All the background you need on this is here. Reaching a deal on USICA, Congress’s plan to boost American industrial competitiveness with China, wasn’t just a matter of getting the two parties together but getting the two houses together. The Senate passed a bipartisan bill awhile ago but the House countered with its own version, which includes some new taxes. The two chambers have been trying to work out a deal ever since with no luck. But it’s been a top priority for all sides, not just as a matter of national security but because each wants to show voters that they’re tough on Beijing.

Then along came Mitch McConnell, rolling a grenade into the tent:

Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill.

— Leader McConnell (@LeaderMcConnell) June 30, 2022

Democrats can have their new reconciliation bill to reduce prescription-drug prices or they can have a bipartisan USICA bill, but they can’t have both. I’ll quote myself here on the three options that left Biden and his party:

1. Dems could try to pass USICA themselves by folding it into the reconciliation bill, but (a) that might not pass procedural muster with the Senate parliamentarian and (b) it would screw up the delicate revenue/expenditure balance that reconciliation requires of legislation.

2. They could pass reconciliation and give up on USICA, leaving Republicans free to write their own version of the legislation next year when they’re likely to have majorities on both chambers.

3. They could give up on the House version of USICA and pass the Senate version of the bill — which has Republican support — instead.

The House Democratic leadership was asked today about the third option. No way, said Pelosi, recognizing that that would amount to a total cave to McConnell and the Senate:

🚨CHIPS UPDATE — PELOSI and HOYER say they are NOT interested in passing the senate USICA bill.

— Jake Sherman (@JakeSherman) July 13, 2022

The first option would also be extremely dicey for Dems now that Joe Manchin has sounded the alarm on inflation and spending anew. They may or may not be able to convince him to pass a “skinny” version of BBB after today’s gruesome CPI numbers. But they’re certainly not going to convince him to pass a beefed up version that includes USICA, no matter how pissed off Manchin sounds at McConnell’s ultimatum.

Manchin criticizes @LeaderMcConnell for threatening to kill USICA. “That is so wrong… As bad as when progressives in the House held up the infrastructure bill,” he says. “This is the problem with politics.”

He says he won’t “walk away” or be held “hostage” on reconciliation.

— Sahil Kapur (@sahilkapur) July 11, 2022

If doors one and three are closed, Dems have no choice but to open door number two. USICA is dead for now — albeit with an important caveat: The guts of the bill, appropriating $52 billion to jumpstart American semiconductor manufacturing, is very much alive. Biden’s Commerce Secretary, Gina Raimondo, met with senators today urging them to split off the so-called CHIPS funding for semiconductors in the legislation and to pass it as a separate bill. The rest of USICA will, it seems, have to wait for next year’s new Republican congressional majorities.

Cleave off the CHIPS and pass it,” Raimondo said, referring to the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act.

“There’s a real time urgency there, because these chip companies are making their decisions right now about where to expand,” she said, while also raising the importance of the Investment Tax Credits, a roughly $10 billion provision that has broad support in both chambers…

“I talked to a dozen lawmakers in the past 24 hours,” Raimondo said. “I feel like they are coalescing around the path of (passing) CHIPS immediately and then live to fight another day on the rest of it.”

A notable supporter of that idea: Mitch McConnell.

McConnell on USICA legislation: "The conference is stuck. And so it seems to me there are a couple of ways out of this, potentially."

He suggests two options: (1) House passes Senate bill, or (2) "spin off the chips part of it and pass it."

— Sahil Kapur (@sahilkapur) July 12, 2022

Why isn’t Cocaine Mitch willing to hold CHIPS hostage too in the name of tanking reconciliation? Partly politics and partly policy, I assume. Raimondo is briefing senators to drive home to them that every day in which the U.S. can’t meet its own semiconductor needs is a day in which China has us over a barrel, especially if and when they conquer Taiwan. McConnell likes to play hardball with Dems but he’s a hawk and grasps the urgency here, I’m sure. Time is also of the essence for semiconductor manufacturers, some of whom are standing by and waiting for this money to be released so that they can move ahead with production. “I think this is urgent, because if we don’t pass something particularly on the semiconductor side, we’re gonna see investment going overseas,” Rob Portman said this week. “It’s already happening. We had a company that was going to come to Ohio, then it’s gonna go to Texas, now they’re gonna go to Asia.”

Portman represents Ohio in the Senate. As I write this, Intel is ready to spend $20 billion on two semiconductor plants outside Columbus but the delay in passing the CHIPS funding may lead them to delay construction. Which is very risky business for both sides in the Ohio Senate race between J.D. Vance and Tim Ryan, as neither party wants to be seen by Ohio voters as having tanked a new project would have brought thousands of jobs to the state. So McConnell is willing to play ball on CHIPS even if he’s unwilling to do so on the broader USICA bill.

Just one question. Are Senate Democrats willing to pass a standalone CHIPS bill?

Bernie gives USICA's $52 billion for microchip manufacturers a suplex on Senate floor

"Should American taxpayers provide the microchip industry with a blank check of over $50 billion a time when semiconducter companies are making tens of billions in profits?"

"Resounding no"

— Burgess Everett (@burgessev) July 13, 2022

.@ChrisCoons ahead of classified briefing on USICA:

“I think we're going to hear it's absolutely critical that we move forward and then we do the entire bill.”

Says he would NOT support splitting off CHIPS.

— Ylan Q. Mui (@ylanmui) July 13, 2022

Bernie is Bernie but Coons is a close Biden ally. It’s surprising to see him on the other side of Raimondo on this issue. But if McConnell and the GOP support a standalone bill, Coons and Sanders probably don’t matter. CHIPS will pass with a solid Senate majority.

And if it doesn’t, don’t count out Pelosi eventually caving and choosing door number three by passing the Senate version of USICA:

C) However, Fox is told that if negotiators are still stymied at the end of the month, it’s possible the House COULD then explore the option of passing a scaled-down version which would be acceptable to the Senate.

So far, the Senate bill can’t pass the House.

— Chad Pergram (@ChadPergram) July 13, 2022

Punchbowl is hearing the same thing: “As one senior Democratic aide told us, USICA couldn’t pass the House this month. But come August, if all other options are exhausted, it becomes a much different conversation.” Pelosi and Hoyer don’t want to cave to McConnell’s ultimatum immediately, but the likelier it becomes that Republicans will control the House and Senate next year, the less sense it makes for her to refuse to pass the Senate bill. Legislation that was written by Schumer’s caucus and got 19 GOP votes is destined to be more in line with liberal priorities than a bill written by McConnell and Kevin McCarthy. Stay tuned.

Exit question: Now that Manchin is sounding gloomy about new spending amid high inflation again, why don’t Dems choose door number four and ditch reconciliation in order to pass USICA?