Trump, 'No need to give a dime,' stands firm... U.S. maintains the CHIPS Act [Sangeun Lee's Washington Now]

The U.S. Senate has decided to maintain the CHIPS and Science Act—which former U.S. President Donald Trump had insisted be repealed. On the 1st (local time), after much difficulty, the Senate narrowly passed the 'One Big Beautiful Bill (OBBBA),' which not only preserves the CHIPS Act's core framework for promoting investment by semiconductor companies in the U.S. but also expands tax credits for investments in related facilities and equipment. Although it was a policy introduced by former President Joe Biden, it was nonetheless deemed essential.

○ Maintaining CHIPS Act Benefits

Under the bill passed in the Senate, semiconductor companies can receive a 35% tax credit on investments made in U.S. facilities and equipment. This is a significant increase from the 25% tax credit stipulated in the current CHIPS Act and is even higher than the draft's 30% proposed by the Senate Finance Committee. This is expected to have a positive effect on these companies' performance. The eligibility applies to facilities operational after the end of 2022 and started before the end of 2026.

President Trump had previously asserted that "even without giving money to wealthy semiconductor firms, tariffs can attract investment." Nonetheless, subsidies and loan benefits for building semiconductor plants are maintained. The CHIPS Act includes $39 billion in subsidies and $75 billion in loan support. Major semiconductor and related equipment companies, including Samsung Electronics, SK Hynix, Intel, TSMC, and Micron, have based their U.S. investments and ongoing operations on these benefits.

○ Significant Reduction in IRA Benefits

Provisions promoting renewable energy-related investment and EV transition under the Inflation Reduction Act (IRA) have been largely rolled back. The tax credit system that provides up to $7,500 for purchasing or leasing a new EV and $4,000 for buying a used EV will only be maintained until the end of September. Originally, these benefits were set to run through 2032, but their removal will likely significantly impact the EV market.

While the House passed a version keeping the benefits through year-end, the Senate shortened the period by three months. JPMorgan Chase projected that ending EV support would cause potential harm to Tesla to the tune of $1.2 billion. Automakers and battery firms, like Hyundai Motor Company, that made major facility investments in the U.S. anticipating EV market growth, are also expected to be negatively affected.

It is now virtually impossible to receive incentives for wind and solar investments. The clause in the Senate Finance Committee draft—which provided benefits for projects beginning operation before 2026—was relaxed to apply to those that start construction before 2026. However, using Chinese components would mandate paying additional taxes, making actual business operation much more difficult—a clear negative for companies like Hanwha Q CELLS.

Support for the Advanced Manufacturing Production Credit (AMPC), which significantly impacts investment and financial statements for domestic battery companies such as LG Energy Solution and SK On, remains intact. The House version had moved the tax credit's sunset date up from 2032 to 2031, but the Senate deleted this clause, preserving the original timeline for benefits.

○ 3 Republican Defections…To Be Reconsidered in the House

The bill also includes provisions to make permanent the Tax Cuts and Jobs Act (TCJA) benefits enacted during Trump’s first administration, distribute $1,000 in a ‘Trump Account’ to children born during his term, and cut Medicaid, a federal health program for low-income residents.

Of 53 Republican Senators, 50 voted in favor. Senator Rand Paul (Kentucky) opposed due to concerns the $5 trillion debt ceiling hike would harm U.S. fiscal stability; Senators Thom Tillis (North Carolina) and Susan Collins (Maine) defected over opposition to Medicaid cuts’ negative effects on their constituents.

Senator Lisa Murkowski (Alaska), initially expected to oppose, ultimately voted in favor, which was decisive. With all 100 Senators split 50-50, J.D. Vance, the Vice President and President of the Senate, used his tie-breaking authority to secure passage.

Because the bill was amended, it must be put to another vote in the House and signed by the President before it can be enacted. Speaker of the House Mike Johnson and other Republican Representatives are expressing great dissatisfaction with the Senate amendments, but if further changes are pursued, the Senate would have to approve them again, making the process more complex. President Trump is urging lawmakers to aim for proclamation of the law before U.S. Independence Day on the 5th.

Washington—Sangeun Lee, Correspondent selee@hankyung.com