Semiconductor Subsidy Strings Attached

Biden makes clear he’ll be telling CEOs how to invest the federal money.

The Senate on Tuesday voted 64-32 to advance a $280 billion “chips plus” subsidy bill, and as ever in politics there’s a lot of plus. Money from Washington always comes with strings attached, and we hope the semiconductor CEOs know what they’ve signed up for.

That message couldn’t have been clearer from President Biden on Tuesday when he told business and labor leaders on a conference call that the bill’s $52 billion in grants for Intel and other chip makers would not be “a blank check to companies.” The President said he will “personally have to sign off on the biggest grants.”

Hint to companies applying for money: Locate that new factory in a swing state with more than a handful of electoral votes. Mr. Biden or the Vice President may want to swing by during the 2024 election campaign.

The President also underscored that the law requires companies to pay union prevailing wages to build the semiconductor fabrication facilities funded by the bill. Communications Workers of America president Chris Shelton said this will ensure “there isn’t a race to the bottom.” Translation: Construction will be more expensive, and non-union contractors won’t benefit.

Some companies that lobbied for the bill have nonetheless expressed frustration that it forbids recipients of federal largesse from expanding advanced-chip production in China. But what did they expect? The politicians are selling the bill as a national-security necessity to compete with China to make sure that more chips are made in the U.S. in case of conflict with Beijing.

Mr. Biden also made clear his Administration will impose its own conditions on the money. For instance, “we’re not going to allow companies to use these funds to buy back stock or issue dividends.” Mr. Biden threatened to claw back subsidies from those that do. This means companies that take federal money won’t be allowed to reward shareholders if the investments succeed.

The President also noted that companies whose future innovations derive in part from the bill’s $200 billion in authorized spending on research and development in areas like green energy and artificial intelligence will be required “to deploy that technology” and invest “in a facility here in America.” This requirement will make CEOs add a political calculation to their investment choices.

Industrial policy and the political allocation of capital invariably distort investment. Don’t be surprised if the conditions that Congress and the Administration impose on these companies make the firms and the United States less competitive with China. <Source>