As Republicans Stop Negotiating China Package, Advocates Look for Path Forward

McConnell said on the floor of the Senate July 12: "Democrats moving ahead and trying to jam the Senate and the country with a party-line tax hike through reconciliation will certainly crowd out our ability to process the bipartisan USICA bill aimed at competing with China." Later, he said, "Our side cannot agree to frantically steamroll through delicate bipartisan talks in order to meet an artificial timeline so our Democratic colleagues can clear the decks to ram through a party-line tax hike."

The top Republican on the Senate Finance Committee, Mike Crapo of Idaho, said that he and his staff are following McConnell's lead. When asked if USICA, the U.S. Innovation and Competition Act, has a chance of being revived if the reconciliation negotiations fail, he said, "Well, I don't know the answer to that, it all depends on what develops on whether something moves forward in reconciliation, and if so, what it is, and how that works out. But as of right now, as all I can tell you, there's nothing happening now."

A leading Democrat in the debate, Sen. Mark Warner, D-Va., told our reporter in a hallway interview July 12 that he hopes there's still a way to get USICA passed before the Build Back Better bill is written and voted on. "I still want reconciliation to happen, but that's TBD. This is something, we miss this window, companies are going to make decisions. You saw Global Foundry making a decision about France the other day. There is no rational reason, even if we do the CHIPS, 5G and FABS now and finish other stuff later, but it would be the height of irresponsibility to kick the can on this."

This idea of passing a narrower bill is one that McConnell endorsed July 12, according to a tweet from an NBC reporter. "The conference is stuck. And so it seems to me there are a couple of ways out of this, potentially," Sahil Kapur quoted him saying. He said the couple of ways out are either for the House to pass the Senate version without changes, or spin off the funding for semiconductor factories.

Axios reported last week that the House is considering passing the Senate version. Some front-line members who are running for re-election in swing districts, like Rep. Elissa Slotkin, D-Mich., have said from the beginning that the House China package was too partisan and it would be better to follow the bipartisan Senate's vision.

Sen. Rob Portman, R-Ohio, who has a trade provision in the House bill but not the Senate bill, said he and his staff have not completely stopped negotiating because of new momentum for Build Back Better. "There are continued discussions, but obviously, we've had to reassess where we are," he said.

But Portman said that if the House did pass USICA, he thinks it would go to the president's desk. "Of course," he said in a hallway interview at the Capitol. "I mean, it had 19 Republican supporters, and it's incredibly important to do it for our national security, economic security. I can count about five different fabs that are positioned to be built here in America. That may not happen unless we move quickly. Including in Ohio."

If the Senate version was passed without changes, the Generalized System of Preferences benefits program and Miscellaneous Tariff Bill would be renewed with some retroactivity in the case of MTB, and will full retroactivity for GSP. USICA also directs the Office of the U.S. Trade Representative to open a broader and more lenient exclusion process for Section 301 tariffs on Chinese goods, but it gives the agency the direction to choose not to if it certifies that it would undermine its leverage. USTR Katherine Tai has said repeatedly that removing tariffs would undermine her leverage.

Changes to antidumping and countervailing duty law that are championed by Portman, changes to de minimis eligibility and outbound investment screening would not become law if the House passes an unchanged USICA; those trade proposals are only in the House China package.