The writer is executive director of American Compass
On the face of it, Republican opposition to the Chips and Science Act, through which Congress approved more than $70 billion to support the U.S. semiconductor industry and about $200 billion for scientific research, seems like a simple story — of course the GOP opposed” great government” and “choose winners and losers”.
But the criticism actually came from the opposite direction. Republicans showed a hunger to intervene in markets, confront companies and stave off globalization.
To understand how sharply America’s economic debate has diverged, one has to delve into the details of the legislation – where platitudes about “strengthening America” and “helping working families” give way to tradeoffs that force the application of abstract principles to decisions.
At Chips, the main argument was about “guardrails.” The bill would provide semiconductor manufacturers billions of dollars in subsidies to build new manufacturing plants in the US. But those subsidies came with obligations. Any company that took federal money for a US project had to agree not to make new investments in high-tech capacity in China.
Despite sounding simple, such guardrails have different parameters. What counts as ‘high-tech’ and who decides? Should the definition be fixed or evolving? Determined to both take federal money and invest aggressively in China, Intel and others lobbied to weaken the guardrails — and this is where the diversion comes into view.
Historically, Intel could have expected a sympathetic audience from Republicans. It is a large company that wants to maximize profits and make investments to achieve that goal. Isn’t that the GOP formula for a rising tide that will lift all ships? No longer. When the Senate Democratic majority was influenced by chipmakers’ interests and amended the bill accordingly, Republicans were outraged.
Their frustration is expressed in the memo released quickly by the Republican Study Committee, the largest group of conservatives in the House of Representatives. Entitled “Chips for China”, it warned that “it is especially critical to understand how” [the bill] fails to protect US taxpayer dollars intended to incentivize semiconductor manufacturing to flow to China.”
Kevin Roberts, President of the Heritage Foundation, appeared on Fox Business to reject 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’d be “all in.”
The question here is not whether federal spending should go to construction in China. The Chips Act unequivocally states that a company can only receive a grant for a project in the US. The Republican claim is that a company that benefits from a federal program is not allowed to invest in China at all. But if supporting an entity that does business there is equivalent to ‘helping China’, then everything helps China. By this measure, a tax cut to encourage investment by multinationals is an inadmissible pro-China subsidy.
What the Republicans are saying isn’t really Chips specific — rather, it shows a crossing of the Rubicon towards complete decoupling from China. After all, it hardly makes sense that a U.S. semiconductor company making new government-backed investment in the U.S. should be banned from investing in China, while someone who refuses to invest domestically is free to cooperate with the Chinese government. The underlying logic of the GOP critique is that investment in China is not in the US interest and the implication is that federal policy must respond, lauds of “free trade” be doomed.
Legislation already envisaged would restrict investment flows both to and from China, for example by imposing stricter assessments, restricting Chinese access to US capital markets and banning the transfer of sensitive technology. But if Republicans don’t want Intel to invest in China, they probably think the same about Apple, Tesla, Goldman Sachs and Pfizer — and Harvard. Recent GOP rhetoric suggests they are less interested in subjective norms and judgments than outright prohibitions. If they do well during the November midterms, you can expect rapid progress in this direction.
A more aggressive industrial policy could also follow. The rationale behind the Chips Act 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 overtake the free-market fundamentalism that once dominated the center-right.