Schumer Strips Anti-China Security Provision From Major Semiconductor Bill

Republican senators balk at $250 billion CHIPS Act over China concerns

Senate Majority Leader Chuck Schumer ((Photo by Win McNamee/Getty Images)
July 26, 2022

Senate Majority Leader Chuck Schumer (D., N.Y.) removed an anti-China security measure from a bill that invests billions of dollars in the U.S. technology sector, a move Republicans say would allow China to benefit from the spending bill and could kneecap the legislation.

At issue are provisions written by Sen. Rob Portman (R., Ohio) that bar U.S. companies from manufacturing products in China, such as semiconductors, that were developed using federally funded research. Myriad government and private investigations conclude that the Chinese government routinely steals trade secrets from U.S. companies, government agencies, and universities.

Schumer earlier this month removed Portman's provisions from the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act, throwing a wrench into the vote for Republicans who were under the impression it would be included and planned to vote for the bill, according to multiple interviews and internal documents viewed by the Washington Free Beacon.

The reason Schumer removed Portman's anti-China provision is unclear. Some say he caved to lobbying efforts from various interest groups and the White House. The Senate last year passed a version of Portman's measure with bipartisan support, but the House never put it up for a vote.

The removal puts a bipartisan bill that appeared to be headed toward approval in jeopardy. Opponents of the CHIPS Act now include several Republican senators who initially supported the funding for the domestic production of semiconductors. Even if it passes, the lack of meaningful guardrails against the Chinese raise grave questions about whether a bill initially meant to counter China may backfire.

Schumer did not respond to a request for comment.

The CHIPS Act puts a staggering $250 billion for domestic science investment and education, making it the largest domestic industrial investment scheme in U.S. history. But Republicans say the act, prompted by concerns that the United States is losing its technological edge to China on such critical goods as semiconductors, could end up benefiting adversaries.

Senior staffers from six Republican offices in the Senate and House spoke to the Free Beacon on the condition of anonymity to criticize Schumer's decision. In interviews, several expressed bewilderment at the modification while others said they were misled by Senate leadership.

"Legislators are talking about pouring hundreds of billions into industry subsidies and federal R&D, ostensibly to strengthen American competitiveness and to compete with China," one Senate staffer told the Free Beacon. "Spending that level of taxpayer dollars without meaningful safeguards to ensure they don’t end up in Beijing’s hands—either through Chinese Communist Party espionage, corporate malfeasance, or inept bureaucrats—would be a colossal mistake."

Exactly why Portman's measure was removed is a matter of ongoing debate on Capitol Hill. One office blamed Rep. Frank Lucas (R., Okla.), the ranking member on the House Committee on Science, Space, and Technology. Two Republican offices pointed the finger at Senate Republican staff tasked with whipping support for the CHIPS Act for failing to communicate that the provision was removed ahead of a procedural vote earlier this month. Another office said the decision to remove the guardrail provision was entirely Schumer's and couldn't be stopped by Republicans.

Guardrail provisions such as the ones in Portman's bill are unpopular with universities with large research departments, as well as some corporations. Universities object for ideological reasons, namely the belief that their research should be enjoyed by everyone around the world. Universities in the last several weeks have been lobbying Republican members including Lucas particularly hard, Republican sources told the Free Beacon.

"Lucas has been turned by the lefty universities," the individual said. "Disappointing that he's going soft on China for them."

One House Republican source called the idea that a single member in the minority party could tank the provision preposterous, and that the negotiations took place entirely in the Senate. A staffer for Lucas on the House Committee on Science and Technology concurred with that characterization.

"The House was shut out of any negotiations after the Senate ended four-corner discussions and then picked up this legislation on their own," said Heather Vaughan, communications director for the House Committee on Science and Technology. "If the Senate can't read their own legislative language ahead of a vote or negotiate effectively with each other, that's simply not within our control."

No matter the explanation, the lack of guardrails means several Senate offices that were potential "Yes" votes on the CHIPS Act are working behind the scenes to tank it. Other senators, such as Marco Rubio (R., Fla.), are pushing for new guardrail provisions.

Rubio on July 22 filed legislation that would, among other things, establish a counterintelligence screening process to "certify that anyone receiving funds under the bill has sufficient protections against government threats." Such guardrails are missing from the CHIPS Act, he said.

"America needs to make things again, especially critical chips and other tech, but we need to do it in a way that benefits our country and our workers," Rubio said. "Unless we add meaningful safeguards in this package, we should call this for what it is: the China Investment Bill."

The Senate is expected to hold a final vote this week on the CHIPS Act. Original supporters of domestic semiconductor funding, including Rubio, are expected to vote against it.