CHIPS Act passes preliminary Senate vote, awaits final vote in Congress

Yahoo Finance's Rick Newman joins the Live show to detail the status of the CHIPS Act, President Biden's comments on semiconductor production, and the outlook of the chipmaking industry.

Video transcript

JOE BIDEN: Taiwan produces 90% of the leading-edge chips. We produce 0%. China is moving ahead of us in manufacturing sophisticated chips as well. As we watch the US production of these chips decline from 40% of the global production to 12%, at the same time, we watched China go from 2% to 16%.

DAVE BRIGGS: That was President Biden today, not years ago. It's just not great quality. Speaking at a virtual meeting with labor leaders and business executives from the US semiconductor industry. The president hammering home the importance of bringing semiconductor manufacturing to the US. Let's bring in Yahoo Finance's senior columnist Rick Newman with more on this. Rick, good to see you, sir.

Corporate welfare is what both sides are actually saying here, both Bernie, and on the other side, the "Wall Street Journal" Editorial Board. Is it? And why should we participate?

RICK NEWMAN: It's a great question. And it does look like the CHIPS Act is going to pass. And it's going to pass with bipartisan support, which means there will have to be more than 10 Republicans in the Senate who do vote for this.

But look, this is a $52 billion subsidy for the chip industry. Most of that money would go to helping us build new factories, new chip factories in the United States. It would help Intel and others. I think about $13 billion would be for funding scientific research and innovation.

So yeah, this is taxpayer money that would basically go to this one industry. And the reason this is likely to pass Congress, it has a lot to do with what Biden just said. The United States has just completely lost its edge in semiconductor manufacturing. But it's more than that.

In 1990, which is when the United States had 40% market share, no one quite knew how important this was going to become. And thanks in part to the COVID pandemic and the chip shortage that emerged out of that, we know how important this has become. There aren't enough cars right now because there aren't enough microchips.

There are microchips in practically everything that plugs into an outlet in your house. And at the high end, these are crucially important to military weapons systems and things related to national security. So that's why there probably will be enough Democrat and Republican votes to get this through Congress, even though it basically does qualify as what you might call corporate welfare.

RACHELLE AKUFFO: And so Rick to this point then, even if this does get passed, what about some of these materials that go into the chips? How soon can we actually expect to see some of the fruits of this act actually appearing in US manufacturing?

RICK NEWMAN: Well, it's not going to end the chip shortage on its own. In fact, these incentives probably will not show up in actual factories, new facilities here in the United States for a few years. I mean, to give you one example, Intel is planning to open this big-- I think it's a $20 billion chip facility in Ohio. But Intel is waiting for the CHIPS Act. And they basically say that's the thing that will clinch the deal on the Ohio factory. So this is not anything that's going to be helpful any time soon in terms of easing shortages for things like dishwashers or whatever you can't get your hands on. But it will help down the road.

People in the industry are saying, look, this is such a huge problem that this is really just a down payment. It's just a start. And we need a lot more government action on things like minerals that are in short supply in the United States or simply not mined here at all, so-called rare earths and other things that go into electric vehicle batteries and all the things that are supposed to be coming in the future.

So there are a lot of things that we have relied on that mainly come from overseas that didn't seem like that much of a problem. And now it seems like a problem, especially since China is really prioritizing developing these industries and putting a lot of government subsidies into them there. And they're not the only ones. South Korea is doing it, subsidizing the industries. Taiwan is doing it. France is doing it. Germany is doing it.

So the United States is like the one country that has held out and not tried to subsidize these industries. And Congress is finally saying, we need to get into this game.

JARED BLIKRE: But Rick, is it the only solution to shovel cash, billions of dollars, tens of billions of dollars at these companies? I get the corporate welfare argument. There's always going to be some kind of graft when there's huge amounts of money spent. But also, has it been discussed, maybe just slashing taxes for this industry? Because if everybody else around the world is engaged in these public-private partnerships, what is US doing beyond just throwing money at these corporations?

RICK NEWMAN: Look, I think what's really happening here, Jared, is this is a pivot point for what you might call industrial policy in the United States. We basically don't have industrial policy. The belief here for decades, and really within both political parties, has been, look, we wish that capitalism was better, treated workers better. And there are certain problems with it. But in general, it's the best system out there.

So just let the capitalist system work on its own. And what we now know from 40 years of offshoring and 40 years of outsourcing, that capitalism and letting US companies be as efficient as they can does send, literally millions, of US jobs overseas. It weakens the domestic production of things that we now consider critical.

So you could say, let's lower taxes. And that's what Republicans did in 2017. That's what the Tax Cut and Jobs Act of 2017 did. And that has not solved this problem. So this is not something you really want to do here in the United States, which is to favor an industry, any industry at all with major government subsidies like this. But there's a shift in the political dynamic that now is tending toward, look, we have to do something to combat China, which does not operate as a purely capitalistic economy.

It's government-driven capitalism. And so I guess the idea is that we need a sample of that kind of thing here in the United States.

JARED BLIKRE: Yeah, there's lots of different kinds of capitalism, not pure necessarily for this country. There's also crony capitalism. I would point that out. We got free markets, free-ish markets but not completely free. All right, thank you, Rick Newman.