The White House is on the cusp of a sizable victory as Congress moves to pass legislation to boost the domestic semiconductor industry, but the impact of that law on domestic supply chains is unlikely to be felt anytime soon.
Much like the bipartisan infrastructure law passed last year, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act creates multiyear programs to incentivize domestic production of semiconductors, or chips, and expand research and development that will take the federal government time to implement.
The White House has billed the legislation as a solution to the supply chain problems laid bare by the pandemic that have driven up prices across various industries. Still, officials and experts note that the bill’s economic footprint is meant to be felt over the coming years — not necessarily anytime soon.
“This is a long-term project, a long-term national project, that is a vital economic and national security consequence, and the ultimate impact of that will be felt over the course of years,” White House National Economic Council Director Brian Deese told reporters this week.
To be sure, the Senate passage represents a significant and in some ways unexpected bipartisan win for President Biden in the throes of an election year.
It’s also a positive development on the economy that the White House can reach for during a period of bleak economic news.
The Senate passed the legislation on the same day that the Federal Reserve hiked interest rates in an effort to bring down inflation as worries simmer about a possible recession.
The product of more than a year of negotiations, the legislation includes more than $50 billion in incentives for chip manufacturers to build domestic semiconductor plants. It also includes more than $80 billion for the National Science Foundation authorized over five years to support innovation and research.
The Senate passed the legislation in a 64-33 vote on Wednesday afternoon. The House is expected to pass the bill and send it to Biden’s desk later this week.
Proponents say the bill will make the United States more competitive against countries such as China and improve both national security and economic security over the long term by increasing the domestic production of the critical pieces. Chips are used in everything from cars to Javelin missile systems to cellphones.
“If we want to be competitive, we have to own these industries here,” said Ellen Hughes-Cromwick, a senior resident fellow at the centrist Democratic think tank Third Way and a former chief global economist for Ford Motor Company. “We can’t just import everything and rely on everyone else’s intellectual property.”
Administration officials are hoping that the legislation, once Biden signs it into law, spurs construction of new chip plants in the U.S. in the coming months. That would create construction jobs, and new facilities would eventually boost the availability of manufacturing jobs.
Politically, that could be a boon for Democrats in states such as Ohio, where Intel is planning to build a multibillion-dollar semiconductor facility outside Columbus. The company delayed groundbreaking on the plant scheduled for this month as the bill stalled in Congress.
Deese said Tuesday that the bill would “almost immediately” impact decisions by companies to stand up operations in the U.S., which can help spur job creation, even as he acknowledged impacts on the supply chain were further off.
The actual impact on the domestic supply chain will take longer, though, given the time it will take for companies to build new facilities and ramp up production.
“This bill allows for greater investment in the United States, in the semiconductor supply chain, that did not previously exist and were probably needed due to a range of factors and conditions prior to the pandemic,” said Robyn Boerstling, vice president of infrastructure, innovation and human resources policy at the National Association of Manufacturers, which has supported the bill.
“I view this really as a down payment, as a beginning step,” Boerstling said. “This is a beginning step to reclaim and recapture what I might describe as some lost ground.”
In a letter to House and Senate leaders earlier this month, Commerce Secretary Gina Raimondo and Defense Secretary Lloyd Austin warned that the U.S. was at risk of missing the current window of semiconductor investment if the bill was not signed into law in a matter of weeks.
“Semiconductor companies need to get ‘concrete in the ground’ by this fall to meet this increased demand in the years ahead,” they wrote on July 13. “CEOs of firms all along the supply chain have made clear that the industry is deciding where to invest now.”
Boerstling noted that the Commerce Department has been preparing for implementation of the legislation as it moved through Congress, including issuing a request for information earlier this year to guide the design of its programs.
“Their goal was to be ready,” she said.
The semiconductor bill is one of the actions that Biden has pointed to as a solution to sky-high inflation, which has wounded the president’s poll numbers and over which the White House has little control.
“As Americans are worried about the state of the economy and the cost of living, the CHIPS bill is one answer: it will accelerate the manufacturing of semiconductors in America, lowering prices on everything from cars to dishwashers,” Biden said in a statement on Wednesday applauding the Senate action. “It also will create jobs – good-paying jobs right here in the United States.”
Hughes-Cromwick said that the ultimate effect of the bill would be “disinflationary” because it would increase the domestic supply of computer chips, thereby lowering demand and lowering the cost of goods that they are used to make.
“This rolls out over a period of time,” she said. “This is very much a strategic package.”