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Lawmakers Push to Invest Billions in Semiconductor Industry to Counter China

WASHINGTON — China’s technological ambitions are eliciting rare bipartisan agreement in Washington, with lawmakers considering investing tens of billions of dollars in America’s semiconductor industry over the next five to 10 years to help the United States retain an edge over Beijing.

A bipartisan measure introduced this week is one of several proposals that would provide substantial funding for the semiconductor industry, which manufactures chips that serve as the tiny brains or memory of electronic devices from smartphones to fitness trackers.

The efforts reflect a shifting consensus in Washington, as lawmakers look to more expansive government intervention in private markets to help American firms compete. That includes Republicans, who have long criticized government-led industrial plans as inefficient and redolent of communism but have watched with dismay as such efforts in China have allowed it to dominate industries from steel and solar panels to shipbuilding.

The future of the semiconductor industry is viewed as particularly significant because it is a foundational technology that can give nations an edge in innovation. China has been shoveling billions into developing its own chip industry, which has long been dominated by the United States and has helped propel a boom in 5G technology, artificial intelligence and robotics.

Semiconductors are still one of America’s largest exports, and American companies that design and sell chips still account for nearly half of global revenue in the sector, the greatest share of any country. But the United States only accounts for around 12 percent of global semiconductor production capacity. Decades ago, domestic designers began turning to foundries in places like Taiwan and South Korea to manufacture their chips.

While past government subsidies have largely focused on chip research, the latest bill puts a heavy emphasis on domestic manufacturing. A centerpiece, which would put more than $22.8 billion toward the industry, is a new trust fund for federal grants to match state subsidies to encourage new factories. As much as $10 billion a year could be placed in the fund, with the money to come from the import tariffs the administration has placed on China, rather than a congressional appropriation.

ImageSenator John Cornyn, Republican of Texas, is one of the sponsors of a bipartisan measure aimed at supporting the semiconductor industry.
Credit…Pool photo by Stefani Reynolds

The legislation is co-sponsored by Senators John Cornyn, Republican of Texas, and Mark Warner, Democrat of Virginia, and Representatives Michael McCaul, Republican of Texas, and Doris Matsui, Democrat of California. It could be rolled into the next economic stimulus package or a defense bill that may be considered this summer.

The measure follows a bill introduced in late May by Senator Chuck Schumer, Democrat of New York and the minority leader, and Senator Todd Young, Republican of Indiana, that would expand the National Science Foundation and increase funding by $100 billion over five years in areas like artificial intelligence, robotics and advanced manufacturing. Senator Tom Cotton, Republican of Arkansas, is also working on a bill to fund the chip industry.

“One of the biggest weaknesses in the American economy is the decline of our scientific and innovation industrial base, and we must invest in academic institutions and industries to rebuild it,” Mr. Schumer said. “There’s bipartisan support to do so and it’s growing each day.”

The shift in Congress mirrors one in the Trump administration, which has rejected traditional Republican support of free trade in favor of a more managed approach to compete with China. Mr. Trump’s advisers have zeroed in on the semiconductor industry, which was born in the United States but has partly migrated to Asia in recent decades, as the test case for their plan to use trade and technology policies to return manufacturing to American shores.

Though the election is fast approaching, officials in the Trump administration have only just begun to implement that plan. Over the last year, they have introduced a variety of measures aimed at cutting Chinese companies off from American technology exports and investment opportunities and crippling the Chinese telecom giant Huawei, which they view as a national security threat. Mr. Trump also waged a prolonged trade war against China — placing tariffs on hundreds of billions of dollars of Chinese goods, including high-tech ones — as he pressed the country to sign a so-called Phase 1 trade deal.

But the administration has done little to build up other companies that could compete with Huawei and other Chinese technology leaders. As a result, American efforts to get countries around the world to excise Huawei from their telecom networks have been largely unsuccessful.

For many months, officials in the Departments of Defense, State and Commerce have been trying to woo chip makers including Intel, Samsung and Taiwan Semiconductor Manufacturing Company to expand their manufacturing footprint in the United States. In May, T.S.M.C. announced plans to build an advanced chip facility in Arizona. That plan is contingent on securing funding from Congress, which would likely come through the bill introduced this week.

Officials from the Department of Commerce and State, who helped negotiate with T.S.M.C., have been in talks with Congress to create a standard package of incentives that could be offered to attract other chip suppliers. In a meeting at the White House last Thursday, senior officials discussed incentives that could bring chip manufacturers onshore.

Besides recent tensions with China, industry executives say the bipartisan support for the bill was also fueled by the coronavirus and its aftermath, which underscored the dangers of relying on a distant electronics supply chain.

“It may be the silver lining out of this whole unfortunate pandemic,” said Thomas Caufield, the chief executive of GlobalFoundries, which has invested $15 billion in manufacturing facilities that include a large factory near Albany, N.Y., and facilities once owned by IBM. “It’s time to think differently.”

China still lags in the production of the most advanced semiconductors, but its technology is improving quickly. The Trump administration has warned that China is using subsidies, targeted investments and cybertheft to try to gain a technological edge.

Administration officials and others in Washington also believe that Taiwan, a major supplier of advanced chips, is vulnerable to Chinese invasion or influence, one motivation behind trying to bring T.S.M.C.’s manufacturing to the United States.

Credit…House Television, via Associated Press

“As the Chinese Communist Party aims to dominate the entire semiconductor supply chain, it is critical that we supercharge our industry here at home,” Mr. McCaul said in a statement.

Chip factories — which now routinely cost as much as $10 billion and can take years to construct — also help set the pace of innovation. By developing new production processes that squeeze more transistors on tiny squares of silicon, manufacturers can lower the cost for performing calculations and storing data.

Intel, which has major factories in three U.S. states, for decades led that technology race. But the company was several years late on delivering its latest production process, allowing T.S.M.C. and Samsung to claim a lead.

South Korea, Israel, Ireland, Germany and other countries have offered generous incentives to attract chip makers. Earlier this month, Taiwan unveiled more than $300 billion of funding to attract foreign semiconductor companies. Conscious of American efforts to attract manufacturing, Chinese officials have also recently stepped up efforts to court multinational technology companies, industry executives say.