Swense Tech

Best Solution For You

Retail Agonizes About Trade Provisions – As Congress Leans Towards A ‘CHIPS Only’ Bill

Americans know about having chips on the line – but Congress seems hell-bent on disconnecting trade provisions from pending legislation to focus solely on semiconductor chips – instead of a bigger China package that is needed by the retail and trade communities. Unless there is a Congressional miracle, critical trade items like GSP and MTB renewals, China exclusions, and de minimis – will slide into the D.C. swamp later this week – perhaps to return in the lame duck session or sometime next year.

Media attention has suddenly turned to our USA ‘national security’ in an effort to gain additional support for ‘CHIPS only’ legislation before Congress breaks for their August recess. Even America’s Secretary of Defense (Lloyd J. Austin III) said in a statement: “Weapons systems employed on the battlefields of today and emerging technologies of tomorrow depend on our access to a steady, secure supply of microelectronics. The Investments made through the CHIPS Act are critical to our national security and will directly support maintaining America’s technological and military edge.”

Clearly, what started out as a bipartisan effort to invest in American technology has now morphed into ‘CHIPS only’ because the Democrat controlled Senate/House/& White House can’t quite pull in the same direction at the same time. Senator Schumer’s (D-NY) original Endless Frontier Act now looks more like Davy Crockett’s last stand at the Alamo. The Senator’s original bill was completely broadened and renamed to become the U.S. Innovation and Competition Act (USICA) when it passed the Senate more than one year ago. Parallel legislation passed the House about six months ago, and that was called the America COMPETES Act. Both bills, (USICA & COMPETES), are quite large in scope (and pages) as they target USA computer chip manufacturing and a host of other trade remedies in an attempt to create a strategic advantage over China – by means of domestic investment.

Merging the Senate bill and the House bill has been proceeding through a process called reconciliation. The procedure is complex and (unfortunately) the negotiations have bogged down and stalled. With the mid-term elections rapidly approaching, and Congress getting ready for their August recess – last minute plans have developed to extract survivors from the process because failure is quickly becoming an option. Democrats remain nervous about getting legislation passed and Republicans don’t necessarily want to give the Democrats a victory. However, both sides realize the importance of American made semiconductors. The latest plan is to shrink the package and offer a ‘CHIPS only’ or a ‘CHIPS PLUS’ package. Unfortunately, without adding any of the retail requested trade components, the end result is right up there with walking out of a fish & chips pub – and saying that they ran out of fish (sorry – we just have chips).

The Administration likely sent Commerce Secretary Gina Raimondo for media rounds this past week – working to get any version of the original USICA or COMPETES Act passed. The media push is directed towards the need for ‘national security’ and the fact that chip makers will likely take their business elsewhere with rising chip demand. The CHIPS bill itself contains an initial $52 billion dollars for USA research and development of chip manufacturing. The original CHIPS Act was part of the National Defense bill that passed in January of 2021 and CHIPS was outlined at that time but not funded. The Senate USICA and the House COMPETES Act would have created the funding (when passed).

The problem with a ‘CHIPS only’ package for USA retail, USA trade, and USA inflation – is that both FULL master bills from the U.S. Senate and the House of Representatives contain items of extreme interest to the retail community that may not be included. The USICA Senate bill did include a much-needed China tariff exclusion process for the extra China taxes that were issued during former President Trump’s administration. The House COMPETES bill included the de minimis issue that has been allowing factories from China (and elsewhere) to ship direct to American consumer and by-pass duties and tariffs which create a competitive dis-advantage for USA companies and USA based foreign trade zones. Most importantly, both bills included renewals for the incredibly important Generalized System of Preferences (GSP) program and Miscellaneous Tariff Bill (MTB’s) – which incentivize American trade investment outside of China and help American companies get component parts and other items free of duty if they are not readily available in the USA. These signature trade items currently add to the inflation problem and their renewal would have a profound effect on the economy.

With regard to the Generalized System of Preferences Program, according to the Coalition for GSP since the expiration of GSP – companies have paid at least $1.59 billion in extra taxes through May of this year. With regard to China Tariff exclusions, Americans for Free Trade group – has a Tariff Misery Impact List saying that it costs American consumers $3.8 billion a month for the China section 301 tariffs – that were initially imposed by former President Trump and continued by President Biden.

As has been widely publicized, Intel was planning to break ground on July 22nd for two new USA semiconductor facilities based in New Albany, Ohio. Intel intends to invest $20 billion in the initial facilities, and upwards of $100 billion over the next 10 years – if the CHIPS bill passes. Sadly, the groundbreaking has been postponed- pending passage of the legislation.

This week, as we inch closer to the August recess, some in Congress are talking about passing just the ‘CHIPS’ legislation (versus the reconciled USITA/Competes Act) and some are talking about making it ‘CHIPS PLUS.’ The Plus is the tacking on the FABS Act (Facilitating American-Built Semiconductors) – which would incentivize additional tax credits for USA chips manufacturing. From a retail perspective, the ‘ask’ is for Congress and the Administration to have CHIPS PLUS-PLUS with the extra PLUS being the trade items sorely needed by retailers.

While this information may be somewhat confusing, it’s quite easy to grasp that chip investments would be beneficial to America. The problem for members of Congress is that the original Endless Frontier Act, followed by the USICA, followed by the Competes Act – are significantly laden with pork and other items that are difficult to agree on. Common sense says that Congress will do something about semiconductors but, for reference, in May of 2021 a frustrated Senator John Kennedy (R-La) went on FOX to clearly state that the original Endless Frontier Act was filled with excess spending: “my mother did not raise a fool, and if she did, it was one of my brothers. This is not a fight communism bill. If you look at this bill, and study it, you will see that it is ‘all four feet and your snoot in the trough’ spending bill with virtually no money going for military defense.”

Clearly, there are many ways to look at this legislation. Using a different approach, Congress might remember that last Sunday was National Ice Cream Day, which remains a tribute to American ice cream that was established as a special day by President Ronald Reagan. Congress might observe that ice cream consumers generally order a pure flavor and sometimes they order a flavor with chips added. They almost never ask for the chips without the ice cream!

Hats off on to chocolate chip, coffee chip, expresso chip, and the beloved mint chocolate chip.

No hats off to Congress if they only pass CHIPS or CHIPS PLUS and don’t include the retail trade renewals of GSP/MTB, or changes to the de minimis program as well as creating a transparent China tariff exclusion process.

For retail, the chips are now on the line…..