CHIPS, IRA, and IIJA: An Overview of Biden-Era Legislation and the Bolstering of American Hegemony

April 22, 2024

Jean Nicolas Santiago

CHIPS, IRA, and IIJA: An Overview of Biden-Era Legislation and the Bolstering of American Hegemony

 

Background

At approximately 9:00 PM on Christmas Day 1991, President George H.W. Bush went before the press and the American public to remark on the resignation of Soviet President Mikhail Gorbachev. It would be this significant departure of Gorbachev, who ushered in an era of liberal reforms during his six years in power, that marked the formal dissolution of the Soviet Union. The era of bipolarity had ended. For President Bush, the dramatic fall of the Soviet Union marked “a victory for democracy and freedom” and “a victory for the moral force of our values.” But what was lost in the jubilance of the moment by the rest of the world was another statement by President Bush that night. As he neared the end of his remarks, he spoke to the new era that lay ahead: 

“I am confident we will meet this challenge as we have so many times before. But we cannot if we retreat into isolationism. We will only succeed in this interconnected world by continuing to lead the fight for free people and free and fair trade. A free and prosperous global economy is essential for America’s prosperity — that means jobs and economic growth right here at home.” 

It was the implicit recognition of this new era of unipolarity, coined and defined by Charles Krauthammer as a world in which “the center of world power is the unchallenged superpower, the United States attended by its Western allies,” that today makes up the Biden administration’s approach to competition with China – one that is firm against isolationism, champions global alliances and partnerships, and believes that job creation and industry investment at home are vital components of foreign policy. 

The idea of political and cultural competition is not novel, particularly in the United States. In fact, we only need to look at the Cold War competition between the United States and the Soviet Union. It was this competition that defined the momentous ideological struggle between the two nations, which, for both countries, meant out-innovating one another and being cultural exporters. Famously, the two global superpowers’ competitive nature would eventually lead to the development of NASA and the Defense Advanced Research Projects Agency, or DARPA. It is in the same mold that American policymakers have advocated a similar reproach to China that would, they hope, see the United States once again be the unquestioned global superpower. 

The Rise of China

On July 15th, 1971, from NBC’s Burbank, California studios, President Nixon announced to the nation and the world that he would visit China on a date before May of 1972. This announcement was, for many viewing the telecast, a shock. President Nixon had carried himself in political and personal life as an anti-communist crusader, initially gaining national notoriety as a member of the infamous House Un-American Activities Committee. Additionally, President Nixon had, as a private citizen in a Foreign Affairs Article in 1967, defined the People’s Republic of China as “the world’s most populous nation and Asia’s most immediate threat,” but he cautioned that “any American policy toward Asia must come urgently to grips with the reality of China.” For Nixon, this meant embarking on a historic state visit to the emerging power.

Nixon’s visit and opening up to China would set the stage for future American presidents. Under President Carter, the United States granted diplomatic recognition. It acknowledged, while not affirming, China’s one-China principle – the Chinese position that holds they are the sole and legitimate government of China and Taiwan is part of the PRC – while also, under the Taiwan Relations Act of 1979, maintaining commercial relations with the island of Taiwan. By October of 2000, China would continue to integrate into the global economy when President Clinton normalized trade relations, and in 2001, China would formally ascend to the World Trade Organization. It would take 65 years from the end of the “century of humiliation” for China to become the world’s second-largest economy, outpacing Japanese growth in 2010. During this time, American foreign policymakers would come to grips with China’s rise as President Nixon suggested in 1967. 

President Obama, in his first term, would be weighed down by the costly and deadly protracted conflicts in the Middle East. For Obama, who had billed himself as “America’s First Pacific President,” shifting American foreign policy away from the Middle East would prove to be complicated; however, as the conflicts in Iraq and Afghanistan began to wind down in 2010 and 2011, an opening would emerge that saw the Obama administration dedicate itself to the emerging region. This realignment would start in earnest, and hardlines would set over what the Obama administration viewed as assertive action in the Indo-Pacific.

Although the push towards the Pacific began under President Obama, the way we – and policymakers – would start to understand this competition is the watershed 2016 election and the ascendancy of Donald Trump to the presidency. As a candidate, Trump relied heavily on rhetoric that blamed globalization and Chinese economic growth in the previous decade as the principal reason for the decline of America’s once flourishing industrial base. This same rhetoric would propel Trump, his allies, and his ideas to the White House and the highest levels of power. The 2018 National Defense Strategy document asserts the continuing realignment of US priorities:

“Today, we are emerging from a period of strategic atrophy, aware that our competitive military advantage has been eroding. We are facing increased global disorder, characterized by decline in the long-standing rules-based international order—creating a security environment more complex and volatile than any we have experienced in recent memory. Inter-state strategic competition, not terrorism, is now the primary concern in U.S. national security.”

The Biden administration would have a similar understanding – if not approach – to the necessity of American attention to global competition with states such as China. Assertive actions – such as the imposition of tariffs – would continue. Still, under the Biden administration, legislation would emerge that, for the very first time, addressed and attempted to remedy the imbalance that existed. 

Coalition Building

Perhaps the biggest tenant of the Biden administration’s approach with China, apart from domestic legislative initiatives such as the CHIPS and Science Act and the Inflation Reduction Act, would be shoring up and reassuring allies that American power and values would continue in a world following a period of instability that had allies questioning the values and worth of our partnership. To assuage those concerns, Secretary Blinken would announce, in his first visit to NATO Headquarters in Brussels as Secretary of State in March 2021, that “I’ve come to Brussels because the United States wants to rebuild our partnerships. First and foremost, with our NATO Allies. We want to revitalize the Alliance, to make sure it’s as strong and effective against the threats of today as it has been in the past.” The rebuilding of these partnerships like NATO and the creation of others like AUKUS – a trilateral security partnership between the United States, Australia, and the United Kingdom – would propel the United States into an actual strategic competition with China. 

Geopolitical competitors, like Russia and China, have responded, too. The organization known as BRICs – composed of the nations Brazil, Russia, India, China, and South Africa – was created in the late aughts with the stated purpose of being a counter to American and Western hegemony and organizations such as NATO and the G7. Since their creation, membership has grown exponentially, with, as of August 2023, over forty different nations expressing some interest in joining the informal alliance. As of 2024, members represent approximately 40% of the global population and 25% of the global economy. Further, Russia and China have strengthened ties since Russia’s illegal invasion of Ukraine in February 2022. Most recently, in May 2023, the two nations strengthened economic ties with memoranda that “included an agreement to deepen investment cooperation in trade services, a pact on the export of agricultural products to China, and another on sports cooperation.”

Inflation Reduction Act

The Inflation Reduction Act enacted in August 2022, arguably the Biden administration’s most significant legislative accomplishment, would end up being a massive package that tackled items from drug pricing, tax enforcement, climate, and deficit reduction. On the surface, a wholly domestic bill, but below the legislation, reveals itself as a strategic blueprint that aims to curb China’s influence in climate. The Congressional Budget Office (CBO) estimates that climate-related provisions of the IRA will total around $391 billion over the next decade. This historic investment in climate and clean energy will bolster the United States’ domestic green-energy goals and its position in producing “solar modules, wind turbines, inverters, batteries for electric vehicles (EV) and power storage” domestically. It has been in these areas where China has dominated, accounting for, according to an estimate from the International Energy Agency, 74% of the global production of solar modules.

Although it passed in both chambers, the bill was not without opposition. In fact, in the House of Representatives, the bill only garnered party-line support, and in the United States Senate, the bill faced a 50-50 vote – only passing with Vice President Kamala Harris’ tie-breaking vote. Republican leadership had balked at the bill, with Minority Leader McConnell calling it “reckless” and Senator Graham, the Ranking Member of the Senate Budget Committee, deriding the IRA as having the potential to “make everything worse.” While these comments generally offered commentary on the broader aspects of the bill, there was significant criticism of the legislation’s climate-related proposals, particularly concerns that appropriated funds could end up, as Representative Brian Fitzpatrick warns, “financially [benefiting] Chinese companies, rather than focusing on protecting, promoting, and growing American manufacturers here at home.” In the time since its enactment, however, opinion polling has shown high approval for the Inflation Reduction Act. This pivot to incentivizing green energy production and domestic manufacturing has worked. According to a report by the Solar Energy Industries Association that examined and projected the impacts of the IRA since its enactment, approximately $100 billion in investments has been announced by solar and storage corporations, and “51 solar manufacturing facilities have been announced or expanded in the last year.” This new and expansive legislative action has not been met with idleness from the Chinese government; however, in the two years since the passage of the Inflation Reduction Act, China has sped up new investments and announced new facilities to pad their solar advantage further. 

Chips and Science Act

On July 19th, 2022, during an executive calendar session of the United States Senate, the Majority Leader, Senator Schumer, rose to address the importance of the bill under debate:

“Mr. President, in a few moments, the Senate will take the first procedural vote on the chips bill… This is one of the important votes that we will take this session, because advancing this bill is crucial for lowering costs, solving our Nation’s chip shortage, and making sure America remains competitive in the 21st century. America will fall behind in so many areas if we don’t pass this bill, and we could very well lose our ranking as the No. 1 economy and innovator in the world if we can’t pass this.”

The detectable urgency in Schumer’s speech was not hyperbolic; the United States had been steadily losing ground as an economic and innovative powerhouse. President Biden has long expressed his frustration with the lack of federal spending on research and development, as he recently questioned, “How can we be the finest nation in the world if we don’t invest in research and development?” It would be the CHIPS and Science Act that would seek to be a renewal for American industries – particularly in “semiconductor R&D, workforce, and manufacturing.”

It is not a mistake that CHIPS takes great strides in bolstering American semiconductor capabilities. Geopolitically, the possibility of conflict between Taiwan and China seems prevalent in foreign policy discussions. China has long claimed that the island of Taiwan is part of the People’s Republic of China. Fears in the West that this may boil over into a full-scale invasion of the island amplified due to Taiwan being the home to “around 92% of the world’s most advanced chip manufacturing capacity” – according to a working paper by the US International Trade Commission. Additionally, the prospect of any unexpected and sudden disruptions to the status quo can cause price hikes to consumers and elevate security vulnerabilities within the United States. 

In the year since its enactment, the CHIPS and Science Act has, by all appearances, spurred economic investment domestically. Semiconductor investments – in particular – have grown exponentially. Even drawing foreign investment, the Taiwan Semiconductor Manufacturing Company (TSMC) – responsible for the most advanced chip manufacturing globally – has announced a $40 billion investment in their Arizona plant. Intel, GlobalFoundries, Wolfspeed, and Texas Instruments have announced similar private investments. These new large-scale investments spanning from coast to coast are, according to a release by the U.S. Senate Committee on Commerce, Science, Transportation, expected to add 50,000 new U.S. jobs.

The United States also harnesses the lessons from the past in their efforts of today, as President Biden emphasized at the signing ceremony for the CHIPS and Science Act in August 2022, “This bill is about more than chips — it’s about science as well.” Just as the U.S. had bolstered spending to create NASA and DARPA in the 1950s, in competition with the Soviet Union, the CHIPS and Science Act will allocate billions to be a research powerhouse again––more than doubling the National Science Foundation’s (NSF) annual budget by 2027, investing in STEM education, and supporting early-stage research. Similarly, in the spirit of DARPA, the United States has allocated – in the FY2024 Budget – an additional $1 billion for the Advanced Research Projects Agency for Health (ARPA-H) to advance its mission to support new advanced biomedical and health research.

The new U.S. approach to bolster domestic semiconductors and clean energy manufacturing and out-compete Chinese semiconductor manufacturing has led the PRC and corporations within China to reorient their operations by “[investing] in alternative chip design and manufacturing capacity.” The former has been instrumental in Chinese growth in an industry lacking the intellectual property of many advanced semiconductors.

Conclusion

For the United States, the Inflation Reduction Act and the Chips and Science Act have made efforts to transform a nation on the back burner of industrial and technological manufacturing into a first-rate innovator. The new historic investments in green energy and semiconductor manufacturing put the United States in the right direction to keep its status. But these actions have been countered. For example, the Chinese response to the Acts has been strong; they have attempted to shore up and protect their industries while expanding their alliance and reliance on Russia and other entities to push back on Western hegemony. In the final analysis, whether the United States or China comes out on top is yet to be seen, but ultimately, it is safe to state that both nations have now begun to recognize that this competition is not going to slow down anytime soon and if anything, it will come to define this century and the next.

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