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Biden’s $100 Billion Chip Bet Caught Up in Arizona Union Showdown

Biden’s $100 Billion Chip Bet Caught Up in Arizona Union Showdown

(Bloomberg) -- High-stakes labor showdowns are putting President Joe Biden’s administration in between the companies central to his economic vision and the workers he’s promised will reap the rewards of a US manufacturing renaissance.

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It’s not just in the United Auto Workers strike, where Biden took a side on Tuesday by joining the picket line in Belleville, Michigan. One of the key issues in the union’s clash with the Big Three automakers is pay and workplace conditions at a slew of new electric-vehicle battery plants that will enable the White House’s climate and industrial goals.

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Far from suburban Detroit, a less splashy confrontation is unfolding, with similar cross-pressures: Unions in Arizona are negotiating with the world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Co., on a resolution for labor issues that have dogged TSMC’s Phoenix construction site — a flagship project of Biden’s effort to make more critical electronic components in the US.

The talks pit swing-state labor unions, who’ve raised concerns about safety and training, against a company that is already struggling with the project’s speed and expense, especially compared to a similar site in Japan. TSMC is widely expected to be among the initial recipients of funding from last year’s Chips Act, which set aside semiconductor subsidies worth $100 billion.

Read More: Ex-Bankers Help Divvy Up $100 Billion to Boost US Chipmaking

The dispute involves union construction laborers getting the site ready for production, not workers who will eventually manufacture the chips. The Arizona Building and Construction Trades Council, a coalition of unions whose members include a quarter of the 12,000 workers onsite, is seeking a binding contract known as a project labor agreement, which would spell out how the parties would address safety, training and other issues as they arise.

But the trades council — which wants to wrap up talks before TSMC breaks ground on a second site, and before Chips Act money is doled out — says they have yet to make any meaningful progress.

“We’re just disappointed that we’re not any closer today than we were when we started talking to them a few weeks ago,” said spokesperson Brandi Devlin.

TSMC, in response to a detailed list of questions for this story, said in a statement that they “keep an open channel of communication with all our construction partners, and that includes the unions.” The firm did not comment on specific worker complaints, potential Chips Act awards or the status of union talks.

Even if the two sides can reach an accord, contractually binding or otherwise, there are still more hard questions for the Biden administration: If it gives Chips Act subsidies to TSMC, it will have to decide how to hold the company accountable to its workforce pledges – and whether to pull federal support if the company doesn’t hold up its end of a deal.

Read more: Bidenomics Threatened by Trying to Meet Too Many Goals at Once

For Biden, a wrong play of his hand could have political consequences: He carried Arizona in the 2020 election by about 10,000 votes. TSMC’s facility is located in Maricopa County, a crucial battleground area.

“This is gonna be a long-term project and it’s going to impact our region,” Devlin said. “It’s going to impact construction jobs throughout the state of Arizona.”

The mess underscores how Biden’s industrial policy push — the country’s most significant since World War II — doesn’t always tidily fit together with his efforts to spur a labor revival.

“We’ve frequently engaged with labor stakeholders working to build semiconductor fabs,” White House spokesperson Robyn Patterson said in a statement, “and we will continue to be aggressive in pushing companies to meet their commitments to the hard-working Americans revitalizing American semiconductor manufacturing.”

Delayed Production

The alarm bells first reached Washington in July, when TSMC Chairman Mark Liu said the company was delaying the start of production at its Arizona site to 2025 because of a skilled labor shortage.

Liu said that Arizona lacks specialized workers who can install TSMC’s most advanced equipment, leaving the company with no choice but to bring a small number of technicians from Taiwan who will also train people in Phoenix. (TSMC’s key equipment supplier, Dutch company ASML Holding NV, has also cited a shortage of construction workers who have experience building advanced chip plants in the US.)

Arizona labor groups scoffed at that claim, with the trades council president, Aaron Butler, pointing out in a July op-ed that local construction workers have been building similar facilities for more than two decades, only about 50 miles away, for American component maker Intel Corp.

“Intel’s long-standing partnerships within the state have allowed us to successfully attract and retain the necessary workforce to complete our projects safely and on schedule,” said a spokesperson for Intel, which produces chips that lag behind its Taiwanese peer. Intel declined to comment on whether it has a formal project labor agreement like the one unions are seeking with TSMC.

In response to TSMC’s delay announcement, the Arizona local of the national pipe trades union, which belongs to the trades council, started a petition asking lawmakers to bar Taiwanese workers from getting US visas. The petition has been taken down since the company and unions have begun negotiations. Those talks, the national pipe trades union said on Thursday, are set to “yield a win-win-win outcome” for the laborers, construction firms and TSMC.

Worker Woes

Yet the foreign-worker issue is hardly the only point of contention.

One union electrician, who asked to remain anonymous to preserve professional opportunities in the region, described the site as unsafe and disorganized, with constantly shifting deadlines and basic wiring mistakes.

Bill Ruiz, political representative of the carpenters’ union local, spoke positively of the project’s economic impact and safety record. But the site initially struggled with too many subcontracting units that couldn’t coordinate on simple tasks, he said, pointing out that things have recently improved.

Senator Mark Kelly, an Arizona Democrat, has met with local labor leaders, his office says, and raised workers’ concerns directly with TSMC leadership, in Phoenix and on an April trip to Taiwan.

TSMC said in its statement that the company’s “recordable safety incident rate is nearly 80% lower than nationally reported figures, and its lost-time incident rate is nearly 96% lower,” citing safety data from the Arizona Division of Occupational Safety and Health, or ADOSH, and US Bureau of Labor Statistics.

A similar TSMC project in Japan, another nation intending to make more chips at home, is going comparatively smoothly, with construction happening around the clock and the first government subsidies already out the door.

Ongoing Negotiations

Arizona Governor Katie Hobbs’ message on a recent trip to Taipei was upbeat: “We’re working through those issues with the unions,” she said, and investing in the state’s skilled workforce. Her office last month announced a voluntary safety agreement with TSMC that involves manager training and more regular ADOSH visits, plus a separate apprenticeship initiative.

That safety agreement is a good first step, Devlin said, but what Phoenix unions really need is a project labor agreement, or PLA. (There is at least one other PLA governing a chip construction site, at Micron’s megafab in New York.)

That TSMC and the unions are talking is a significant development, a Commerce official said, adding that representatives of the department have gone to Arizona twice over the past month, speaking with union leaders and others as part of a broader effort to visit as many states as possible. The Biden administration is committed to labor protections on those sites, several officials said, pointing to mandates for workforce continuity and child-care plans from companies seeking Chips Act funds.

PLAs are encouraged but not required to tap the subsidy pool. But if a project has one, companies should expect award language holding them accountable to those commitments, a senior Commerce official said without commenting on TSMC in particular. Firms will be subject to detailed metrics and reporting requirements, the department said, as well as federal employment laws.

That leaves a lot to be determined: Chips Act money will be paid out in tranches based on company-specific benchmarks, and can be withheld or even clawed back if firms fall short. TSMC is one of the only companies that produces the advanced chips Biden wants made on American soil — giving the firm, whose founder has publicly derided organized labor, significant leverage in negotiating those terms.

Biden’s 2024 Pitch

TSMC’s site is just one node of a growing industrial ecosystem in Arizona, fueled by both a local push and the federal policy trifecta — across chips, climate technology and infrastructure — that the White House has branded Bidenomics.

In the last year, more than 30 chip supply chain companies have come to the state, Hobbs said in Taipei. The White House points to more than $70 billion in private manufacturing investments in Arizona since Biden took office. Arizona State University just won nearly $40 million from the Pentagon for an advanced prototyping semiconductor hub.

That growth, and the jobs it promises to create, are key to Biden’s pitch to voters. When he toured TSMC’s site in December, Butler of the trades council stood by his side. “There’s a manufacturing boom happening,” Ruiz said in a Labor Day ad for the president, “and it’s thanks to Joe Biden.”

There are few places more important to sell that message than Maricopa County, a major population center in a swing state.

“There’s some credit in terms of the Chips Act,” said Kevin Hartke, the mayor of Phoenix suburb Chandler, Arizona, of Biden’s economic pitch. “There’s also the inflation that we’ve seen, and some of the other issues that people may ascribe at federal levels.”

As for what that means for the presidential election, “federal politics is so fickle,” Hartke said, before asking, jokingly, whether he’d successfully avoided answering the question.

--With assistance from Jane Lanhee Lee, Debby Wu, Ian King, Yuki Furukawa, Josh Eidelson and Keith Naughton.

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