CHIPS Act – What Does it Really Mean?

In August of 2022, the CHIPS Act was signed into law becoming the largest government intervention of its kind. The “why” of the initiative is easy to understand. Chips or semiconductors are what makes all modern technology a reality. The US, while still the leader in the world’s semiconductor design arena, has dwindled its semiconductor manufacturing share from nearly 40% in the 1990s to a mere 12%.  And most alarming, the US manufactures NO leading-edge semiconductors domestically causing concern for national security.

How did this happen?

Staying on the leading-edge requires huge capital investments and historically semiconductor advancements have been financed solely by the private sector. In the 1990s the “foundry”, a company which only manufactures chips for other companies, began to get traction in Asia. At first foundries were two to three generations behind leading-edge. Over the years, several key foundries became elite semiconductor manufacturers and US companies decided to forgo enormous investments in manufacturing facilities by moving production to Asia. Today 75% of the world’s semiconductors are manufactured in East Asia and a whopping 90% of the most advanced semiconductors are produced by a single Taiwanese company, TSMC.

The China Issue

The CHIPS Act has, in part, been spurred on by the Chinese government’s large subsidies and declaration to achieve 70% self-sufficiency and a dominant position in the global semiconductor market. Since 2015, the Chinese government has allocated at least $180 billion in support of semiconductor technology. More than seventy new fabs have been or will be funded by the Chinese government through a range of support measures, including direct subsidies, equity investments, reduced utility rates, favorable loans, tax breaks, and free or discounted land.

With the signing of the CHIPS Act, the Biden administration rolled out strict measures against China for two reasons. The first reason, the US and most developed countries worry China is weaponizing semiconductors for destructive purposes such as the recent the surging cyber-attacks from Chinese state-sponsored hackers. Second, the US is also concerned about China’s use of semiconductors or chips for military purposes.

What is the CHIPS Act?

According to the Biden Administration the CHIPS Act  will “strengthen American manufacturing, supply chains, and national security, and invest in research and development, science and technology, and the workforce of the future to keep the United States the leader in the industries of tomorrow, including nanotechnology, clean energy, quantum computing, and artificial intelligence.”

This is how it breaks down…

The CHIPS Act directs $280 billion spending over the next ten years.

1. The majority – $200 billion – is earmarked for scientific R&D and commercialization.
2. Some $52.7 billion will be invested over the next 5 years to expand of domestic manufacturing of mature and advance semiconductors, drive R&D and workforce development
   1. $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems
   2. $13.2 billion in R&D and workforce development
   3. $500 million to provide for international information communications technology security and semiconductor supply chain activities, such as research and design, packaging, and distribution

3. Given the $20+ billion price tag on today’s semiconductor manufacturing facilities, private investment is paramount. Therefore, under the CHIPS Act, taxpaying entities will receive a 25 percent tax credit for investments in semiconductor manufacturing and process equipment estimated at $24 billion.
4. $3 billion is slated for programs aimed at leading-edge technology and wireless supply chains.