.

Tillis also isn’t buying the warning that lawmakers need to pass a semiconductor bill this month or it may not happen at all.

“This isn’t the only vehicle that chips could ride on before the end of the year,” Tillis said.