Dive Brief:

• The House on Thursday approved a sweeping $280 billion legislative package aimed at keeping the U.S. competitive with China and easing a persistent shortage of computer chips that have bottlenecked production across industries.
• Despite a last ditch effort from Republicans to stop its passage, the measure was approved on a 243-187 vote. The bill, which now heads to President Joe Biden for his signature, includes $52 billion in subsidies and additional tax credits for U.S. semiconductor manufacturers.
• Companies have said the legislation will strengthen semiconductor supply chains against future disruption. “This will help us solve these supply constraints that we’re under sooner, but more importantly, it’ll help us avoid these challenges going forward,” Geoff Martha, chairman and CEO of med tech company Medtronic, said in a meeting with Biden earlier this week to push for passage of the bill.

Dive Insight:

A lack of computer chips emerged as one of the most pressing shortages during the pandemic, with constraints hampering production of everything from kitchen appliances to life-saving medical equipment. While some semiconductor producers have seen falling demand for smartphones and PCs in recent months, shortages still exist, particularly in older, legacy-style chips used in automobiles.

“Those legacy chips are just as important as the new technology and the latest chips are for the defense industry,” said Tom Linebarger, outgoing CEO of engine manufacturing giant Cummins Inc., during the meeting with Biden. “Those legacy chips are what power the trucks, cars, and many other basic building blocks of our economy today.”

Semiconductor manufacturers have said high costs have prevented the industry from expanding U.S. production capacity. Chip manufacturers Intel and GlobalFoundries had warned that failure to approve new subsidies would delay their plans for major production plants in the U.S.

While it would take a few years for new fabrication plants to be built and start producing chips, the bill ultimately hopes to help the country rebuild its manufacturing sector to remain competitive with China.

China has rapidly expanded its production of computer chips within the last few years and is on pace to become the world’s third-largest producer behind the U.S. and South Korea by 2024. China’s share of chip sales grew from 3.8% five years ago to 9% in 2020, according to the Semiconductor Industry Association, while the U.S. share fell from 37% in 1990 to 12% today.

As part of its efforts to enhance production in the long-term, the bill also includes billions of dollars more for research into the development of technologies such as robotics and quantum computing.

Still, some businesses have said the measure doesn’t go as far as an earlier proposal approved by the House, which contained more provisions to address long term supply chain risks in critical industries. The House version would have established an Office of Manufacturing Security and Resilience within the Department of Commerce, and provided more support for comprehensive supply chain mapping and monitoring.

The Consumer Brands Association, which represents manufacturers of consumer packaged goods, is pushing Congress to approve follow-up legislation in the fall that would restore some of the supply chain provisions stripped from the Senate bill.

“While we appreciate the importance of what is included in the bill, we are deeply disappointed by what was left out and feel that Congress missed the moment to apply hard learned lessons from the pandemic,” said Tom Madrecki, vice president of supply chain and logistics at Consumer Brands Association.