The CHIPS and Science Act was meant to spur the domestic production of computer chips. But after Congress and President Joe Biden enacted the bill last summer, it became clear implementation wouldn’t be so easy.
That’s because the Biden administration is attaching liberal policy requirements for microchip companies who want to accept their share of the billions available in subsidies.
CHIPMAKERS REQUIRED TO PROVIDE CHILD CARE IN EXCHANGE FOR GOVERNMENT MONEY
The grants, loans, and tax credits provided by the spending are meant to give the U.S. military a global advantage and protect the country from supply chain vulnerabilities like those experienced in 2021. Semiconductors are integral to thousands of types of electrical products, including computers, smartphones, appliances, vehicles, and medical equipment.
The Commerce Department will start accepting applications in late June for a $39 billion manufacturing subsidy program. But there are strings attached to those funds.
“We are not writing blank checks to any company that asks,” said Commerce Secretary Gina Raimondo.
Guidance documents from the Commerce Department advise applicants to have an “equity strategy.” That strategy includes “specific efforts to attract economically disadvantaged individuals and promote diversity, equity, inclusion, and accessibility.”
The money can be clawed back if used for stock buybacks or paying out dividends instead of domestic investment in facilities, research and development, or educational purposes.
Other prerequisites for obtaining funds include restrictions on chip manufacturers’ ability to expand production capacity in foreign countries of concern, most importantly, China. That constraint takes place in concert with recent export restrictions on dozens of Chinese firms, including chipmaker Loongson Technology. The CHIPS Act is intended to give the United States a leg up in the global tech race with China.
Turning to the domestic policy priorities of the plan, the Commerce Department calls for a “workforce development plan” from those seeking government funds. The department recommends the applicant detail its “engagement with strategic partners, including but not limited to labor unions, workforce development organizations, state and local workforce boards, educational institutions and others.”
Recipients of CHIPS direct funding totaling more than $150 million also must provide affordable, accessible, reliable, and high-quality childcare. Additionally, in what the administration is calling “upside sharing,” that same funding threshold triggers obligations to share “with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections.”
In praise of the controversial revenue-sharing portion of the plan, Sen. Jack Reed (D-RI) said, “There is no downside for companies that participate because they only have to share a portion of future profits if they do exceedingly well.”
While there is some precedent of states demanding specific employment conditions in exchange for tax breaks, the Biden administration’s plan takes the quid pro quo further. Some worry that the requirements set a harmful precedent for the government to impose costly and burdensome policy conditions on American businesses without ever being voted into law.
“These are not mandates and restrictions that could pass Congress. Rather, they are being imposed by agencies, the Department of Commerce in this case, as a way to achieve progressive goals without having to go through Congress,“ Dr. Merrill Matthews of the Institute for Policy Innovation, a free market think tank, told the Washington Examiner.
“If Commerce can get away with this mission creep, other agencies will follow that lead and impose even more progressive mandates on future legislation,” Matthews said.
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But supporters of the program point to more than 40 new semiconductor projects announced in 16 states and a projected 40,000 jobs with $200 billion in private investment pledged since the CHIPS Act was introduced in Congress during the spring of 2020. A White House press release on the day Biden signed the bill into law touted a $40 billion investment in memory chip manufacturing from Micron and a $4.2 billion partnership between Qualcomm and GlobalFoundaries for expanded production in upstate New York.
Mathews ventured, “I think many Republicans might be willing to push back, especially after they see how expansive Commerce’s efforts are. But they are likely helpless to change the current situation with Biden still in office.”
