Chips bill nears finish line without aggressive China trade restrictions

Congress is moving forward with a scaled-back China competition bill that will leave out key proposals aimed at countering Beijing’s growing influence and trade practices.  

Experts say that the crux of the legislation — massive subsidies to bring chipmaking back to the U.S. and new research and development funding — will go a long way toward boosting U.S. competitiveness, but the absence of tough-on-China trade measures could undermine the bill’s intent.  

The White House and congressional leaders abandoned months of contentious negotiations over trade provisions after chipmakers threatened to abandon plans to build multibillion-dollar semiconductor plants if lawmakers didn’t greenlight $79 billion in manufacturing subsidies before the August recess. 

“America invented the semiconductor. … It’s time we bring it home for all that we need for our security and our economic growth,” President Biden said at a Monday press conference highlighting the numerous industries that rely on microchips, which the U.S. mostly buys from Taiwan.  

“We’re close, so let’s get it done. So much depends on it.” 

The Senate on Tuesday voted 64-32 to advance the chip funding and science research bill, setting the stage for final passage this week.  

The bill doesn’t include proposals to curb U.S. investment in China, exempt tariffs on certain items, help trade-impacted workers and counter Beijing’s aggressive trade practices, among other measures contained in previous versions of the China competition legislation. 

“Dealing with China is like running a marathon. There are two ways to win: you run faster, or you trip the other guy. What got dumped mostly deals with tripping the other guy, and taking those tools off the table really doesn’t help us,” said William Reinsch, an international trade expert at the Center for Strategic and International Studies and a former Commerce Department official. 

By gutting trade provisions, lawmakers will forgo reauthorization of the Trade Adjustment Assistance program, which provides income relief, job training and employment opportunities to U.S. workers who lose their job or face wage reductions due to increased imports.   

The program expired this month, terminating assistance for nearly 100,000 workers who depend on it, according to the Labor Department.  

“It’s going to be a tragedy for a lot of workers, and workers in the worst shape, people in their 40s and 50s where the plant closed and they’re in a semirural community where there’s not a lot of job opportunities around,” Reinsch said.  

Previous iterations of the China competition legislation would have revived the Miscellaneous Tariff Bill, which waives tariffs on materials and goods that are unavailable or in limited supply in the U.S. Manufacturers and retailers say that its absence drives up prices for consumers. 

The slimmed down bill won’t reauthorize the Generalized System of Preferences program, which incentivizes developing countries to export certain goods and services to the U.S. duty free. The program expired at the end of 2020, leaving the U.S. at a disadvantage as China courts investment from those same nations, business groups say. 

“The decision to move forward on China competition legislation without the inclusion of fundamental trade pieces is a missed opportunity for lawmakers to provide certainty and create economic benefits for American companies, as well as enhance U.S. competitiveness — especially vis-à-vis China,” Blake Harden, vice president of international trade at the Retail Industry Leaders Association, which represents Target and other big box stores, wrote in a note. 

Some business lobbyists are upset that the final legislation won’t include a tariff exemption process passed as part of the Senate’s bipartisan China package last year, which Democrats and some Republicans criticized as being overly broad.  

Still, many large multinational corporations that rely on cheap Chinese products are likely relieved that none of the tough-on-China trade measures from House Democrats’ China bill made it into the final package.  

The U.S. Chamber of Commerce and other business groups took aim at a proposal to establish a government committee that would screen companies’ investments in China to ensure they don’t offshore the production of key supplies.   

The law would have applied to 43 percent of U.S. foreign direct investment in China over the past two decades, according to a report from the National Committee on U.S.-China Relations, a nonprofit backed by multinational corporations. 

Another proposal opposed by major importers but backed by labor unions would have blocked China from abusing America’s $800 de minimis threshold, which makes it so imports worth less than that figure aren’t subject to inspection or duties. Supporters say that Chinese firms are splitting up their shipments to get under the limit and avoid scrutiny.   

Lawmakers struggled to reconcile the differences between the Senate and House China bills. House Democrats pushed for labor-friendly trade policies, and Senate Republican leaders insisted on broad tariff exemptions and other pro-business proposals. 

By dropping all trade policies, lawmakers opened the door for both labor and business groups to back the bill.  

“The passage of CHIPS funding and the included technology and innovation measures is an important first step. But we can and must do more to make the United States more competitive with trading partners like China that refuse to play by the rules,” AFL-CIO government affairs director William Samuel wrote in a recent letter to lawmakers. 

Lawmakers have pledged to work on a stand-alone trade bill with the goal of passing it before the end of the year, but observers are skeptical, given the legislative schedule ahead of November’s midterm elections and the challenge of finding an agreement that pleases both sides.