Will the Competition Bill Loosen the Semiconductor Squeeze, or Ratchet up U.S-China Tensions?

The House of Representatives is preparing to pass a China competitiveness bill authorizing billions of dollars for research and development in critical research, such as: emerging technologies, 5G, and cybersecurity. Of particular interest is the $52B earmarked for the domestic semiconductor industry, an investment that comes in response to the global semiconductor shortage.

The pandemic famously disrupted global supply chains, and the semiconductor shortage was amongst the greatest disruptions. The chip shortage slowed manufacturing in virtually every industry from videogames and data centers to smartphones and automobiles. Profits at Ford Motors fell 50% last year because of the global shortage of chips. Jaguar Land Rover predicted similar losses. The auto industry is forecast to produce more than five million fewer cars in the next year.

Given these disruptions in global supply chains, Washington is answering panicked calls to reinvigorate domestic production of semiconductors. While previous China competitiveness bills struggled to achieve bipartisan support, the U.S. Innovation and Competition Act passed the Senate last June. Its early success in the Senate came in part from support of the bill from big business. Feeling the squeeze of the chip shortage, chief executives from major U.S. companies such as Apple, Alphabet, and General Motors have favored drafts of the bill that addressed competition with China.

As the bill reaches the House, however, there appears to be even less bipartisan agreement. Reasonable arguments emerge from both sides of the aisle. Progressives warn that a bill too “aggressively focused on competition with China” stirs up superpower rivalry and techno-nationalism. With the United States and China locked in open ideological competition, Democrats fear that political aggression toward China risks starting a new cold war. Across the aisle, Republicans criticize elements of the bill that are too soft on Beijing. They point to Beijing’s horrific treatment of Uyghurs, the erosion of civil liberties in Hong Kong, and military threats to democratic Taiwan. Still others see little point in avoiding a conflict with China, when a new cold war is already underway.

Whatever one’s views are on competition between the United States and China, the disruptions to global supply chains will continue to affect everyone in the short-term. The outcome of the China competitiveness bill will have implications that reach far beyond the function of our phones, the cars we drive, or the bottom-lines of the companies that produce them. The bill will shape relations between the United States and her greatest, wealthiest, most-sophisticated rival to date. If that relationship soured beyond repair the ensuing consequences could be catastrophic. By comparison, the pain of today’s global disruptions would seem like little more than a minor pinch.