Democrats took a loss last week when Sen. Joe Manchin III (D-W.Va.) all but dashed their dreams of a big, bold reconciliation package. Yet as it turns out, the defeat might make another victory more likely.
Legislators are almost certain to sever the Chips Act from the larger USICA, pushing through $52 billion in aid to the semiconductor industry, including $39 billion in grants to subsidize new factories in the United States; that move was already likely even with Mr. McConnell holding the rest of the bill hostage. Legislators are also hoping to add on a little more, such as an investment tax credit for semiconductor manufacturing and a program to bolster alternatives to Chinese-made 5G technologies. The thinking is that the Chips Act is urgent — because unless it passes quickly, companies impatient for the subsidies it would provide will build their facilities in countries where incentives are already in place. And with Taiwan responsible for the bulk of advanced chips today, supporters are right that domestic production is the surest way to prevent future supply shocks and protect national security.
The problem is, the Chips Act has never been the only way, or even the best way, to achieve that aim. Lawmakers have attached some strings to the money the bill would dole out, but there’s still a risk that the funds would largely benefit shareholders rather than taxpayers. There’s also a risk that no matter how well the United States spends its dollars, it can’t keep up with China — which is used to funneling far more government resources into industry. Other parts of the competition package took a smart tack: supporting academic research in critical areas and facilitating immigration by students and talented professionals. These interventions, alongside a robust free market, are essential to success.
Congress shouldn’t stop at the Chips Act, but instead consider the crucial parts of the reconciliation bill it otherwise will sacrifice — if not this week, then as soon as legislators can manage. The imperiled reconciliation deal gives Democrats some space to propose these provisions after all, and Republicans some space to support them. Call it a silicon lining.
