America COMPETES Act

US Girds for Tech Battle With China

On February 04, the House of Representatives of the US Congress passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (America COMPETES) Act of 2022 which provides $52 billion to encourage more semiconductor production in the United States, and $45 billion for grants and loans to improve supply chain resilience and manufacturing, among other programmes, and US$160 billion for scientific research and innovation. The bill would also change some US trade rules, designed to give American businesses a competitive edge on the global stage.

A sweeping piece of legislation, the Bill proposes to open up new vistas for talented individuals from across the world with a new start-up visa. President Joe Biden, who supports the legislation, said the America COMPETES Act, 2022 is an important step forward in advancing legislation that will make supply chains stronger and reinvigorate the innovation engine of the country’s economy to outcompete China and the rest of the world for decades to come.

The US Senate passed a similar bill in June 2021 with bipartisan support. Now, lawmakers must reconcile the differences between the House and Senate versions of the legislation and both chambers will have to vote again before the bill reaches President Joe Biden’s desk.
Biden’s statement

“The House took an important step forward today in advancing legislation that will make our supply chains stronger and reinvigorate the innovation engine of our economy to outcompete China and the rest of the world for decades to come.

The proposals put forward 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 and expand opportunity for middle class families. 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. Building on the historic investments in the Bipartisan Infrastructure Law that I signed last year – and on signs of progress like last week’s Intel announcement and today’s GM announcement – comprehensive competitiveness legislation will power our economy to create good-paying jobs for all Americans, no matter where you live or whether you have a college degree, and will help tackle the climate crisis.

I’m heartened by Congress’ bipartisan work so far, and its commitment to quick action to get this to my desk as soon as possible. Together, we have an opportunity to show China and the rest of the world that the 21st century will be the American century – forged by the ingenuity and hard work of our innovators, workers and businesses.”

A look at the bill
1. Investment in semiconductor manufacturing
The House bill would provide $52 billion over five years to boost semiconductor research, design and manufacturing in the United States, according to a summary of the bill provided by House Democrats.
There’s currently a global shortage of semiconductors, also known as chips, which are essential for the production of smartphones, medical equipment and cars. The shortage has led to delays for US manufacturers and increased costs. Both General Motors and Ford, for example, temporarily shut down plants over the past year due to the chip shortage, which was made worse by pandemic-induced supply chain problems.

Once a leader in semiconductor chip manufacturing, the US has lost ground as other countries like China ramped up production, forcing many American manufacturers to import chips made elsewhere. The share of semiconductor manufacturing capacity located in the US has decreased from 37% in 1990 to 12% today, according to the Semiconductor Industry Association.

The Senate bill similarly includes a $52 billion investment in the semiconductor industry.
2. Changes to trade policy
The House bill calls for a number of changes to US trade rules, aiming to level the playing field for American businesses and combat China’s market-distorting trade practices.

It would renew a program called Trade Adjustment Assistance that provides aid to American workers who lose their jobs or whose wages are reduced as a result of increased imports.

The House bill would also reauthorize the Generalized System of Preferences, a tariff program that eliminates duties on thousands of products from the world’s poorest countries — but the bill adds new eligibility criteria concerning the environment, labour standards and human rights.

The Miscellaneous Tariff Bill program, which temporarily suspends tariffs on certain imports, would also be renewed. The program helps provide a competitive edge to US companies that need to import materials required for manufacturing products at home. The House bill calls for excluding future finished products from the program, a way to incentivize American manufacturing.

The legislation would also strengthen US anti-dumping and countervailing duty rules, in a way that targets China’s Belt and Road Initiative — a massive infrastructure plan that spans many different countries and aims to connect China’s economy with other parts of the world. The changes would allow the trade remedies to be applied to subsidies provided by the Chinese government to Chinese companies operating outside of China.

The Bill would empower the Office of the US Trade Representative to review and potentially block US companies from moving manufacturing abroad if the product is critical to the nation’s supply chain or a threat to national security.

It would also tighten eligibility for the existing de minimis threshold, which allows imports valued under $800 to enter the US without paying duties, taxes or fees. It would exclude imports from countries that are both non-market economies and on the US Trade Representative’s Priority Watch List for violations of intellectual property standards, such as China.

The Senate bill also calls for strengthening some of America’s trade rules. But House Ways and Means Chairman Richard Neal, a Democrat from Massachusetts, argues that the House bill is stronger. He said in a statement that the Senate legislation “falters both technically and ideologically” on trade policy and “overlooks the challenges facing today’s workers, and should be tougher on China.”
3. Strengthening supply chains
The House bill would provide $45 billion over six years in grants and loans to improve the nation’s supply chains and to boost American manufacturing of goods deemed critical for national security and the US economy — like products for public health, communications technology and food — according to a summary of the Bill.

Similar to the Senate bill, it would create a new initiative within the Department of Commerce to help promote the resiliency of the nation’s supply chains. The House bill would establish an office that would monitor supply chains, identify vulnerabilities and designate which products are critical. The agency would also be tasked with building up stockpiles to prevent shortages of goods in the event of a future supply chain shock.

The House bill would provide another $3 billion for the nation’s solar manufacturing supply chain, aiming to reduce the country’s reliance on China for parts.
It would also create a $10.5 billion pilot program that awards grants to states to expand or maintain a strategic stockpile of certain drugs, medical equipment and personal protective equipment.
4. Funding for research and innovation
Both the Senate and House bills include billions of dollars for research and innovation.

The House version would provide $160 billion, according to House Science Committee majority staff. It would increase overall funding for the Office of Science, the lead federal agency supporting scientific research for energy applications and the physical sciences. The office operates 10 of the Department of Energy’s national laboratories and supports 25,000 researchers from industry, universities, national laboratories and other federal agencies.

The National Science Foundation would also get a boost in funding. The federal agency supports fundamental research and education in the non-medical fields of science and engineering.

The funds would also help scale up science, technology, engineering and math programs, known as STEM, at K-12 schools as well as colleges.

The China factor
The bill’s passage is just the latest way in which the world’s two largest economies are locking horns in an intensifying competition, which could shape the future of global supply chains. A big focus of the 2,912-page bill, the America COMPETES Act, is countering China’s state-directed economic policies. It includes a long list of motions addressing concerns over alleged human rights abuses in Xinjiang, a crackdown on democracy in Hong Kong and heightened tensions over Taiwan. Experts believe that the Bill will intensify a technology rivalry with China by trying to boost American competitiveness because ‘semiconductors’ remains a particularly contentious area.

China, meanwhile, is estimated to see its share of chip manufacturing grow from 12 percent in 2020 to 28 percent by 2030, according to statistics from the US Semiconductor Industry Association.

China’s response
Commenting on the development, Chinese foreign ministry spokesman Zhao Lijian said that China firmly opposes the bill because it is “filled with a Cold War and zero-sum mentality, undermines China’s development paths and policies, champions the rhetoric of competing against China, and makes indiscreet remarks on Taiwan, Xinjiang, Hong Kong and Tibet.”

“We have expressed multiple times that how the US intends to develop and strengthen its competitiveness is its own business, but please do not make this about China and use it as an excuse to interfere with China’s internal politics and harm China’s interests,” Zhao said. The remarks are similar to those made last year by his colleague Wang Wenbin, who commented on the Senate competition bill.

Meanwhile, China recently unveiled a counter move. The country’s State Council, the government’s cabinet, published a major plan last month to boost the country’s global competitiveness in the digital economy before 2025 in areas ranging from communications to e-commerce. Under the plan, the government aims to enhance China’s basic research capabilities in “strategic areas” such as sensors, quantum information, communications, integrated circuits, key software, big data, artificial intelligence, blockchain and new materials.

Debate about technological decoupling between China and the US has been on the rise, raising questions about which economy would take a bigger hit in such an event.
A think tank at China’s Peking University pulled a report recently that concluded the country would likely be the one to suffer more from a tech decoupling. However, the 7,600-character report published by the school’s Institute of International and Strategic Studies found that both the US and China would suffer losses.

Flaws
Walter Lohman, the Director of The Heritage Foundation’s Asian Studies Center recently penned an article titled as “America COMPETES: The House “China Bill” wherein he enumerated the following flaws in the bill and how would they impact America’s standing in the world:
1. [The Bill] undermines America’s leverage in pursuing its interests and advancing reform in international organizations. The bill establishes as policy that the US pay assessed dues to multilateral organizations in full and on time. In the past, the US has withheld funding when international organizations pursue policies and actions counter to US interests and to encourage them to address corruption, combat sexual exploitation and abuse, increase transparency and accountability, counter anti-Israel bias, and adopt other reforms.
2. [It] expands the federal footprint in education, not only edging out private businesses in creating apprenticeship programs, but also crowding out state efforts that would be able to design such programs more carefully to meet the needs of their own residents. There are also grant programs that call for new federal money for K-12—again expanding Washington’s reach.
3. Antidumping and countervailing duty provisions [in it] help to ensure that uncompetitive businesses in the US can erect barriers against their competitors with little evidence of actual harm caused to those businesses. The Import Security and Fairness Act title sounds as though it would target China, as it would prevent non-market economies from benefitting from US de minimis laws that waive tariffs for imports valued under $800, but it would largely target small businesses that get low-valued goods or inputs from Chinese suppliers.
4. [It] includes elements of the Green New Deal and condones the Biden administration’s regulatory onslaught against coal, oil and natural gas (providing 80 percent of America’s energy needs) and the administration’s unilateral commitment under the Paris Agreement—for which the constitutionally required “advice and consent” of the Senate was not sought.

Wrong Bill for the wrong set of issues
The US is in a long-term strategic competition with China. It is the most critical and consequential international threat that the US faces. This competition spans the full range of national power—economic, military, diplomatic and informational.

The America COMPETES Act fails to address this challenge. And by creating additional debt, adding to inflationary pressure, increasing regulatory costs, and intervening in the market on behalf of well-connected business interests, it would damage the US economy.

The writer is a senior analyst and columnist