Opinion: Governors Begging Congress for Semiconductor Cash Won’t Fix Anything

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There’s an initiative to convince Congress to pass legislation that would pour billions of dollars onto chip manufacturers at play that’s being led by Michigan Governor Gretchen Whitmer. A letter, signed by nine other governors, was issued asking like-minded lawmakers to send $52 billion in economic aid so that the chip shortage so that the supply issues that have been plaguing various industries (including the automotive sector) can finally be resolved.

Backed by the U.S. Semiconductor Industry Association (SIA), the “CHIPS for America Act” is just one of several programs designed to use the National Defense Authorization Act to create federal funding for chip suppliers. The governors (all of which are from states manufacturing automobiles) say they want a cash injection by the end of 2021 so that domestic chip manufacturing can build new factories right away. But SIA lobbyists are pressing for numerous plans that would result in extensive tax breaks and annual investments from the government that is all focused around the proposed CHIPS legislation and piggybacks on the recently passed U.S. Innovation and Competition Act (USICA).

Alright, let’s break this down. 

On Wednesday, a letter was sent to House Majority Leader Nancy Pelosi, Minority Leader Kevin McCarthy, and their Senate counterparts — Chuck Schumer and Mitch McConnell — requesting that Capitol Hill swiftly push through the CHIPS Act. The presiding logic is that domestic manufacturers (particularly automakers) have been struggling due to semiconductor shortages and are now endangering the employment status of hundreds of thousands of Americans.

“There is no question that our nation’s automotive manufacturing industry — more than any other sector — has been hit hardest by the global semiconductor shortage,” Whitmer wrote in the letter. “Production at auto plants across the country has been idled, impacting more than 575,000 auto-related American jobs.”

Whitmer was joined by Governor Gavin Newsom of California, Laura Kelly from Kansas, Andy Beshear of Kentucky, J.B. Pritzker of Illinois, Pennsylvania’s Tom Wolf, Roy Cooper of North Carolina, Tony Evers of Wisconsin, and Kay Ivey of Alabama — the latter being the only Republican.

Giving the semiconductor industry has been popular with the Biden administration and the Senate has already voted in the affirmative to provide businesses with government money. But Reuters has reported that there’s been pushback in the House due to the open-ended nature of the proposed legislation.

From Reuters:

The semiconductor funding passed the U.S. Senate earlier this year by 68-32 as part of the broader U.S. Innovation and Competition Act, or USICA. But it has not passed the House of Representatives.

Elements of the broader bill have drawn opposition from some House members who worry that it does not have safeguards to prevent research funds from benefiting China, the United States’ primary global competitor.

“We understand that the House of Representatives has its own priorities with respect to the policies and programs included in USICA, we hope the two chambers will now come together quickly to find common ground with respect to this legislation, including full funding for the CHIPS Act re-shoring provisions, as soon as possible,” reads the governors’ letter.

Your author would like to echo those concerns while adding a few of his own. Rather than focusing exclusively on bolstering chip output, much of the proposed funding is reserved for research and development. Tax breaks likewise seem more focused on helping an industry that has one of the most in-demand goods imaginable right now, instead of building up new players that could help maximize domestic production.

But perhaps the dumbest aspect imaginable is how little goes toward the chips automakers actually use. Of the proposed $52 billion, only $2 billion will be used to prioritize the older chips that go into cars. This has actually been a massive contributor to the semiconductor shortage since we became aware of it. When COVID restrictions began, people weren’t buying cars. They were buying laptops, tablets, and other small devices relying on the latest technologies because there was nowhere to go. Confronting problems of their own, suppliers shifted production accordingly and realized newer chips would net them more money in the long term. This left the automotive sector (which has continued to outsource the production of necessary hardware) in a sticky spot.

While the industry has figured out how to remain more-or-less profitable by launching rolling production stoppages, the industry at large is estimated to have lost $200 billion this year due to massive massive production shortfalls. The latest math has 2021 yielding roughly 4 million fewer cars than planned. But it’s not entirely the fault of absent semiconductors. Electronic components (resistors, capacitors, connectors, etc.) have become difficult to source in general and their predominantly Asian suppliers have opted to prioritize the home markets first. This has increased prices and lowered availability across the planet, however, it’s hitting Western nations particularly hard.

It’s not just electronics either. Raw materials are also going up in price as global supply chains continue to struggle. One of the more recent examples of this is the magnesium shortages taking place in Asia. Quadrants of the automotive industry have begun ringing alarm bells that economic troubles have resulted in factory closures that are about to create extra demand for the element. China, which is responsible for 85 percent of global magnesium supply, is assumed to have cut its total output by half. While some automotive manufacturers have stated they are not concerned due to the limited amount of magnesium they use, others have said they’re worried they’re just a few weeks out from another crisis. Europe’s automobile manufacturer association, the ACEA, has also stated that its also expecting problems between now and the start of 2022.

One wonders how the CHIPS Act is supposed to do anything other than keep the United States as the preeminent chip designer and why that’s supposed to be important when it’s supplying the older chips that will ultimately help boost automotive production. The U.S. still has the market cornered when it comes to cutting-edge tech but it has ceded a significant amount of capacity to China by going from building 37 percent of the world’s semiconductors (in 1990) to just 12 percent (in 2020). That lacking capacity (thanks, NAFTA) seems to be what’s hurting the broader industry most and it’s not evident that the CHIPS Act addresses this in a serious manner. Extend that premise to as many other legislative actions that similarly seem to prioritize the wishes of lobbyists — at the expense of creating helpful, financially prudent, and manageable solutions for the American people — as you want.

[Image: sitthiphong/Shutterstock]

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