Issue:
The House this week introduced the America COMPETES Act (H.R. 4521), their version of the Senate’s U.S. Innovation and Competition Act (USICA), a sweeping $250 billion proposal to increase domestic investment in critical technology research and innovation aimed at bolstering American competitiveness vis-a-vis China. The centerpiece of both proposals is $52 billion in funding for domestic semiconductor manufacturing, but the proposals also aim to position the U.S. for long-term competition with China across economic, diplomatic and defense spheres.
The Senate passed USICA in June 2021 with a vote of 68-32 following a whirlwind floor amendment process punctuated by bipartisan compromise, including on major trade and foreign policy elements. Rather than accepting the Senate’s bill, the House has moved individual pieces of legislation through the committee process before combining them into a comprehensive package. Some committee products were bipartisan; many others were not. The resulting package is largely a Democratic product that has already taking heat from House Republicans for being a partisan bill that is weak on China.
America COMPETES will hit the House floor next week—this week will see a flurry of amendments. Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi already agreed to conference the two versions—before the House had even introduced companion legislation.
What does it mean:
The path toward enactment will require compromise and could take some time. It is not surprising the House’s initial bill was partisan, knowing that it will be going through a conference that will work out bipartisan differences. Those negotiations have already begun. This week, a lot of amendments will be put forward, but nothing too controversial will make it in. Floor consideration next week will see a lot of messaging, particularly important as we head into the midterm election season. But the conference—which could take a matter of weeks or stretch into months—is where we will ultimately see where the bill lands.
A few initial issues will have to be addressed in conference. The House bill includes a provision to establish an outbound investment review mechanism akin to a reverse CFIUS—the same proposal did not make it into the Senate’s USICA last June. While Senate Republicans and Democrats made significant compromises on the trade piece, some differences with the House will have to be worked out, including on Section 301 tariff exclusions for Chinese imports. There are differences between the Chambers’ foreign policy proposals, including related to export controls, Taiwan and regional engagement strategies—language the House Democrats softened. Progressives in both Chambers—including Senator Bernie Sanders—have pushed back on the legislation overall as unnecessarily antagonistic and potentially detrimental to positive engagement with China—national security, climate and labor interests will have to be balanced.
The one clear winner is the semiconductor industry. The $52 billion funding for CHIPS, first authorized by the national defense act of 2021, will get through. There will be debate over the Davis-Bacon prevailing wage requirement appended to it.
Why it matters:
If passed, the compromise bill would represent the most comprehensive China strategy proposal undertaken by U.S. legislators to date. It will have significant implications for the future of American economic statecraft, a shift toward industrial policy that Republican policymakers have traditionally eschewed. And it will send a strong signal to the Chinese government that amid all of D.C.’s partisan dysfunction, Congress can get things done when it comes to ensuring continued U.S. global leadership, often aimed at competition with China.
A compromise bill would fulfill a key pillar of the Biden administration’s stated priority to build on America’s strengths by investing in domestic renewal, revitalizing alliances and partnerships abroad, and holding China accountable for practices in conflict with U.S. values. However, Biden and the Democrats will be hard pressed to capitalize on the bill’s passage as a Democratic win during the midterm elections—jockeying is already underway on who is tougher on China, particularly on national security issues.
While it is being pitched as a China competition bill, domestic economic priorities are the drivers. The White House and the Department of Commerce have been pushing to pass the compromise legislation emphasizing the benefits increased investment will bring to alleviating semiconductor shortages, improving critical technology supply chain security and resiliency, and preparing American workers for jobs of the future. On January 25, Secretary of Commerce Gina Raimondo pointed to a new Commerce study on risks in the semiconductor supply chain as evidence for why funding in USICA was urgently needed. Since Biden and Chinese President Xi Jinping spoke in September, the administration has also notably tamped down its references to competing with China when plugging congressional priorities such as USICA.
Contributions from Chynna Hawes, EGA Director for China.