Update 583 — GDP up 6.9% in 4Q21:
USICA Way to Maintain that Growth?
An economy growing at 6.9 percent, annualized, in the final quarter of 2021. National unemployment is below four percent. Wages soaring. Labor mobility is like never before. All of this defies expectations, yielding, dare we say an unprecedented recovery so far. It’s no accident, but due in large part to passage and implementation of the American Rescue and the Bipartisan Infrastructure bills — constituting a clear if under-the-radar legislative and economic success.
The numbers this good will be hard to sustain. But House Democrats and the Senate’s work on the U.S. Innovation and Competition Act (USICA): The America COMPETES Act can keep the recovery on track. The package’s direct investment in domestic advanced manufacturing alleviates the global semiconductor shortage and elevates America’s global competitiveness. The bill is would be a victory for Democrats ahead of the midterms. Today, we discuss each chamber’s versions of the competition package and the need for Congress and the White House to deliver.
Good weekends all,
Late Tuesday night, House Democrats unveiled their version of the Senate’s U.S. Innovation and Competition Act (USICA): the America COMPETES Act. The two packages seek to direct investment toward domestic advanced manufacturing, alleviate the global semiconductor shortage, and elevate America’s global competitiveness. And with Commerce Secretary Gina Raimondo announcing the U.S. is down to just five days of semiconductor supplies, addressing the semiconductor shortage is timely support for the economic recovery.
Signing the compromise that comes out of the House and Senate negotiations into law is crucial for the United States’ economic performance and would serve as a much-needed win for the White House. The legislation would also cement affirmative industrial policy at the forefront of the federal government’s arsenal and erode the current paradigm that focuses on changing industry behavior on the margins. The result would be a forward-leaning, intentional industrial agenda instead of the rather laissez-faire policy by default we have become accustomed to.
What is USICA?
The U.S. Innovation and Competition Act (USICA) is the Senate’s sweeping competitiveness investment package. Passed in June 2021 with 68 votes, USICA is the result of the bipartisan collaboration between Majority Leader Schumer and Senator Todd Young to compete with China on basic and advanced technology research.
Originally starting as the Endless Frontier Act, the bill expanded into USICA including additional measures. The major pieces include:
- National Science Foundation Investment ($81B): The National Science Foundation will receive a major injection of funds to bolster research and technology development. These funds include $29 billion for the new NSF Directorate of Technology and Innovation to lead and support broader NSF projects.
- Incentives for Semiconductor Manufacturing ($52B): With $52 billion to fund the Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) Act, the federal government can help resolve the semiconductor shortage.
- Other R&D Investments ($27B): Other research and development agencies also would receive additional funding under USICA. The Defense Advanced Research Projects Agency would receive $17.5 billion, the Department of Energy would receive $6.9 billion, and Manufacturing USA institutes would receive $2.4 billion.
- Regional Technology Hubs ($10B): To encourage investments in regional innovation and competitiveness, USICA will allocate $10 billion for “regional technology hubs” across the country.
The legislation also seeks to counter competition from China through trade policies to encourage Buy American goods and by establishing investment and trade partnerships with Latin America, the Caribbean, Taiwan, Africa, and Southeast Asia.
The Senate now awaits action by the House of Representatives, so the two bodies can conference and send the negotiated package to President Biden’s desk for his signature.
The House’s Competitive Offer
The House unveiled its America COMPETES Act, but progress toward a final package has proved to be difficult thus far. The House first tried dividing their original version of USICA into three separate bills, but that effort stalled out over the fall. Now, the House has redesigned its package to more closely resemble the Senate legislation in order to speed up the conferencing process.
Differences remain between the House America COMPETES Act and the Senate USICA. While the House adopted the $52 billion for semiconductor fabrication incentives, it did not include the more than $100 billion for R&D investments in the Senate bill. Instead, the House proposed $45 billion to support supply chain resiliency and advanced manufacturing, including solar manufacturing. In addition, the House is seeking to expand the Trade Adjustment Assistance program and enhance trade provisions cracking down on China.
House Republicans do not support the current legislation. Last June, 134 Republicans voted for the NSF and Department of Energy investments now included in the Senate USICA package. With those funds stripped from the America COMPETES Act, some Republicans believe that House Democrats are undermining the House’s bargaining position and the prospects for bipartisan support. House Republicans may be correct. It would be unwise for Congress to sacrifice these investments due to both the positive economic impacts and the bipartisan support of the investments.
Once the House passes the America COMPETES Act, both chambers will negotiate the differences. The House should agree to include the R&D investments for the NSF and DOE, which were included in the original House package and the current Senate package, and the Senate should adopt the $45 billion funding for supply chain resilience. While it may increase the total cost of the bill, the bipartisan support for these provisions should help the final passage of a comprehensive bill.
Need to Deliver
Bicameral support for the $52 billion in semiconductor manufacturing incentives would help alleviate the global shortage and establish affirmative industrial policy moving forward. If both chambers can also agree on investments for the NSF, regional technology hubs, and other R&D priorities, it could measurably strengthen long-term growth.
It should not be understated how much of a positive impact moving away from tax credit programs toward direct investments and grants will have on our manufacturing capacity and supply chain resiliency, as well as economic growth. By bringing manufacturing home, a USICA-COMPETES compromise will help insulate us from future supply chain disruptions and create plenty of high-paying jobs domestically. These successes should incentivize Congress to pursue further industrial policy that can obtain bipartisan support.
Another area where affirmative industrial policy can bring together both parties is Senator Coons’s proposed Industrial Finance Corporation Act. The bill would complement the USICA-COMPETES compromise package by establishing the Industrial Finance Corporation of the United States (IFCUS) to help finance investments in advanced manufacturing. Together with the R&D and supply chain investments in USICA and America COMPETES, respectively, IFCUS can help close critical supply chain gaps and help ensure access to capital for domestic manufacturers.
Congress is well advised to act forthwith to pass this competitiveness package, come to a bicameral agreement on any differences, and send the legislation to President Biden. Not only does the United States need this legislation, but President Biden needs this political victory. Another package driving domestic investment would be the wind in Biden’s sails as the White House approaches the rest of the 2022 agenda.
Congress will then be able then to consider any of a number of proposals to address similar challenges to other areas of industrial policy in a long-overdue effort to revitalize American manufacturing, invest in innovation and supply chains, and ensure the United States can compete when it comes to next-generation technologies.