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CHIPS Won’t Help China

Demanding perfect legislation is a convenient excuse for voting no, and a standard by which everyone would always vote no.

Semiconductor Manufacturing In Ruichang
Employees work on the production line of semiconductor photoelectric devices at a factory on March 17, 2022 in Ruichang, Jiujiang City, Jiangxi Province of China. (Photo by Wei Dongsheng/VCG via Getty Images)

Opponents of the CHIPS Act, which provides more than $70 billion in funding for domestic semiconductor manufacturing, have spent the past two weeks cycling through weak critiques that persuaded no one—Republican support in the Senate increased between the initial procedural vote and final passage. Perhaps unsurprisingly then, as the bill moves on to the House, opponents are doubling down on their most incendiary argument, even if it’s one that bears no relationship to reality: CHIPS, they say, won’t help the U.S. outcompete China. It actually helps China.

A good illustration comes from Heritage president Kevin Roberts, who went on Fox Business to warn that the bill “subsidizes the construction of semiconductor factories in China.” He suggested legislators think about “going back home to my district next month having voted for something that uses my voters’ taxpayers money to go to the construction of factories in China.” One imagines the grassroots mailers may already be rolling off the presses.


This is the sort of untruth that should probably just be called a lie, if not for the possibility that critics may be genuinely confused. So, to be clear: CHIPS creates no incentives to build factories in China, and creates no authority to send taxpayer dollars toward such construction. Funding is clearly limited to projects in the United States. This may help explain why the leading architects of the Trump Administration’s China policy—Secretary of State Mike Pompeo, National Security Advisor Robert O’Brien, and U.S. Trade Representative Robert Lighthizer—all support the bill.

Where did this criticism start? The underlying concern is not that CHIPS funding would go to projects in China, but rather that companies receiving taxpayer dollars for American projects might turn around and also spend other money in China. Because “money is fungible,” the story goes, one might try to draw a direct linkage between reducing the cost of factories here and increasing investment there. This argument still doesn’t fly, for several reasons.

First, the companies in question already have lots of money available to spend on investing in China, if that’s what they choose to do. Indeed, a different argument against the bill is that because these companies are so profitable they can already make whatever investments they want. If this were a bailout, giving resources to companies that otherwise didn’t have any, we might fairly worry about where those resources would then go. But here the companies are already investing, and our policy is aimed at shifting where they do that investing. Will new investments still occur in China? Of course. But a new incentive to invest more in America will not be the cause.

Second, the same criticism leveled here could be leveled against any policy that makes any company more profitable or reduces its costs. Take, for instance, corporate tax cuts. If corporate tax cuts leave companies with more money for investment, there’s always the possibility that they will make new investments in China. But “corporate tax cuts are bad because they help China” is as ridiculous an argument as it sounds. Or how about regulatory reform? If we reduce energy costs, or eliminate permitting delays, it would become cheaper and more profitable to build factories in America. No policymaker in his right mind would oppose those things because the result might be that companies will have more money to invest in China.

For that matter, why limit the analysis to companies? Anything that boosts American wages “helps China,” so long as American consumers are buying a lot of Chinese goods. An expanded Child Tax Credit “goes to China” by this standard as well. That way madness lies.  


Third, the CHIPS Act actually has provisions designed specifically to restrict investments in China. These so-called “guardrails” require that companies taking federal dollars for American projects must also agree not to invest in state-of-the-art technology in China—not just with the federal dollars, with any dollars. Good-faith critics have raised fair concerns that these guardrails should be broader, tougher, and firmer. But any guardrails at all represent unprecedented restrictions on what U.S. companies can do in the People’s Republic. It’s one thing to say an ideal bill would hurt China even more; it’s quite another to try and claim that less-than-perfect restrictions count as “help.”

Demanding perfect legislation is a convenient excuse for voting no, and a standard by which everyone would always vote no. At its extreme, it leads to bizarre laundry lists of other things that could be in a bill but are not—Heritage’s Roberts laments that this particular legislation doesn’t hold China accountable for Covid-19 or do enough to support Taiwan. Nor, he might have added, does it slice bread.

Likewise, a bill will never generate 100-percent positive benefits with no side effects. It seems likely, for instance, that an American company building an American semiconductor factory may, along the way, buy something from China. When we invest in cutting-edge research, some of our breakthroughs will inevitably reach the far side of the Pacific. An analyst decrying those outcomes as “helping China” and thus a failed policy will have missed the forest for the underbrush.

Whatever your favorite policy, an example exists where it was used in a way you wish it had not been, that ran counter to its goal. If such outcomes disqualify policies, we will never have any policies, and we will miss out on all the much larger benefits that public policy can bring. When it comes to competition with China, an effective policy is one that, on balance, shifts the battleground in our favor. The CHIPS Act passes this test easily.

With any luck, the critics will remember their concerns when the next Congress comes around. As Amb. Lighthizer observed to Larry Kudlow on Monday, “even the sainted Reagan economic package, which you and I put together, and which I think turned the country around, was itself flawed and compromised. But what you do is you come along next year and you correct it.” A tough package of investment restrictions, applicable to all U.S. technology companies, would be a welcome complement to the current bill. Confronting the China challenge is not like naming a post office, to be voted on once and then quickly forgotten. It will need to be a central focus of policymaking, along many dimensions, for years to come.


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