The Daily - The Bill That United the Senate

Episode Date: June 9, 2021

The Senate passed the largest piece of industrial policy seen in the U.S. in decades on Tuesday, directing about a quarter of a trillion dollars to bolster high-tech industries.In an era where lawmakers can’t seem to agree on anything, why did they come together for this?Guest: David E. Sanger, a White House and national security correspondent for The New York Times.  Sign up here to get The Daily in your inbox each morning. And for an exclusive look at how the biggest stories on our show come together, subscribe to our newsletter. The Daily is doing a live online event: We follow up with students and faculty from our series Odessa. And we hear from the team who made the documentary. Times subscribers can join us June 10.Background reading: The wide margin of support in the Senate reflects a sense of urgency among lawmakers in both parties about shoring up the technological and industrial capacity of the United States.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Michael Bavaro. This is The Daily. Mr. Romney, aye. Ms. Klobuchar, aye. Mr. McConnell, aye. On Tuesday night... The ayes are 68, the nays are 32. The 60-vote threshold, having been achieved, the bill is passed. The United States Senate overwhelmingly passed the kind of historic and sweeping spending bill that typically triggers bitter partisan warfare. Today, David Sanger on why this bill did not. It's Wednesday, June 9th. David, describe this legislation that was just adopted by the U.S. Senate.

Well, Michael, this is, quite simply put, the biggest example of industrial policy that the United States has put together, perhaps in its history, but certainly in many decades. And what is industrial policy? Industrial policy, Michael, means using taxpayer dollars to go direct funds to specific industries, research initiatives, or actual manufacturing plants to involve the U.S. government directly in the private sector economy by injecting massive amounts of capital that in the normal American way would be raised first by venture capitalists and then on the stock market. And just how much capital are we talking about? We're talking about a quarter of a trillion dollars over five years. So even by Washington standards, that's a lot of money. And, you know, it's not the first time that the U.S. government has invested in these things. We do other investments, right? Like the Defense Advanced Research Projects Agency, part of the

Pentagon, has been doing this for years. But their budget is $3 billion a year. That's what President Biden asked for for this year. So it gives you a sense of just how huge an injection of capital in the high-tech part of the economy that the Senate bill would require. And which industries exactly will be invested in under this program? Well, it's everything on the list that you would think of if you picked up the paper and you saw what are the cutting edge industries that the United States worries about. Semiconductors gets the biggest part of it because the chips that power our computers, our Zoom calls, our automobiles, our refrigerators, and our automated houses, those are the steel industry of the modern age.

Autonomous vehicles are a big part of this. Robotics, artificial intelligence. Also, synthetic biology, basically the creation and manipulation of new organisms and understanding how that process works. There are other areas here, quantum computing, which was an entirely different way of going about designing computers at very high speed, critical for defense purposes, for encryption, and perhaps over time for manufacturing. In most of these areas, the bill is pretty vaguely worded about how exactly the money is going to be spent. So you know there's going to be a huge scramble now to get a part of this pie by redefining projects that are already underway to fit within the categories that Congress has allocated these billions for. And so, Michael, the big question is, how is it that a U.S. Senate that can't agree on anything, that's arguing with President Biden over

infrastructure projects and the usual easy stuff like building highways and dams. Right. How is it that they've agreed to spend a quarter trillion dollars on this remarkable array of high-tech industry? That's really the great mystery that's been surrounding Washington these past couple of days. And what is the answer? Because that very much is the question I have. How is it possible that Washington came together for a spending bill this vast? There is one reason and one reason only. It's China.

And what do you mean by that? Well, China has been spending heavily in this arena, almost this exact same list of research projects and industries since 2015. They've got a project underway called Made in China 2025. And by that deadline, they want to be self-sufficient in all of these territories, from semiconductors to autonomous vehicles to everything else that was on our list. They don't want to have to rely on the United States or the West for any of those technologies. And so what's happened here in Washington, Michael, is that the mirror image of the Chinese fear has been playing out on Capitol Hill gradually,

Chinese fear has been playing out on Capitol Hill gradually, where senators are waking up to the thought that the United States is incredibly dependent on China. We saw it in the argument over 5G networks, where the U.S. had gotten out of the business. We've seen it in semiconductors, where the U.S. is a much smaller part of the market than it was. And over time, what this has done is created a bipartisan consensus that no matter what else we agree or disagree on, we can't be in a position in 2025 where we are dependent on China for the key technologies that keep our industry going and that keep our defense sector going. And somehow that has managed to so seep into the body politic that there was no real debate, especially when people looked at the sheer numbers and saw that

the Chinese government spending on research and development is now twice what the U.S. spending is as a percentage of GDP. And that's a big change. David, this bill seems to assume that China's dominance in these industries is a pretty urgent threat. And is that true? Because my sense is that we have relied on China to manufacture all kinds of goods that get exported back to the U.S. for a really long time. We have relied on them. But I think what's changed in recent times is the recognition that China is not just an economic competitor and not just that it's a potential military adversary. It's that China has brought about a combination of its military prowess and its economic prowess and made us over time increasingly dependent on Beijing for the core technologies that run our economy.

And people started asking the question, first, can we really rely on China to provide us with 5G advanced cellular networks? These are the networks that will be powering not only our cell phones, but our factories. And across the Obama administration, the Trump administration, and now the Biden administration, people came to the same answer, which is, no, we really can't rely on China for 5G because they could turn it off in times of tension. And then we began to look at semiconductors and ask the question, how reliant do we want to be for the foundational technology of everything we build? And then we began to look at synthetic biology, an area that the United States pioneered and said,

how much do we want to be dependent there? And what's happened over time is that this concept that the two largest economies in the world were inextricably intertwined is now changing to a concept that the two largest economies in the world have to be self-sufficient. simply that one day, if the United States does not invest properly in these industries and become self-sufficient in these areas, that we might wake up and find that China has basically turned off our economy through goods we've purchased from them or turned all those technologies against us. That's right. And they wouldn't even need to turn them off. All we would need to do is live in the fear that they could turn them off. And, you know, members of Congress saw in both classified and unclassified session some pretty remarkable examples. One is that a few years ago, the United States was bringing in some very large electric transformers, the kind you use to power the electric grid. And when they sent them off to one of the national labs for examination, they discovered some hardware inserted in the transformers that was not part of the design spec that would have essentially enabled somebody in China to flip these on and off. Wow, that's literally the American nightmare.

It is indeed. And then in the telecommunications area, we saw something similar. We saw internet traffic that was running through Chinese-controlled elements of the network inside the United States that was mysteriously being routed to Beijing before it came back inside the United States that was mysteriously being routed to Beijing before it came back to the United States and elsewhere in the world. And people started asking the question, why is it that China could, from a base in the United States, route traffic at will back to Beijing? And then as the 5G argument revved up and we were urging allies not to buy the Chinese networks, we had nothing to offer them because American companies had gone out of the business. Mm-hmm.

And the accumulation of these examples managed to wipe out 30 years of ideological division inside the Senate over whether the United States should be spending taxpayer money on specific industries in order to stay competitive. It was a really remarkable thing because this debate that has gone on for decades just fell silent in the face of Chinese competition. We'll be right back. David, describe this 30-year partisan divide that you just referred to over U.S. government investment in American industry. Where does that come from? Where does that come from? Well, Michael, it dates back to the 1980s when Japan was the great ascendant economic power. And the fear in Washington was that we would become what Andy Grove, the founder of Intel, referred to as a techno colony of Japan. techno colony of Japan. Now, it seems hard to imagine today, but back then, Japanese cars were not only flooding the U.S. market, but consumers were grabbing them up. We've got Tim Donovan here taking his frustrations out on this 78 Toyota.

And the layoffs in Detroit were huge. When I was raised in Allen Park, they used to have carnivals, and you'd take a whack at a car, and it was always the biggest sensation. We thought, well, why not a Japanese car? Meanwhile, of course, the Japanese market. They come over here, they sell their cars, their VCRs, they knock the hell out of our companies. Was quite close to American goods. But more importantly, you began to see Japan dominate some of the same industries that we're worried about today, starting with semiconductors. And they were producing memory chips, not the microprocessors that do the thinking, but just what holds memory inside computers, right? And this was long before

chips were going into every bit of consumer goods. And so what was beginning to happen in Congress was a huge backlash against Japan. And I remember it pretty vividly because I was sent by the New York Times for a wonderful six-year assignment in Japan starting in 1988 in the midst of this dispute. And I spent most of my time documenting whether or not the Japanese were in fact eating our lunch and what was happening as the Japanese government and the Ministry of Industry and Trade began funding big R&D programs in Japan for many of these same industries. So, David, what does Congress do in response to this perceived threat from Japan? Well, it did a few things, Michael.

First, it bailed out automakers like Chrysler that were on the edge of bankruptcy. That was very controversial, but they went ahead. And then it put together a consortium of American semiconductor makers and invested $100 million in government funds in the efforts to revive the entire semiconductor industry. That consortium was called Semitech. And this was at the end of the Reagan administration. It was 1987. But by the time Reagan was leaving office, this effort to boost government spending in these industries began to create a

backlash. And it opened up a really deep ideological divide about what the role of the American government should be in boosting industries and particularly new high-tech ventures. And what is the nature of that political divide? Well, on the one side are the Republicans, who said, by and large, this is madness. Government is terrible at picking new technologies. This is where the market works best, the creative destruction of inventing something, finding funding for it, seeing if it takes off. That's what makes American industry the shining example for the rest of the world. And the only thing we will do in interfering in this

is waste a lot of taxpayer money and get in the way of that process. And then on the other side, with the Democrats, we're saying, are you crazy? We've been doing this for years in the territory of basic research. The work that created the space program not only landed men on the moon, it created first a military and then a commercial satellite business. The Defense Advanced Research Projects Agency gave the seed money for the experiments that started the internet. And that if you are going to get people to jumpstart key technologies, the best way to do it is pour some government money into it, even if you know that some of it's going to be wasted, that you're going to lose some of it,

because the overall benefit to American job creation is well worth whatever you might lose over the short term. And so what does this battle look like throughout the next few decades? You may remember that the administration provided some loan guarantees, just about $500 million, to a company called Solyndra that was working on it. I do remember. Yeah, an interesting technology for solar power and solar panels. And the thing went bad and went bankrupt, as projects like this sometimes do. It's a symbol not of success, but of failure. And Mitt Romney. It's also a symbol of how the president thinks about free enterprise.

Among others, who was, of course, running against President Obama during the re-election campaign in 2012, argued that this was a prime example of the U.S. government trying to interfere in the capitalistic process that made the United States such a powerhouse. He thinks that government-dominated decisions like this make America stronger. And that Obama had wasted taxpayer money. They make us weaker. Right. Romney's argument was this is classic, wasteful, big government spending, and this is exactly what the private sector was designed to do.

And even though Romney lost that election, it felt like he had landed a pretty significant punch with the example of Solyndra that no doubt Democrats would have understood as something politically risky. That's right, especially because the most effective part of the Republican argument was that oftentimes when the United States spends money on research and development, what happens is the private sector pulls back, saying, why should we spend our shareholder money on this when the taxpayers are going to go fund this research for us for free? Right. The Republican argument is that this becomes a perverse set of incentives in which the government displaces the motivations and the instincts of the private sector.

the motivations, and the instincts of the private sector. That's right. And that's exactly what some of the critics of Semitech, that semiconductor effort that President Reagan began in 1987. And by the 1990s, it hadn't accomplished many of its goals, and it sort of withered. And when people looked back at it, they discovered that semiconductor companies had, in many cases, pulled back on private investment because they thought the government would pay for it. with this Senate plan to spend so much U.S. government money to counter China, given that you just explained how almost permanent this battle is in the United States

Congress? Why aren't we seeing much of this accompany this Senate proposal? You know, it's a pretty remarkable change. And I think the reason really comes down to the difference between Japan as a competitor and China as a competitor. Yes, Japan was and remains a major economic competitor to the United States, but it's also our closest ally in the Pacific, right? It's the centerpiece of the American strategy to contain China's expansion, it, South Korea, and Australia. So Japan never posed the existential threat to the United States that China now does. That's what's happening. That's right. Japan was a commercial adversary, but not a military

adversary. And China's the opposite. But you know, Michael, something else happened in the course of this that changed the debate. And that was Donald Trump. What do you mean? He walked away from all of the usual Republican ideology on this issue and many others, when he made that turn about a year and a half ago at the beginning of the pandemic and began describing China not as a potential dealmaker with the United States, but as its mortal enemy that was hiding the cause of coronavirus and maybe had deliberately launched it in his imaginings. And that cemented the view in his own party that any bill that was described as a counter-China bill was worth passing. That was what changed the debate. And when President Biden came in, he actually extended this debate by casting it as the battle between democratic forces and autocracy.

Right. There was a line in President Biden's speech to both houses of Congress that spoke to this, and it stuck with me. He spoke of the need for the United States to come together to confront China. And you know, Michael, the State of the Union speech was just the culmination of several moments at which President Biden had raised this concept, that it was the challenge for the United States to prove that a disorganized, disorderly democracy could get its act together and actually accomplish big things, and that that wasn't simply the pathway that autocracies could take. That has been the closest thing to a Biden national security philosophy that we've heard yet. So perhaps it is worth noting, David, that despite the fact that President Trump and President Biden really don't agree on much of anything, they do both seem to agree on the threat of China and the need for the United States to invest in such a way

that it can counter it. That's absolutely right, Michael. And some of these efforts, including the more than $50 billion for the semiconductor industry, first got passed during the Trump administration. And it is now being rolled into this bill. There are some cautions here, though. You have seen this bill get squeezed down a little bit by people who were afraid we were spending too much money. You have seen some objections that the bill, because it's one of the few spending bills that will actually pass in Congress, has become a Christmas tree for everybody's favorite project. But what we've learned here, essentially, is that the competition with China, the fear of China, both the realistic and the exaggerated fears of China,

have become the one great unifying element of American politics today. And if that is true, David, then I guess there is some hope that a democracy can plan for the long term, that this is not just the terrain of an autocracy. That's right. Now, even after this bill passes, our research and development spending as a percentage of our GDP is still going to be well below the Chinese and some other countries. It is more of a start. But if there's one key lesson that emerges from the debate, really the non-debate over this bill, it's that America needs again, as it always has, an adversary to be the organizing thought for things we probably needed to do anyway. Hmm. First Russia, now China.

Russia in the Cold War, China in the new Cold War. That's how America gets its act together. That's how America has a shot at getting its act together. Well, David, thank you very much. We appreciate it. Thank you, Michael. We'll be right back. Here's what else you need to know today. We are deeply sorry for the impact that this attack had.

But we are also heartened by the resilience of our country and of our company. But we are also heartened by the resilience of our country and of our company. During a Senate hearing on Tuesday, the chief executive of Colonial Pipeline apologized for the consequences of a ransomware attack that cut off energy access to much of the East Coast last month. I made the decision to pay, and I made the decision to keep the information about the payment as confidential as possible. The executive, Joseph Blunt, defended his controversial decision to pay hackers more than $4 million in ransom to end the attack and bring a major fuel pipeline back online. It was the hardest decision I've made in my 39 years in the energy industry. And I know how critical our pipeline is to the country. And I put the interests of the country first. And data from the Internal Revenue Service, obtained by the news organization ProPublica,

shows that between 2014 and 2018, the 25 richest Americans, including Jeff Bezos, Michael Bloomberg, and Elon Musk, paid little and, in some years, no federal income taxes. ProPublica found that the billionaires avoided paying significant income tax by exploiting loopholes and deductions in the tax code, by borrowing large sums of money, and because the United States emphasizes taxing traditional income over accumulated wealth, such as stocks and real estate. Today's episode was produced by Asla Chaturvedi, Eric Krupke, Luke Vanderpleet, and Nina Potok. It was edited by Dave Shaw, engineered by Chris Wood, and contains original music by Mary Lozano and Dan Powell. That's it for The Daily. I'm Michael Barbaro.

See you tomorrow.