How China Helped the Center Come Together on the CHIPS Act
After a two-year long shortage of semiconductor chips, which are integral to almost every facet of our economy, congressional leaders from both sides of the aisle recently united to pass the CHIPS and Science Act of 2022. The almost $280 billion bill includes significant new funding for cutting edge research and new incentives to build semiconductor manufacturing plants in the U.S. Lawmakers hope the bill will strengthen our supply chain and prevent the kind of shortages that hit consumers with higher prices.
But they also hope it will counter a rising threat from China and reduce the fallout of a possible future invasion of Taiwan. It is this threat, perhaps more than any other, that explains how Congress managed to come to the center to pass this landmark bill in a hyper-polarized election year.
China and Taiwan have been feuding since the two separated in 1949, but Taiwan’s Minister of National Defense, Chiu Kuo-cheng, recently said that military tensions with China are the worst they have been in over 40 years. China, which claims sovereignty over Taiwan, has increasingly used its military near the island to project strength. In 2021, nearly 1,000 Chinese military jets and warships illegally entered Taiwan’s territory; 2022 might be even worse as over 800 ships and jets had done so by the end of June. Nancy Pelosi’s visit to Taiwan in August 2022 further heightened hostility, with China sending 27 aircraft into the territory upon her arrival and carrying out a slew of military drills, including missile tests, in the days following.
Conflict in the Taiwan Strait would threaten American economic security. Although the U.S. is the clear leader in semiconductor design (U.S. companies design 85% of the world’s electronic design automation tools, which are necessary for designing advanced semiconductors), none of the most advanced semiconductors are actually manufactured in America. China and Taiwan are the two largest producers of semiconductors, with China accounting for 24% and Taiwan accounting for 21% of the world’s supply. The U.S. has already taken steps to limit China’s dominance and advancement in the sector, recently pressuring the Dutch government to ban the Netherlands-based, Advanced Semiconductor Materials Lithography, which produces a critical component needed for producing semiconductors, from selling its equipment to China.
Although conflict with Taiwan does not appear imminent, U.S. military planners believe China could be planning to invade by the end of this decade. If the unlikely conflict were to commence, the U.S. would be in trouble. Semiconductors make up only 0.3% of U.S. GDP, but they are required to produce 12% of all U.S. economic output. A 2021 Goldman Sachs analysis found that 169 industries have been affected by the chip shortage of the last two years—including the automobile industry, which produced nearly 4 million fewer cars across the U.S., Europe, and Japan than they did in 2020.
America’s reliance on foreign semiconductors also poses a threat to national security. The Taiwanese Semiconductor Manufacturing Company (TSMC) produces most of the semiconductors used in America’s F-35 fighter jets, anti-aircraft and missile defense systems, and a wide array of military-grade devices. The extent to which the U.S. relies on Taiwanese chips is unknown to the public for security purposes, but the government is apparently worried enough that it is now partnering with TSMC to build a $12 billion factory in Arizona to localize manufacturing. The project is nearing completion, and subsidies from the CHIPS act are expected to help construction remain on schedule.
The CHIPS Act ultimately passed with the support of nearly all House and Senate Democrats and 24 House and 16 Senate Republicans. A coalition of far left and right members tried to kill the bill. Senator Bernie Sanders argued chip companies do not need the money because they are “making tens of billions of dollars in profits and paying their CEOs exorbitant compensation packages,” and Senator Ted Cruz said the Act “invites cronyism and corruption.”
But ultimately, the bill passed because enough Democrats and Republicans found their way to the center to counter the threat from China. And by doing so, they are reflecting where the center of public opinion lies as a growing share of Americans see China as one of the preeminent security threats America faces today.