Partisan wrangling threatens federal funding to boost domestic chip production

WASHINGTON — Sherman Mayor David Plyler thinks back to the many conference calls and long work weekends involved in the “dogfight” to land a new $5 billion GlobiTech plant that will produce silicon wafers.

Besides Sherman, the Taiwan-based parent company GlobalWafers Co. was considering locations in Ohio and South Korea for the facility expected to create 1,500 new jobs.

The city north of Dallas near the Oklahoma state line edged out Ohio with a package of local tax incentives, state enterprise grant funding and lowered utility costs, Plyler said, but it was never going to be able to match the kind of money South Korea could put on the table.

“That’s why GlobalWafers is waiting to see what happens with the CHIPS Act,” Plyler said, referring to a proposed $52 billion in federal semiconductor manufacturing incentives and research funding.

Those incentives enjoy broad, bipartisan support but have become entangled in unrelated partisan disagreements on Capitol Hill – a situation exasperating to those intent on luring more chip manufacturing operations to Texas and the economic growth that comes with them.

“Frustrating to think that we are so close with a bipartisan bill that just can’t seem to get across the finish line,” Austin Mayor Steve Adler said in an interview earlier this year. “I don’t understand why (it’s stalled). But it needs to happen.”

Adler noted Samsung’s plans to build a $17 billion next-generation semiconductor factory in Taylor, a small town northeast of Austin.

Such facilities bring good-paying jobs that don’t require college degrees, just the kind of “middle-skill” jobs that represent “the cavalry coming over the hill” for a local economy, he said.

The House and Senate each passed their own versions of broad bills intended to bolster the U.S. manufacturing sector’s ability to compete with China and other countries. And the two chambers had been working to resolve their differences over details related to trade and other areas – even as there was general consensus on the bills’ $52 billion to lure companies to locate semiconductor fabrication operations here.

But then Senate Majority Leader Chuck Schumer, D-N.Y., raised the idea of reviving dormant budget reconciliation efforts. The reconciliation process would allow Democrats to bypass Republicans and unilaterally approve, on party-line votes, a package of tax increases on high earners and corporations, climate-related provisions and proposals aimed at tamping down prescription drug prices.

Senate Minority Leader Mitch McConnell, R-Ky., responded by threatening to block the competition bill, known by the acronym USICA, and the chips funding along with it.

Republicans accused Democrats of jeopardizing bipartisan support for boosting semiconductor production in order to pursue a partisan tax-and-spending spree.

“Looks like Schumer giving up on USICA, including shoring up the vulnerable supply chain for high end semiconductors,” Sen. John Cornyn, R-Texas, tweeted earlier this month. “Major chip makers will likely abandon their plans to build manufacturing facilities in the US. Body blow to US national security, economy, and well paying jobs.”

Democrats shot back that Republicans were the ones endangering the chips funding just to safeguard drug companies’ bottom lines.

“Cornyn is joining McConnell to hold hostage a bipartisan bill that would make more in America, in order to protect pharmaceutical companies’ profits,” White House Press Secretary Karine Jean-Pierre, tweeted back at the senator. “We need to do BOTH: increase American manufacturing and strengthen our competitive edge against China, AND lower Rx drug costs.”

There are signs the impasse could be breaking, however, with reports that Schumer is moving to schedule a vote on a “skinny” version of the competition bill this week.

The idea would be to quickly pass the $52 billion in funding, possibly in combination with another measure focused on semiconductor investment tax credits, and leave the rest of the broader legislation for a later date.

Chips power the world

International supply chain disruptions stemming from the COVID-19 pandemic highlighted how reliant the United States has become on other countries to provide the semiconductor chips used in consumer products from pickup trucks to vacuum cleaners.

“Anyone going out to buy a washing machine or a car is having trouble getting those products partly because they can’t get the chips,” John Neuffer, president and CEO of the Semiconductor Industry Association, said in an interview. “So I think that was kind of a revelation for a lot of America, how dependent we are on chips. It’s always been that way but now it’s . . . embedded in the social consciousness.”

More than thirty years ago the United States was responsible for producing over a third of the world’s semiconductors. Now that share has fallen to 12% and headed lower.

Some of the most advanced kinds of chips aren’t made in the United States at all but instead are overwhelmingly produced in Taiwan.

Neuffer attributed the imbalance to other countries’ strategic moves over the years to provide massive manufacturing incentives even as the United States kept a more hands-off approach.

That has produced a situation where it costs up to 50 percent more to build and operate a fabrication facility in the United States than overseas, he said.

Biden administration officials also have been urging lawmakers to resolve their differences and pass the incentives in the name of national security.

Commerce Secretary Gina Raimondo and Defense Secretary Lloyd Austin wrote to congressional leaders last week describing semiconductors as “ground zero” in the country’s technological competition with China.

“Weapon systems employed on the battlefields of today and emerging technologies of tomorrow depend on our access to a steady, secure supply of microelectronics,” they wrote. “Immediate passage will revitalize the domestic semiconductor manufacturing industry and enable game-changing capabilities our war-fighters need.”

Time is running out

The House has two more weeks in session and the Senate three before lawmakers blow town for their August break, and then after Labor Day re-election campaigns start to crowd out thoughts of anything else.

“We just think we enter very perilous territory if we try to deal with this in the lame duck,” Neuffer said, referring to the always-crowded weeks between the election and a new Congress.

Neuffer didn’t want to speak for any particular company or project but he said a number of the commitments that have been made to build new facilities across the country are based on the expectation that the federal funding would come through.

And Raimondo has warned about lost opportunities if the bill isn’t passed, specifically citing the GlobalWafers plant in Sherman as a potential casualty.

“This investment that they’re making is contingent upon Congress passing the CHIPS Act. The CEO told me that herself,” Raimondo said in an interview on CNBC last month.

She also stressed the need for quick action.

“It has to be done before they go to August recess,” Raimondo said. “I don’t know how to say it any more plainly. This deal, this GlobalWafers, will go away, I think, if Congress doesn’t act.”

She added that Intel’s plans for new facilities in Ohio are on pause while the company waits to see if the legislation is passed and other manufacturers also are keeping their powder dry until the situation is resolved.

Some facilities in the works, such as the $30 billion, four-factory campus planned by Texas Instruments in Sherman, might move forward regardless of whether the bill passes.

But bolstering federal support for the sector still could increase the success of those operations. Their presence has the potential to transform communities, as evidenced in Sherman.

Plyler said it’s discouraging to see partisan sparring potentially hold up a project like the GlobalWafers plant after all the work that went into securing it.

As the community continues fostering an ecosystem of chip manufacturers and their suppliers, it needs the federal support to keep up with South Korea and Singapore, the mayor said.

“We’re at a huge disadvantage because their national governments can write checks that we at a local level cannot,” Plyler said.