Rebuilding US industry requires more than just computer chips

It’s only taken a year and a half, but Congress is finally on the brink of passing a “China bill.” At this point, however, the final legislation will simply be aimed at building up America’s domestic computer chip industry. That means, much of the original intent – of crafting a bill to tackle China’s massive subsidies, intellectual property theft and market barriers – will be left to a future Congress. But the “Chips Act” that Congress is finalizing offers a helpful template for solving America’s wider challenge — winning the global competition for good jobs and crucial industries.

Computer chips matter heavily, of course. They’re one of the most significant dual-use commodities in the global economy. Not only do most consumer goods – including everything from refrigerators to automobiles – require computer chips. But America’s military hardware is also incredibly dependent on high-tech semiconductors as well. In fact, the shortage of computer chips that emerged in the wake of the COVID-19 pandemic has proven to be one of the key drivers of current inflation, with consumers waiting months for everything from cars to kitchen appliances.

The United States urgently needs a robust, domestic semiconductor industry. Ramping up American-made computer chip production would certainly ease current supply chain shocks across a number of industries. And it would address a significant national security concern, since the U.S. remains beholden to overseas chip makers.

Helpfully, what Congress has done is set aside $54 billion in investment assistance for U.S. semiconductor companies, plus a tax credit worth roughly $24 billion. These are good incentives to help manufacturers locate production in the United States. Intel Corp. has already expressed its intention to build a new $20 billion factory in Ohio.

What’s dumbfounding, however, is that in the wake of current inflation driven by supply chain shortages, Congress took so long to allocate funding for domestic chip-making. In contrast, lawmakers quickly appropriated a similar level of funding for Ukraine aid.

Since much of America’s current inflation is being driven by ongoing shortages of consumer goods, the obvious response should be to start bringing these industries back to U.S. shores. Thankfully, Congress now has a blueprint for exactly this kind of effort, since the chips act is intended to resuscitate a critical industry. Lawmakers should extend the same approach to rebuilding America’s domestic manufacturing of personal protective equipment (PPE), medicines, industrial minerals, metalworking and automation systems.

The big issue is still China, though. At present, Beijing controls 70 percent of the world’s lithium supplies, for example, and almost all of the world’s graphite. Similarly, thousands of prescription drugs that Americans use each day are made with ingredients produced only in China.

America’s dependence on China reaches across a wide swath of industries. And it’s no accident that China has gained such a stranglehold position. Beijing continually funds its state-owned factories with billions of dollars in direct subsidies. That allows Chinese producers to “dump” product in the world market at artificially low prices — a tactic that has successfully put many U.S. manufacturers out of business.

With the chips act finalized, Congress should now draft comparable legislation to revitalize other key U.S. industries — and once again make the United States a competitive place to produce not just semiconductors but pharmaceuticals, electronics, metals and medical equipment.

Achieving this requires a new mindset, however — a recognition that almost every other country is gaming the global system. China is the most egregious, with its vast subsidies and market barriers. But manufacturers throughout Asia also enjoy the benefits of currency misalignment, low-wage labor and governmental funding. 

To counter this, Washington must get equally tough, and provide incentives and tax assistance to domestic producers willing to locate new production at home. The Chips Act is a start. But whether it’s tax breaks or tariffs, Congress must consider this a justified response to other countries already cheating in the global market.

An over-reliance on China has robbed the United States of millions of good-paying middle-class jobs. And shortages of imports are now driving inflation. It’s time to correct both problems — and start rebuilding domestic industry. That’s the wisest course to prevent future price shocks while bringing back high-wage jobs.

Michael Stumo is CEO of the Coalition for a Prosperous America. Follow him on Twitter @michael_stumo.