The Senate on Tuesday voted 64-32 to propose a $280 billion “chips plus” subsidy bill, and as always, there’s a lot of plus in politics. Money from Washington always comes with strings attached, and we hope semiconductor CEOs know what they’re committed to.
That message couldn’t have been clearer from President Biden on Tuesday, when he told business and labor leaders on a conference call that the $52 billion in grants for Intel and other chipmakers are not a “blank check for companies.” The president said he would “have to personally approve the largest grants.”
Note to companies applying for money: Locate this new factory in a swing state with more than a handful of voters. Mr. Biden or the vice president might want to stop by during the 2024 campaign.
The President also underscored that the law requires companies to pay union wages to construct semiconductor plants funded by the law. Communications Workers of America President Chris Shelton said this will ensure “there is no race to the bottom”. Translation: Construction will be more expensive and non-union contractors will not benefit.
Some companies that have lobbied for the law have nonetheless expressed frustration at the fact that it bans recipients of government grants from expanding production of advanced chips in China. But what did they expect? Politicians are selling the law as a national security necessity to compete with China and ensure more chips are made in the US in the event of a conflict with Beijing.
Mr. Biden also made it clear that his administration would impose its own terms on the money. For example, “we will not allow companies to use these funds to buy back stock or issue dividends.” Mr. Biden threatened to reclaim subsidies from those who do. This means companies that take federal money are not allowed to reward shareholders if the investments are successful.
The president also noted that companies whose future innovations derive in part from the bill’s $200 billion approved spending on research and development in areas like green energy and artificial intelligence are “employing that technology” and “in invest a facility here in America.” This requirement will prompt CEOs to apply political calculus to their investment decisions.
Industrial policy and political capital allocation invariably distort investment. Don’t be surprised if the conditions that Congress and the government impose on these companies make the companies and the United States less competitive with China.
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Published in the print edition on July 27, 2022.
https://www.wsj.com/articles/semiconductor-subsidy-strings-attached-senate-bill-chips-president-biden-11658873210 Semiconductor Subsidy Strings Attached – WSJ