Chips Act debate shows how far Republicans have gone

The writer is executive director of American Compass

At first glance, Republican opposition to the Chips and Science Act, through which Congress approved more than $70 billion to support the US semiconductor industry and about $200 billion for scientific research, appears to be a simple story – of course the GOP resisted “big government”. and “picking winners and losers”.

But the criticism actually came from the opposite direction. Republicans have shown an appetite for intervening in markets, confronting corporations and unraveling globalization.

To appreciate how far the American economic debate has gone off the rails, one has to delve into the legislative details – where platitudes about “building up America” and “helping working families” give way to compromises that force the application of abstract principles to decisions.

With Chips, the main argument was about “guardrails”. The bill would offer semiconductor makers billions of dollars in grants to build new manufacturing plants in the United States. But these grants came with strings attached. Any company accepting federal money for a US project had to agree not to make new investments in high-tech capabilities in China.

Despite their simplicity, such railings have various parameters. What counts as “high-tech”, and who decides? Should the definition be fixed or should it evolve? Intel and others, determined to both take federal money and invest aggressively in China, have pushed to weaken the guardrails — and here the deviation appears.

Historically, Intel might have expected a sympathetic audience from Republicans. It is a big company that seeks to maximize its profits and makes investments to achieve this goal. Isn’t that the GOP formula for a rising tide that will lift all ships? Not anymore. When the Democratic majority in the Senate was swayed by the chipmakers’ advocacy and amended the bill accordingly, Republicans were furious.

Their frustration is expressed in the memo quickly released by the Republican Review Committee, the largest caucus of conservatives in the House of Representatives. Entitled “Chips for China”, it warns that “it is particularly important to understand how [the bill] fails to stop U.S. taxpayer money meant to boost semiconductor production from flowing into China.”

Kevin Roberts, President of the Heritage Foundation, appeared on Fox Business to decry the fact of subsidizing “the construction of semiconductor factories in China”. But keep the money in America, he told an audience at the Intercollegiate Studies Institute’s American Economic Forum later that week, and he would be “all in.”

The question here is not whether federal spending should go to construction in China. The Chips Act makes it clear that a company can only receive a grant for a project in the United States. The Republican assertion is that a company benefiting from a federal program should not be able to invest in China at all. But if supporting an entity doing business there is “helping China,” then everything helps China. By this metric, a tax cut to encourage multinational investment is an impermissible pro-China subsidy.

What the Republicans are saying is not really specific to the Chips – rather it is indicative of a crossing of the Rubicon towards full decoupling from China. After all, it makes little sense that an American semiconductor company making new state-backed investments in the United States should not be allowed to invest in China, while a company refusing to invest in the country is free to associate with the Chinese government. The underlying logic of the GOP critique is that investing in China is not in the American interest and the implication is that federal policy should respond, hymns to “free trade” be damned.

Legislation already under consideration would restrict investment flows to and from China, for example by implementing stricter reviews, limiting Chinese access to U.S. capital markets and prohibiting the transfer of sensitive technology. But if Republicans don’t want Intel investing in China, they probably feel the same way about Apple, Tesla, Goldman Sachs and Pfizer — and Harvard. Recent GOP rhetoric suggests they are less interested in standards and subjective criticism than outright bans. If they make it through midterm in November, expect quick moves in that direction.

A more aggressive industrial policy could also follow. The chip law rationale will apply to other critical industries such as communications equipment, rare earth minerals and biopharmaceuticals. Conservative interest in rebuilding America’s industrial base may finally transcend the free-market fundamentalism that once dominated the center-right.

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