In case you missed it, a bill totaling $52 billion to bolster America’s dominance in technology that passed the Senate overwhelmingly one year ago is now in danger of dying in Congress.
It is not one more story about Republican obstructionism. Rather, it is about Democrats in the House of Representatives adding a series of pet projects to a bill that would otherwise have passed by now. Their actions and the attempt to resurrect parts of the Build Back Better program have caused Republicans, including Senate Minority Leader Mitch McConnell (R-Ky.) to have second thoughts.
As William Gaston notes in a Wall Street Journal commentary, the original version, called the Endless Frontier Act, was drafted in May 2020. The main objective was to bolster domestic production of semiconductor chips and to boost federal support for applied research in technology.
While nothing happened during the 2020 elections, an amended version passed the Senate in May 2021 by a 68-32 vote, with 19 Republicans including McConnell voting for it. Thereafter, the bill languished in the House of Representatives for nine months before being passed as the America Competes Act in February 2022 along partisan lines. Since then, it has been difficult to narrow differences between the Senate and House versions.
So, why is it important that a bipartisan deal be struck?
One reason is the importance of improving U.S. technology prowess from an economic perspective. The information technology sector represents over 9 percent of U.S. GDP. It’s the fourth largest sector, behind real estate, government and manufacturing. Moreover, it has been a key engine of economic growth and leads the global landscape in innovation, as highlighted in a 2019 report by the Brookings Institution.
Meanwhile, China’s over-arching goal is to overtake the U.S. economy as it transitions from reliance on manufacturing to increased emphasis on developing its technology sector. And even though Chinese President Xi Jinping has made a series of mistakes on the regulatory front that may hinder its objective, the Chinese government is likely to marshal resources to promote it.
Another consideration is national security: Over the past three decades U.S. production of computer chips has fallen from about 40 percent of global production to 10 percent. And despite the U.S. being a leader in chip design and research, President Biden has conceded “we don’t have the ability to make the most advanced chips now – right now.”
Today, 75 percent of production originates in East Asia, and 90 percent of the most advanced chips are made in Taiwan. The authors of a report by the Center for a New American Security contend that the U.S. is already more dependent on Taiwan’s high-end microchips than it was on Middle Eastern oil in decades past. In their view, it has the potential at some point to incite a U.S.-China conflict.
Meanwhile, the urgency of improving domestic capabilities in domestic production of computer chips has been highlighted by ongoing supply-chain disruptions associated with the COVID-19 pandemic. One year ago, U.S. officials were confident that the worst was over. But there is still no indication this is happening: PBS recently reported that new U.S. car sales plummeted by 21 percent in the second quarter over a year ago owing to shortages of computer chips, which have also driven up prices of new and used autos.
On several occasions this year, Biden has singled out Intel for committing to build a fabricating plant in Ohio that would develop state of the art chip-making technology. In January, Intel CEO Pat Gelsinger said the company would invest up to $100 billion to build the world’s largest chip-making complex if it could be assured of receiving some federal support. But with the legislation now up in the air, Intel has since indicated that it is considering delaying its initial $20 billion investment, which was slated to be launched this month.
Amid these developments, Biden has urged Congress to “Pass the damn bill and send it to me.” However, as David Ignatius observes, Biden appears unwilling to “crack some heads” to get the job done: “You can’t fix everything in our messed-up country. But you can deliver on your promise to create good high-tech jobs in the semiconductor industry and compete with China for the strategic high ground.”
The impasse over the semiconductor legislation is emblematic of a larger issue. Namely, Biden’s legislative agenda has sought to enact the most sweeping social programs since LBJ’s Great Society when Democrats control both house of Congress by the narrowest of margins. One would hope that Biden and progressive Democrats would have learned by now that the way to produce tangible results is to narrow the focus of bills they consider.
Indeed, the major economic accomplishment of the Biden administration was the recasting of the infrastructure bill to gain bipartisan support. Now it has an opportunity to demonstrate how the federal government can play a role in enhancing U.S. technology prowess by helping to develop state of the art manufacturing capability.
If this isn’t clear to progressive Democrats, Biden should tell them in no uncertain terms that he wants the America Competes Act to be passed without further delay.
Nicholas Sargen, Ph.D. is an economic consultant with affiliations with Fort Washington Investment Advisors and the University of Virginia’s Darden School of Business. He has authored three books, including “Investing in the Trump Era: How Economic Policies Impact Financial Markets.”