June 24, 2021

Congress Confronts China With Massive Industrial Policy Bill

Meeting China head-on in the high-tech electronic chip development market was a critical initiative for Donald Trump’s administration and specifically the Department of Defense. As Liberty Nation reported, the former president’s Under Secretary of Defense for Acquisition and Sustainment Ellen Lord made it high priority to bring back to the United States the development, manufacturing, testing, and packaging of critical microelectronics used in defense weapons systems. And now, with Senate Bill 1260, the Endless Frontier Act, Congress has perhaps taken the competition with China on the technology battleground seriously.

computer chip

Though the issue has been brewing for several years, the magnitude of U.S. reliance on China and countries influenced by China came to prominence when the supply of computer chips for the auto industry dried up last summer. Liberty Nation’s Andrew Moran has warned of the dependence on China’s chip manufacturing in global semiconductor shortages.

According to Barron’s Reshma Kapadia, the Endless Frontier Act will emphasize “U.S. Leadership in areas like artificial intelligence” and “ high-performance computing and manufacturing.” Additionally, the bill “lays out funding to bolster chip production domestically in a bid to reduce U.S. dependence on companies like Taiwan Semiconductor Manufacturing and chip supply chain in Taiwan, the island democracy that China considers a territory.”

An important element of the legislation is the responsibility given to the Department of Commerce to:

  1. “Establish a supply chain resiliency and crisis response program to address supply chain gaps and vulnerabilities in critical industries.
  2. Designate regional technology hubs to facilitate activities that support regional economic development that diffuses innovation around the United States.
  3. Award grants to facilitate development and implementation of comprehensive regional technology strategies.”

In the run-up to its passing, sponsors of the Endless Frontier Act focused on addressing what the United States must do to recover the capability to not only design cutting-edge chips, which the United States does now credibly, but also re-establish prominence in the entire semiconductor supply chain. As The New York Times explained the challenge in a recent article:

“Faced with an urgent competitive threat from China, the Senate is poised to pass the most expansive industrial policy legislation in U.S. history, blowing past partisan divisions over government support for private industry to embrace a nearly quarter-trillion-dollar investment in building up America’s manufacturing and technological edge.”

Government investment in the private sector is a tough pill for most Republicans to swallow, but the market forces typically embraced by conservatives did not work. China’s propensity to steal intellectual property, counterfeit chips, sell them at a discount, and generally engage in predatory pricing practices has rendered any reliance on free trade ineffective.

Consequently, co-sponsors of the Senate bill included prominent Republican Senators Todd Young (R-IN), Rob Portman (R-OH), Lindsey Graham (R-SC), and Steve Daines (R-MT).  Senator Marco Rubio (R-FL), in a Senate floor speech, described the motivation for Republican support of the bill this way:

“Major American corporations headquartered here in the United States, multinationals, have allowed China to steal their trade secrets and cheat on trade because, for them, gaining access to a small sliver of the growing Chinese market of over a billion people led to profits … And we made the decision to allow Chinese companies free rein to own, to buy, to make money in America, almost without restrictions, because we are capitalists. But they, on the other hand, restrict and ban our businesses from doing work in China because they are nationalists.”

The benefit for the Department of Defense is that the bill opens the door for U.S. government investment to incentivize American microelectronics companies to bring back microchip production to the United States. Even though the defense market makes up only about 1% of the total microelectronics market, it is critical to legacy and future weapons systems. In addition, securing the semiconductor supply chain is as important to national security as developing the weapons. Now, that funding imperative is on the verge of becoming national industrial policy.

The views expressed are those of the author and not of any other affiliation.

The post Congress Confronts China With Massive Industrial Policy Bill was first published by Liberty Nation and is republished here with their permission. Please support their efforts.

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