In economic terms, this argument makes a lot of sense. But geopolitics matter, too. Political leaders in other countries have already decided to offer subsidies for semiconductor manufacturing, because they want some of this manufacturing to take place in their countries.
If the U.S. does not also offer subsidies, it may continue to struggle to attract factories. Already, the U.S. market share of all semiconductor manufacturing has fallen to about 12 percent from 37 percent three decades ago.
Pat Gelsinger, the chief executive of Intel, has said that a typical factory costs about $10 billion to build, and subsidies from some countries cover 30 percent to 50 percent of that cost. China’s subsidies cover closer to 70 percent. “It is not economically viable for us to compete in the world market if everyone else that we’re competing with is seeing 30 to 50 percent lower cost structures,” Gelsinger said.
Senator Rob Portman, an Ohio Republican who helped write the Senate bill, has acknowledged that it runs counter to the free-market philosophy he usually prefers. But, Portman explained at the Aspen Ideas Festival last month, “if we are continuing with blinders on to follow a political philosophy that seems to make sense generally but doesn’t work in the practical world, I think we end up with a much less competitive economy and a national security risk.”
Biden and his top aides agree. “We are now in a very dangerous situation in which we are utterly reliant on Taiwan for the vast, vast majority of our most advanced semiconductors, which are the exact kind of semiconductors you need for military equipment,” Commerce Secretary Gina Raimondo told me. “You cannot be a global superpower if you don’t make any of these.”
What China wants
Why, then, haven’t the Senate and House agreed on the bill?
House Democrats added provisions to the Senate bill that Republicans did not like, such as additional money for worker retraining. House Democratic leaders seem willing to remove most of these from the final bill, but it remains unclear whether the two parties can agree on a compromise.