When the chips are down, stand with your friends

One of the oldest political jokes I know has a Senator stating his position on a controversial piece of legislation this way:

Some of my friends are for it, some of my friends are against it, and I stand firmly and unequivocally with my friends.

Which brings me to the Creating Helpful Incentives to Produce Semiconductors (CHIPS) legislation. This is a $250 billion package designed to increase semiconductor production here in the U.S. It passed Congress last week thanks to the support of 17 Republican Senators, more than one-third of the GOP caucus.

I count only one U.S. Senator as a friend — Tom Cotton. He voted against CHIPS. However, several Republicans whom I respect voted for the bill, most notably Mitch McConnell. Mike Pompeo, whom I respect greatly, also supports the legislation.

Sen. Cotton doesn’t question the wisdom of government action to promote semiconductor production in America. He told Hugh Hewitt:

I’ve generally supported efforts to try to bring more semiconductor manufacturing back to the United States. In particular, the most urgent challenge is diversifying the manufacturing bases for a company known as the Taiwan Semiconductor Manufacturing Company, TSMC. They make the world’s most advanced semiconductor chips.

And it’s not safe for Taiwan or for the United States or for the world economy to have those chips made only on an island that’s 120 miles away from Mainland China, which has thousands of missiles aimed at it.

Unfortunately, the CHIPS Act is problematic for several reasons. Cotton explained the main one — the Act lacks sufficient security measures.

The original Senate bill was far less defective in this regard. Sen. Rob Portman had included a provision that would bar U.S. companies from manufacturing products in China, such as semiconductors, that were developed using federally funded research. But Majority Leader Schumer removed this provision from the bill.

Another provision would have increased security screening requirements on recipients of federal research funding. That provision also fell by the wayside.

Removing these safeguards risks making CHIPS self-defeating. The bill is supposed to boost America’s position relative to China in the semiconductor industry. Yet, as one Republican Senate staffer complained, without meaningful guardrails to prevent the fruits of this massive spending package from ending up in China’s hands — whether through espionage, corporate malfeasance, or inept bureaucrats — CHIPS might boost Chinese efforts alongside our own.

Sen. Cotton explained that safeguards are particularly important when it comes to the National Science Foundation, which will distribute CHIP funds, and our universities and colleges, which will receive them. Cotton points out that, to say the least, many of these entities do not follow best practices when it comes to protecting against Chinese espionage.

The bill does purport to bar companies receiving semiconductor funding from undertaking “significant transactions” for the “material expansion” of semiconductor manufacturing capacity in China or any other foreign country of concern. However, as this memo by the House Republican Study Committee shows, there are major holes in that prohibition. For example, the legislation does not define “significant transaction” or even “semiconductor manufacturing.” That’s left to the discretion of Joe Biden’s Secretary of Commerce.

There are other problems with CHIPS. According to this report, the legislation allows universities with Confucius Institutes to receive funding. Confucius Institutes are a vehicle through which China wages ideological warfare at America’s colleges and universities.

In addition, according to this source, there’s a provision that creates a “chief diversity officer” for the National Science Foundation, This, too, is self-defeating. A chief diversity officer can be expected to push for decisions that are based on race and gender, rather than merit — precisely what the science community ought not be doing if it hopes to compete with China.

Finally, because the inflation rate is at a 40-year high, it’s fair to question the price tag of CHIPS. Is it really necessary to spend $250 billion on this effort? One senses that this is Christmas in July for what is already an extremely profitable sector.

Even with these defects, it’s likely that CHIPs will do more good than harm. However, if I had been voting, I would have stood firmly and unequivocally with Tom Cotton.

Why? Because Republicans are almost sure to gain control of the House next year and might gain control of the Senate, too. Even without the Senate, the GOP would have enough leverage to insist on a far less defective version of CHIPS. And that would be well worth the delay.

However, for a thoughtful defense of enacting the current version of CHIPS, see this analysis by Klon Kitchen.