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Senate passes bill to boost American microchip manufacturing

The bill provides $52 billion in grants for domestic production of semiconductor chip components.

WASHINGTON (CN) — After months of tumult, the Senate voted Wednesday to subsidize domestic semiconductor production, aiming to bolster the American manufacturing industry and compete against China's market dominance.

The Chips and Science Act provides $52 billion in grants for American companies to produce semiconductor chip components and gives tax credits for those who invest in microchip manufacturing, a policy estimated to carry a $24 billion price tag.

Despite months of negotiations, the bill overcame the filibuster and crossed the finish line in the Senate on Wednesday, passing by a vote of 64-33.

Over five years, the bill would dole out billions of dollars for scientific research and for the National Science Foundation to create regional technology hubs with the hopes of bringing semiconductor manufacturing and technology production to new areas of the country.

Semiconductor chips, electronic parts that are used in everything from household appliances to military weapons and computers, became a focus of U.S. policy during the pandemic when Covid-19 triggered an international shortage of the commonly used chips. 

That shortage drove up consumer prices and hobbled international supply chains, causing President Joe Biden and lawmakers on the Hill to push for economic aid to the manufacturing industry.

 "The United States has to lead the world in the production of these chips for our own safety’s sake, as well as our economic growth," Biden said at a roundtable with industry leaders on Monday.

Biden and Democratic leaders in Congress have lauded the legislation as both a solution to the shortage of semiconductors and a means of curbing China’s dominance in the manufacturing market.

"In a loud bipartisan voice today, by approving one of the largest investments in science, technology and manufacturing in decades, we say that America's best years are yet to come," Senate Majority Leader Chuck Schumer said on the chamber floor Wednesday.

The White House has warned that without support from Congress, manufacturers will continue to be drawn to countries such as Taiwan, South Korea, France and Germany that offer financial incentives to chip producers.

While the U.S. invented the semiconductor chip, production of the widely used part has moved abroad over the past few decades, with U.S. production dropping from 40% of the world's semiconductor supply to around 12% over the past 20 years, Commerce Secretary Gina Raimondo said on Monday.

A portion of the bill that provides a four-year tax credit for investments in semiconductor manufacturing proved controversial among some Senators.

Independent Senator Bernie Sanders of Vermont said he supports expanding domestic semiconductor production, but he slammed the tax credit portion of the bill, a policy he called "massive corporate welfare."

"I fully support efforts to expand U.S. microchip production. But the question we should be asking is this: Should American taxpayers provide the microchip industry with a blank check of over $76 billion at a time when semiconductor companies are making tens of billions of dollars in profit?" Sanders said on the Senate floor Wednesday.

Sanders was the only senator who caucuses with Democrats to vote against the bill. Some Republican lawmakers raised concerns about the legislation, including Senator Mike Lee of Utah, who argued the package would fuel already record-high inflation.

The legislation comes after months of back and forth between lawmakers and several drafts of legislation with constantly changing titles.

Both chambers of Congress passed more sweeping legislation earlier this year that included $52 billion in incentives for manufacturers, but in the process of reconciling the differences between the two bills, the legislation was whittled down to the package that passed the Senate on Wednesday.

The bill is now headed to the House at a time when the chamber is moving full speed ahead with a long list of to-dos in the lead-up to the August recess, when lawmakers file out of Washington for their home states.

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