Jul 20, 2022

The controversial computer chip bill.

The controversial computer chip bill.

Plus, a question about my time at Freedom Fest.

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 13 minutes.

A bill to address our chip shortage. Plus, a question about my debate at Freedom Fest.

Marco Verch Photographer / Flickr
Marco Verch Photographer / Flickr

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Quick hits.

  1. President Biden is considering declaring a climate emergency in order to unlock federal funds and take executive action to address climate change. (The plan)
  2. 47 House Republicans joined Democrats to pass legislation last night that would repeal the Defense of Marriage Act and enshrine marriage equality (including the right to same-sex and interracial marriage) into federal law. The bill passed 267-157. (The bill)
  3. A Delaware court set a five-day trial date for the Elon Musk-Twitter dispute in October. (The trial)
  4. Dan Cox, a state delegate with the full support of Donald Trump, won his primary to become the Republican candidate for governor of Maryland. Votes are still being tallied in the Democratic primary. (The victory)
  5. The European Union introduced a plan to begin rationing natural gas, warning the continent about fears Russia will tighten the supply. (The plan)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.


Today's topic.

The computer chip bill. On Tuesday, the Senate took the first step to advance what lawmakers are calling "CHIPS-plus," a piece of legislation that aims to combat the global chip shortage impacting everything from the automaker industry to the video game industry. Legislators spent months negotiating larger bills — the U.S. Innovation and Competition Act (USICA) in the Senate and the America Competes Act in the House — to increase semiconductor chip production and better compete internationally. Now, some members of Congress appear to be pushing a slimmed down version of the House and Senate bills to get something done before the August recess.

There was enough bipartisan support among Democrats and Republicans to address the national chip shortage through previous bills that had moved through Congress, but Senate Minority Leader Mitch McConnell threatened to tank any bill if Democrats pursue their reconciliation legislation. Currently, this includes raising taxes on the wealthy and corporations, as well as incentives to address climate change.

Now that Sen. Joe Manchin (D-WV) has effectively pressed pause on that possibility, Republicans appear ready to move forward on a semiconductor chip bill. Key Republicans are now signaling openness to passing a bill that would provide $52 billion in incentives for the domestic semiconductor industry. Sen. John Cornyn (R-TX) said Monday that Manchin’s announcement means “we’re in a posture where we can go forward with the chips funding and other related provisions.”

Top Democrats also supported switching tactics to a slimmed-down bill, saying they were fearful chip manufacturers would build plants elsewhere if they didn't act soon enough. Gina Raimondo, the Commerce Secretary, said that chipmakers are now considering where to build plants in order to match global demand, and that the U.S. needs to keep up with foreign competitors courting those same companies. The U.S. currently has just 12% of the world’s chip-making capacity, down from 37% in 1990.

The Senate could vote this week on a narrower version of the bill that has already passed. That version would contain $52 billion in financial incentives and research funding, including $39 billion in grants to subsidize new factories in the United States, $1.5 billion to encourage 5G competition, and a 25% tax credit for investments in semiconductor manufacturing. It would also prohibit aid recipients from expanding or building new manufacturing plants for certain semiconductors in China, according to a draft reviewed by The Associated Press.

While Democrats and Republicans agree the issue is an urgent matter, they still can't agree on what should be in the bill and how to address it. Today, we're going to look at some arguments from the left and the right on how to move forward, then my take.


What the left is saying.

  • The left is divided on the bill, with some arguing against ‘corporate bailouts’ and others saying it's an American industry in need of government subsidies.
  • Some say there are better ways to shore up our supply chain than subsidies that may end up benefiting shareholders over taxpayers.
  • Others say the industry is too important for the government not to intervene.

The Washington Post editorial board argued there are better ways to address our supply chain issues.

"Legislators are almost certain to sever the Chips Act from the larger USICA, pushing through $52 billion in aid to the semiconductor industry, including $39 billion in grants to subsidize new factories in the United States; that move was already likely even with Mr. McConnell holding the rest of the bill hostage," the board wrote. "Legislators are also hoping to add on a little more, such as an investment tax credit for semiconductor manufacturing and a program to bolster alternatives to Chinese-made 5G technologies. The thinking is that the Chips Act is urgent — because unless it passes quickly, companies impatient for the subsidies it would provide will build their facilities in countries where incentives are already in place.

"The problem is, the Chips Act has never been the only way, or even the best way, to achieve that aim,” the board said. “Lawmakers have attached some strings to the money the bill would dole out, but there’s still a risk that the funds would largely benefit shareholders rather than taxpayers. There’s also a risk that no matter how well the United States spends its dollars, it can’t keep up with China — which is used to funneling far more government resources into industry. Other parts of the competition package took a smart tack: supporting academic research in critical areas and facilitating immigration by students and talented professionals. These interventions, alongside a robust free market, are essential to success.”

In The Guardian, Senator Bernie Sanders (D-VT) argued against giving companies a "blank $50 billion check."

“Let’s review some recent history,” Sanders wrote. “Over the last 20 years, the microchip industry has shut down more than 780 manufacturing plants in the United States and eliminated 150,000 American jobs while moving most of its production overseas – after receiving over $9.5 billion in government subsidies and loans. In other words, in order to make more profits, these companies took government money and used it to ship good-paying jobs abroad. Now, as a reward for that bad behavior, these same companies are in line to receive a giant taxpayer handout to undo the damage that they did. That may make sense to someone. It does not make sense to me.

“The company that will probably benefit the most from this taxpayer assistance is Intel. I have nothing against Intel. I wish them well,” Sanders said. “But, let’s be clear. Intel is not a poor company. It is not going broke. In 2021, Intel made nearly $20 billion in profits. During the pandemic, Intel had enough money to spend $16.6 billion, not on research and development, but on buying back its own stock to reward its executives and wealthy shareholders. Last year, Intel could afford to give its CEO, Pat Gelsinger, a $179 million compensation package. Over the past 20 years, Intel spent more than $100 million [on] lobbying and campaign contributions while shipping thousands of jobs to China and other low-income countries. Does it sound like this company really needs corporate welfare?... In 1968, Dr Martin Luther King Jr said: ‘The problem is that we all too often have socialism for the rich and rugged free enterprise capitalism for the poor.’ I am afraid what King said 54 years ago was accurate back then and it is even more accurate today.”

The Boston Globe editorial board said the U.S. should approve the $52 billion before it goes elsewhere.

“There are some inputs that are so critical to the economy, so vital to national security, that the federal government has a special duty to nurture and protect them,” the board wrote. “Computer chips are in that category. They run our cars and computers. Our smartphones and smart bombs. There is scarcely a consumer electronic device today that doesn’t include semiconductors. When pandemic-related chip shortages shut down auto factories over the past couple of years and sent prices soaring, the whole world learned a painful lesson in the centrality of the silicon wafers.

“Big subsidies for a thriving industry can be difficult to swallow. But Congress really doesn’t have a choice,” they said. “In China, Singapore, Taiwan, and Europe, governments are pouring massive sums into semiconductors. And if Washington doesn’t compete, the country’s shrinking share of semiconductor production could shrink even further... Without a steady domestic supply of chips, our economy and our military prowess are put at real risk... domestic manufacturers have put plans for new semiconductor plants on hold in places like Ohio and Texas while they wait on word from Congress. Drag out the process too long, the companies have warned, and they’ll go overseas.”


What the right is saying.

  • The right is mostly against the bill, arguing the shortages are easing and the government should stay out of it.
  • Intel and Ford's CEOs published an argument for the subsidies in the Wall Street Journal opinion section (we’re including this to offer a counter to Sen. Sanders’ argument)
  • Some say the best way to win over foreign competition is to cut regulations and scale back trade policies.

The Wall Street Journal editorial board said the bill is unnecessary, as the industry is already growing and the U.S. is already leading.

“As often happens, yesterday’s shortage may be tomorrow’s glut, as chip firms have expanded production without subsidies,” the board said. “Taiwan Semiconductor Manufacturing Co. (TSMC) tripled capital spending between 2019 and 2022. Intel nearly doubled capital spending during the pandemic, and Samsung last year increased its 10-year investment plan by more than 30%. Global semiconductor capacity increased 6.7% in 2020 and 8.6% in 2021 and is expected to grow another 8.7% this year. The risk of over-capacity is growing as China heaps subsidies on its semiconductor industry as part of its Made in China 2025 initiative, and the U.S. and Europe race to compete.

“The other claim for the bill is that the U.S. must subsidize domestic chip-making to compete with China, but this also isn’t persuasive,” they wrote. “The companies like to point out that the U.S. share of the world’s chips has fallen to 12% from 37% in 1990. They don’t mention that the U.S. leads in chip design (52%) and chip-making equipment (50%). Seven of the world’s 10 largest semiconductor companies are based in the U.S. China trails American companies by years in semiconductor technology. Chip fabrication has moved to South Korea and Taiwan because many chips are commodities with low margins. But chip makers are working to diversify their manufacturing bases to avoid future supply disruptions and have announced $80 billion in new U.S. investments through 2025. Samsung plans to build a $17 billion factory in Texas. TSMC has a $12 billion plant under construction in Arizona.”

Jim Farley (the CEO of Ford) and Pat Gelsinger (the CEO of Intel) called on Congress to pass the bill, noting that semiconductor chips are needed for automobiles, smart devices, hospitals and the military.

“The pandemic supply-chain shock exposed a problem that had been mounting for years. The U.S. share of global chip manufacturing has declined to 12% from 37% in 1990. South Korea and Taiwan, notably, have spent years actively investing in their own chip manufacturing, creating an uneven playing field for U.S. chip makers that harms our economy and global competitiveness," they wrote. "Fortunately, a solution is within reach. As soon as this week, the Senate will hold a vote on funding the Chips Act, which would provide $52.2 billion in grants to the U.S. semiconductor industry. In addition to boosting production of leading-edge and legacy chips, the act would help level the playing field with global competitors.

“The global chip shortage not only endangers our access to essential technology. It also risks eating into Americans’ wages in the form of reduced hours and higher consumer prices,” they wrote. “Without intervention, shortages of chips—including the legacy chips widely used in the auto, medical-device and defense industries—are expected to persist as investment in the U.S. stalls. This legislation is vital to many American industries, including ours, that have dealt with significant disruptions. We urge lawmakers on both sides of the aisle to move quickly to address this crisis. By funding the Chips Act, Congress will help consumers, protect patients and strengthen the American economy and national security.”

In The Washington Examiner, Weifeng Zhong and Christine McDaniel said the chips legislation is a "distraction" from the bigger China challenge.

“The worst of the pandemic-related supply chain disruptions appear behind us. Still, manufacturing plants can take years to build,” they said. “As these plants ramp up production, one can imagine a flurry of complaints about continuing, low-priced foreign competition, legitimate or otherwise. Having already paid upfront, the government will be tempted to protect the new plants — at the expense of U.S. consumers and taxpayers. The computer chip problem will likely resolve over time. The underlying challenges posed by China are here to stay. Instead of giving away $52 billion, why not address why a multibillion-dollar chipmaker doesn't choose America to begin with?

“First, we should streamline regulatory burdens on building manufacturing plants. The Business Roundtable has proposed ways to do that responsibly,” they said. “Second, stop forcing ties between a subsidized private sector and labor unions. The Justice Department's multiyear corruption investigation into the United Auto Workers Union should give us reason for pause. Third, scale back on trade policies, especially so-called Section 232 and 301 tariffs, that prevent all U.S. manufacturers from accessing inputs and from competing with China at globally attractive prices. Countering the China challenge requires an ultracompetitive American manufacturing sector. Handing out $52 billion doesn't get you there — so why not keep it and put it to better use?”


My take.

I never thought I'd get the opportunity to write this sentence in Tangle, so I'm going to grab it before it disappears: I agree with Bernie Sanders and The Wall Street Journal editorial board.

Who says our country is divided?

In all seriousness, it's hard not to be ruffled by the pleading from major semiconductor manufacturers. When both the red-blooded American, capitalism-loving Wall Street Journal editorial board and the "healthcare is a human right" Vermont socialist senator are warning of corporate welfare, greed and glut, it's worth taking notice.

The WSJ board notes that Intel's CEO Pat Gelsinger is lobbying Congress for subsidies while also backing Chinese start-ups and threatening to delay building a factory in Ohio unless Congress passes the bill. Sanders, meanwhile, focused on Gelsinger's $179 million compensation package and the company's $20 billion in profits, all while it spent $16.6 billion buying back its own stocks. You don't have to pick a side here to conclude our system is fundamentally broken when this company is pushing for $52 billion of Congressional aid.

But that alone doesn't mean Congress should balk.

Let’s lay out the stakes. While the chip shortage is easing, the risk of another shock is hard to overstate. We need the chips for the automotive industry, especially the environmentally friendly kinds that are being ramped up in production. We need them to produce new laptops, new PCs, and new smartphones. We need them to run hospitals, which manage so many chip-dependent devices: ventilators, blood-pressure monitors, pacemakers, insulin pumps, and even defibrillators. We need them for the military, unless we want to take the risk of running our own weapons systems on foreign-made products.

As we're learning about energy right now, a heavy reliance on foreign governments for essential goods is dangerous. It gives away critical leverage on the global stage, and if it can be avoided, it should. With all that in mind, it's not as simple as "Intel doesn't deserve this money." Of course they don't. But if European and Asian countries are subsidizing this industry through their governments, this isn't simply a matter of private markets and private competition. If we let the competition become our private market versus their private markets and public subsidies, the companies at risk have made it clear we'll probably lose.

Then there’s Taiwan. That’s the country that has some 60% of the world’s chip manufacturing capacity, and produces 92% of the most cutting-edge 5 nanometer chips (the other 8% being South Korea). It’s also a singular island nation that is at the whim of mother nature, and is increasingly at threat of an invasion or attack by China. For Taiwan, the international scramble to woo 5nm producers doesn’t threaten their competitive edge in 3nm chip production capability, and future readiness to produce even smaller chips. As for the U.S. — we’re just one of several global superpowers who are fighting to limit our dependence on the Taiwan Semiconductor Manufacturing Company (TSMC). It’s an issue of national security to prepare for what happens if or when Taiwan can no longer supply the world with its cutting-edge chips, or if — for whatever reason — the tap gets turned off.

All of this makes the issue incredibly tough to suss out. The best case scenario would be to avoid throwing government subsidies at a growing, thriving, high-demand industry drowning in profits. But that means beating the foreign competition and building plants on U.S. soil without government help. The next best scenario is passing the CHIPS Act, and shoring up the supply chain long-term, understanding that the $52 billion price tag is worth the cost over time.

The two worst scenarios are 1) not allowing the government to subsidize this at all and losing any potential plants on U.S. soil, leaving us in the same vulnerable position we were when the pandemic started. And 2) the worst case scenario, which would be passing this subsidy bill and losing the plants to foreign competition anyway, which also seems possible.

If Congress is going to pass this bill, they need to do it with some serious strings attached — the kinds of strings that both assure we end up building American-based plants and ensure those companies are leveraged to grow and ramp up production, not turn around and buy back shares or beef up their already monstrous profits. That’s going to be a tough pill for the private industry to swallow, but if they’re taking our money, it’s medicine that should be mandatory.

Have thoughts about "my take?" You don't have to agree — just reply to this email and write in. If you're a paid subscriber, you can leave a comment.


Your questions, answered.

Q: Are you planning to share your experience from the Freedom Fest debate in Vegas? I know a few people who have attended in the past and bet the discussions were spirited to say the least. Thanks for the informative newsletter, I am just starting my third year as a subscriber.

— Gary, Houston, Texas

Tangle: Three years, wow. Thanks for subscribing, Gary! Please, be like Gary!

As I told Tangle subscribers in our Friday edition last week, I went to Freedom Fest on Saturday in Las Vegas to debate conservative radio host Wayne Allyn Root about whether the election was stolen. Backstage, Root was a really nice and interesting guy. On stage, he was a bit more of a performance artist. Unfortunately, the debate itself wasn't the kind of substantial election integrity debate I was hoping for. Root did not present any new evidence or really compelling points about how to fix things, he mostly referenced his experience as a Las Vegas voter and world class gambler, and made analogies to sports betting in an attempt to prove the "game was rigged." We also debated whether Trump should run again in 2024.

I was pretty happy with my opening and just received a copy of the debate video. It was live streamed by Fox Nation, but — unlike other main stage events — they have not posted it online yet. That might be because I referenced the retractions they had to issue over voting machines, but I am inquiring about the copyright rules around it to see if I can share it with my readers.

On the whole, the folks at Freedom Fest were really nice and the event was really fun, so I hope to go back again. One attendee who has been several times described it as "30% Libertarian, 30% Republican, and 30% hucksters," with the rest a random assortment of folks like me who are there for various presentations. My sense was this is a pretty good description of the audience. For instance, in attendance were a number of very questionable gold investment schemes and health care products; there was also Steve Forbes, Andrew Yang and Glenn Greenwald.

The only really unfortunate moment came toward the end of my opening 10 minutes, when a section of the crowd attempted to boo and jeer me into silence as I made the case for why Trump should step aside and allow another Republican to run for president in 2024. One woman accused me of being a "Democratic plant" and asked me how much money I was being paid. The moderator (National Review reporter John Fund) asked me to sit down when he couldn’t quiet the crowd immediately, and I had to finish my opening remarks in my second chance at the podium.

At the end, another person rightly criticized us for not getting a chance to discuss substantive issues like how to reform our election systems. It was a mixed bag, but I thought my points about the holes in the stolen election theories landed well, and I got a lot of quiet compliments, too. They did a "vote by applause" after the debate on who won, and the crowd predictably sided with Root. But it was a good deal less enthusiastic than I thought it'd be.

All told: The trip was great, it sounds like they’ll invite me back, I hope to share some footage soon, and I left actually feeling more confident in my stance about the 2020 election.

Want to ask a question? You can reply to this email and write in (it goes straight to my inbox) or fill out this form.


A story that matters.

Democrats in the 10 closest Senate races are out-raising Republicans among donors who give less than $200 — a metric where the GOP has historically had the advantage. The indicator is considered one of the strongest signs of a candidate’s strength, and points to Republican struggles to create a small donor apparatus independent of former President Donald Trump, who still drives the party's fundraising efforts. For instance, in Arizona, the Democratic nominee Sen. Mark Kelly has raised $23 million from small donors, compared to just $2 million raised by Blake Masters, Jim Lamon and Mark Brnovich — the top three Republican challengers, combined. GOP big money donors are keeping the money race competitive, but it's one of the few encouraging signs for Democrats in a midterm cycle that pollsters expect to heavily favor Republicans. Axios's Lachlan Markay has the story.


Numbers.

  • 60%. China's percentage of global demand for chips.
  • 90%. The percentage of chips used in China that are imported or manufactured locally by foreign suppliers.
  • 15,000. The number of new semiconductor firms registered in China in 2020.
  • 7. The number of the world's largest ten semiconductor companies that are based in the U.S.
  • $80 billion. The amount of investment already announced in U.S.-based chipmaking companies.
  • 61%. The percentage of the world's chipmaking capacity that is controlled by Taiwan.

Have a nice day.

The iconic grove of giant sequoia trees in Yosemite National Park is no longer under direct threat from wildfires. The Washburn Fire that threatened the trees is now 50% contained, but the real trick wasn't firefighting or luck of the wind. It was prescribed fire prevention practices over the last fifty years that reduced the amount of forest floor fuel, allowing the blaze to pass through without harming the grove. "The fire entered the grove and luckily we had 50 years of prescribed fire history," Garrett Dickman, a forest ecologist with Yosemite National Park, told NPR. "So it could have been a very different outcome if we hadn't been preparing for this fire for decades." NPR has the story on the surviving forest and how forest preparation can help contain fires.


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