Tech Investment Bill to Counter China Hits New Hurdle

McConnell warns USICA won’t advance if Democrats move ahead with separate climate and drug package

By Natalie Andrews and John D. McKinnon (WSJ)

July 1-2, 2022

WASHINGTON—A bipartisan push to increase U.S. semiconductor production and competitiveness with China has run into further trouble and could cloud companies’ investment plans, with the Senate’s top Republican tying its fate to a separate climate and prescription-drug budget plan being pursued by Democrats.

Senate Minority Leader Mitch McConnell (R., Ky.) said Thursday that he is willing to block the China and chips legislation, known as USICA, if Democrats continue those budget talks, which could be passed with just Democratic votes in the 50-50 Senate through a special process called reconciliation.

“Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill,” Mr. McConnell tweeted.

Many aides acknowledge that if they can’t land on a deal for either bill by the end of July, the approach of the midterm elections would likely block further progress. Congress is on break and set to return later this month.

Passing the deal after November might be too late for some manufacturers, who have ramped up their calls to Congress to pass legislation quickly. Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, Intel Corp. and Global Foundries, Inc. have all issued warnings that delaying the legislation could cause them to scale back their plans to make semiconductors in the U.S.

Many of the states where manufacturers have announced plans are led by Republicans, which could push lawmakers to make a deal. GlobalWafers Co., a Taiwan-based company, said on Monday it plans to build a $5 billion factory in Texas to make silicon wafers used in semiconductors, if Congress approves the bill.

The White House accused Mr. McConnell of “holding hostage a bipartisan package to strengthen American competitiveness versus China.”

The China competitiveness legislation has been star-crossed for the better part of a year, in part due to basic differences between the two chambers that passed separate bills and are now trying to blend them. The two chambers included very different approaches to overhauling trade policies to make the U.S. more competitive. The House also added a raft of other proposals, including a $45 billion program to help boost other supply chains.

To reach a deal, Democrats have agreed to drop part of the House bill that would authorize $2 billion annually to the Global Climate Change Initiative for improving food security and natural-resource conservation abroad, according to a person familiar with the matter.

Lawmakers and aides maintain they have been closing in on a compromise. The person familiar with the talks said it was 90% hammered out.

“As is common in legislating, there will be bumps in the road,” Commerce Secretary Gina Raimondo said after Mr. McConnell’s statement.

Democratic and Republican congressional aides saw Mr. McConnell’s comment as a sign he was worried that a deal was emerging for the long-stalled budget bill, which Republicans have opposed. The bill has been held up in the Senate after Sen. Joe Manchin (D., W.Va.) last year blocked a broader, roughly $2 trillion House version of the legislation, formerly known as Build Back Better.

Mr. Manchin has been huddling in recent weeks with Senate Majority Leader Chuck Schumer (D., N.Y.) on a party-line package. While those talks have been closely held, some Democrats now expect any agreement between Mr. Schumer and Mr. Manchin to raise roughly $1 trillion in tax revenue with roughly $500 billion in spending. About $500 billion would be dedicated toward reducing the federal budget deficit.

At the heart of the bill’s spending would be tax incentives for companies and individuals to reduce their carbon emissions, while the tax increases would likely come from a new minimum tax on corporate book income, a higher minimum tax on multinational corporations’ foreign earnings and higher taxes on very-high-income Americans. Mr. Manchin has repeatedly said he supports measures to reduce the price of prescription drugs, and Democrats expect a plan empowering the government to negotiate lower drug prices to be an element of any eventual deal.

Any deal would likely continue a pandemic relief program that lowered health-insurance premiums for plans sold on the Affordable Care Act exchange. Democrats have been seeking to reach a deal by August on that because insurers are preparing to set prices for the next year.

Talks between Messrs. Manchin and Schumer have shown signs of progress: Democrats have started bringing portions of the legislation to the chamber’s nonpartisan parliamentarian for review. To pass legislation along party lines, Democrats must conform with the rules of a process called reconciliation, which allows for lawmakers to pass fiscal policies in the Senate without meeting the 60-vote threshold necessary for most legislation.

“Time isn’t our friend. This is a door that has opened and it’s slowly swinging shut and when exactly does the door close and click shut I can’t exactly say,” said Sen. Tina Smith (D., Minn.) about the budget bill.

On the USICA legislation, known in the House as Competes, both chambers included roughly $52 billion in funding for subsidies to re-establish semiconductor manufacturing in the U.S., which has fallen behind South Korea, Taiwan and other overseas competitors. They also had generally similar approaches to boosting funds for U.S. scientific research and putting more money into cutting-edge technologies.

Another closely watched piece of the broader China package—a bipartisan push to regulate American corporations’ activities in adversary countries such as China—is also running into trouble, according to people involved in the discussions.

The measure, which would require American companies and investors to disclose certain new outbound investments and authorize the executive branch to form an interagency panel to review and block investments on national-security grounds, is facing stiff opposition from some staunch free-market Republicans as Sen. Pat Toomey (R., Pa.), as well as industry, according to the people. It has support from more national security-focused Republicans as well as many congressional Democrats and the White House, they said.

Democrats also have increasingly made the legislation a centerpiece of their strategy for fighting inflation and ending supply-chain woes, raising the political stakes for both sides.

Some incumbents facing difficult re-election fights—including Sen. Mark Kelly (D., Ariz.), whose state would gain funding to support two new Intel plants—also have put heavy emphasis on the bill.

The closely divided Senate first passed its bipartisan compromise on the chips and China competitiveness bill in early June of 2021. The Democrat-controlled House waited until February to pass many elements of its package, and its version—passed along party lines—differed from the Senate’s in many respects. A Senate log of significant policy differences with the House bill totaled more than 1,000, according to an aide.

Andrew Duehren and Kate O’Keeffe contributed to this article.

Appeared in the July 2, 2022, print edition as 'McConnell Threatens to Block Chips Bill Over Budget Plan'.