Democrats Renew Push to Pass Industrial Policy Bill to Counter China

WASHINGTON — Biden administration officials and Democrats in Congress are pushing to revive stalled legislation that would pour billions of dollars into scientific research and development and shore up domestic manufacturing, amid deep differences on Capitol Hill about the best way to counter China and confront persistent supply chain woes.

House Democrats unveiled a 2,900-page bill on Tuesday evening that would authorize $45 billion in grants and loans to support supply chain resilience and American manufacturing, along with providing billions of dollars in new funding for scientific research. Speaker Nancy Pelosi said in a statement that she hoped lawmakers would quickly begin negotiations with the Senate, which passed its own version of the bill last June, to settle on compromise legislation that could be sent to President Biden for his signature.

But the effort faces obstacles in Congress, where attempts to sink significant federal resources into scientific research and development to bolster competitiveness with China and combat a shortage of semiconductors have faltered. The Senate-passed measure fizzled last year amid ideological disputes with the House and a focus on efforts to pass Mr. Biden’s infrastructure and social policy bills. For months, the competitiveness measure was rarely even mentioned, except perhaps by Senator Chuck Schumer, Democrat of New York and the majority leader, who has personally championed it.

But facing a disruptive semiconductor shortage that has broken down supply chains and helped fuel inflation, Democrats are now vigorously pressing ahead on the bill. With Mr. Biden’s domestic agenda sputtering, the party is eager for a legislative victory, and top administration officials and lawmakers have said they hope to send a compromise bill to the president’s desk in a matter of months.

“We have no time to waste in improving American competitiveness, strengthening our lead in global innovation and addressing supply chain challenges, including in the semiconductor industry,” Mr. Schumer said.

Both the House bill and the one that passed the Senate last year would send a lifeline to the semiconductor industry during a global chip shortage that has shut auto plants and rippled through the economy. The bills would offer chip companies $52 billion in grants and subsidies with few restrictions.

The measures would also pour billions more into scientific research and development pipelines in the United States, create grants and foster agreements between companies and research universities to encourage breakthroughs in new technologies, and establish new manufacturing jobs and apprenticeships.

“The proposals laid out by the House and Senate represent the sort of transformational investments in our industrial base and research and development that helped power the United States to lead the global economy in the 20th century,” Mr. Biden said in a statement. “They’ll help bring manufacturing jobs back to the United States, and they’re squarely focused on easing the sort of supply chain bottlenecks like semiconductors that have led to higher prices for the middle class.”

The semiconductor shortage has disrupted the economy, broken down supply chains and helped fuel inflation.Credit…Sarahbeth Maney/The New York Times

Lawmakers will still need to overcome differing views in the House and Senate over how best to take on China and, perhaps more crucially, how to fund the nation’s scientific research.

“There are disagreements, legitimate disagreements,” Gina Raimondo, the commerce secretary, said in an interview. “How do we do this? How do we get it right? There doesn’t seem to be much disagreement over the core $52 billion appropriation for chips. There is disagreement around how we make investments in research and development in basic science.”

One major difference is that while the Senate bill invests heavily in specific fields of cutting-edge technology, such as artificial intelligence and quantum computing, the House bill places few stipulations on the new round of funding, other than to say that it should go toward fundamental research.

In a memo on the legislation, House aides wrote that their measure was “focusing on solutions first, not tech buzzwords.”

Some experts argue that approach lacks urgency. Stephen Ezell, the vice president for global innovation policy at the Information Technology and Innovation Foundation, a policy group that receives funding from telecommunications and tech companies, called the House bill “not sufficient to enable the United States to win the advanced technology competition with China.” He argued that the focus on advanced technology in the Senate-passed bill would do more to increase American competitiveness.

How the Supply Chain Crisis Unfolded

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The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:

A reduction in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the pandemic, manufacturers and shipping companies assumed that demand would drop sharply. But that proved to be a mistake, as demand for some items would surge.

Demand for protective gear spiked. In early 2020, the entire planet suddenly needed surgical masks and gowns. Most of these goods were made in China. As Chinese factories ramped up production, cargo vessels began delivering gear around the globe.

Then, a shipping container shortage. Shipping containers piled up in many parts of the world after they were emptied. The result was a shortage of containers in the one country that needed them the most: China, where factories would begin pumping out goods in record volumes

Demand for durable goods increased. The pandemic shifted Americans’ spending from eating out and attending events to office furniture, electronics and kitchen appliances – mostly purchased online. The spending was also encouraged by government stimulus programs.

Strained supply chains. Factory goods swiftly overwhelmed U.S. ports. Swelling orders further outstripped the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles skyrocketed tenfold.

Labor shortages. Businesses across the economy, meanwhile, struggled to hire workers, including the truck drivers needed to haul cargo to warehouses. Even as employers resorted to lifting wages, labor shortages persisted, worsening the scarcity of goods.

Component shortages. Shortages of one thing turned into shortages of others. A dearth of computer chips, for example, forced major automakers to slash production, while even delaying the manufacture of medical devices.

A lasting problem. Businesses and consumers reacted to shortages by ordering earlier and extra, especially ahead of the holidays, but that has placed more strain on the system. These issues are a key factor in rising inflation and are likely to last for months — if not longer.

In addition, as lawmakers debate how to counter Beijing’s rising influence, efforts to compromise on the foreign policy components of the legislation will most likely create tensions between the chambers and between Democrats and Republicans. In the Senate, for example, lawmakers included stricter requirements for when universities must report foreign funding to the Education Department.

Democrats in the House have resisted the Senate’s proposed foreign policy provisions, complaining that the chamber focused too narrowly on countering China rather than investing in domestic manufacturing. Much of the foreign policy legislation added by Democrats to the House bill is focused on climate change; the House measure would also authorize $225 million over five years to bolster the State Department’s military training and education programs in the Indo-Pacific region.

Few Republicans are expected to support the House bill, though some of the measures included in the legislation have previously garnered bipartisan support.

“It reflects virtually no Republican input and — to be frank — will be dead on arrival in the U.S. Senate,” said Representative Michael McCaul of Texas, the top Republican on the Foreign Affairs Committee, who said the bill did not take a hard enough line against China.

The House bill would ease immigration restrictions on high-level workers and entrepreneurs, allowing individuals with doctoral degrees in science, technology, engineering and mathematics to receive green cards even if the United States has already hit its visa quota. It would also allow a noncitizen to petition for a green card as an “immigrant entrepreneur.”

There were signs that the House proposal could ignite a lobbying skirmish on other technology issues as well. It includes measures aimed at large online retail marketplaces like Amazon, eBay and Etsy, which critics say can be conduits for counterfeits, stolen goods and dangerous products. Some of the language in the bill would make sites like Amazon liable for trademark infringement lawsuits if they did not take steps to prevent counterfeits from moving across their virtual shelves.

House lawmakers had privately derided the Senate bill as riddled with pet projects, citing provisions as diverse as a new round of funding for NASA and a ban on the sale of shark fins. But the House bill also includes a slew of measures that appear to have little to do with manufacturing and global competitiveness, including provisions authorizing marine mammal research, efforts to conserve coral reefs and a $4 billion contribution to the United Nations-led Green Climate Fund.

David McCabe contributed reporting.

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