Chipmakers like TSMC and Intel are investing billions of dollars into new factories to boost production, but it takes time to build those factories, and new supplies will come too late to help automakers in 2021. Handout.

The US Congress has finally passed the CHIPS Act, approving subsidies for the American semiconductor industry and opening the way for the construction of new factories by Intel, TSMC, GlobalWafers and other companies whose investment plans are contingent on those subsidies. US President Joe Biden is expected to sign it without delay.

The legislation provides US$52.7 billion in financial incentives plus a 25% tax credit for investments in the production of semiconductors and the equipment used to make them.

The financial incentives break down as follows:

  • $50 billion allocated over five years to expand domestic manufacturing capability, fund R&D and support workforce development programs. Of this, $39 billion is for “legacy” chip production for the auto, defense and other important industries, and $11 billion for R&D and workforce development
  • $2 billion for defense-related R&D and semiconductor workforce training
  • $500 million to coordinate with foreign governments in support of information and supply chain security for semiconductor, telecom and other advanced technologies
  • $200 million to educate people in the skills required to work in the facilities created by the manufacturing incentives. It is estimated that the semiconductor industry will need an additional 90,000 trained workers by 2025

“Legacy” chips are semiconductors made with established technologies, most of which are now sourced from Taiwan and elsewhere in East Asia. Dependence on Taiwan is now seen as high risk.

John Neuffer, president and CEO of the US Semiconductor Industry Association (SIA), stated that:

“By passing the CHIPS Act, Congress has risen to a defining challenge of our time, seized an historic opportunity to fortify American semiconductor manufacturing, design, and research, and delivered a big win for our country. The bill’s investments in chip production and innovation will strengthen America’s economy and national security – both of which rely heavily on chips – and reinforce our country’s semiconductor supply chains.”

US chipmaker Intel will get a boost from the CHIPS Act. Image: The Conversation

The SIA press release went on to note that:

“These investments will create hundreds of thousands of American jobs, spur hundreds of billions of dollars in chip company investments in the U.S., and ensure more resilient chip supply chains for key manufacturing industries in the U.S. and for the national security community.”

Ajit Manocha, president and CEO of global semiconductor equipment and materials industry association SEMI stated that:

“The investment tax credit and funding for CHIPS Act programs will be instrumental in bolstering semiconductor manufacturing and R&D along with a wide range of technology-reliant U.S. supply chains, create thousands of high-skill jobs, and keep pace with incentive programs around the world.”

“With semiconductor manufacturing fabs heavily reliant on a complex mix of equipment and materials providers, the inclusion of these critical contributors in the incentives will help to ensure the competitiveness and resiliency of the US semiconductor ecosystem.”

Manocha was previously CEO of GlobalFoundries, a multinational semiconductor contract manufacturer headquartered in New York. SEMI is headquartered in California.

The phrase “keep pace with incentive programs around the world” refers to the end of what has in effect been a laissez-faire approach that left the American semiconductor industry to fend for itself in competition with the national industrial policies of Taiwan, South Korea, Japan and China. In other words, if you can’t beat them, join them.

The SIA points out that “The share of modern semiconductor manufacturing capacity located in the US has decreased from 37% in 1990 to 12% today.” To reverse this trend requires an effective industrial policy. The CHIPS Act is a good start.

Recipients of funds are prohibited “from expanding or building new manufacturing capacity for certain advanced semiconductors in specific countries that present a national security threat to the United States.” That means China.

Foreign companies may participate, but not companies linked to the Chinese military.

Subsidies for the semiconductor industry are part of a larger $280 billion bill called the Chips and Science Act of 2022. Most of the money not spent on semiconductors will be allocated to research and innovation in a wide range of fields including

  • Energy sciences and technologies
  • Carbon storage and geologic computational science
  • Biological and environmental research
  • Biochemistry and other chemical sciences
  • Biological threat preparedness
  • Nuclear physics, high energy physics, fusion energy
  • High-intensity lasers
  • Nanoscience
  • Quantum computing
  • Open-architecture, software-based wireless communications

Funds will also be allocated to improve the research capabilities of universities, establish regional technology hubs and enhance research security.

It took Congress more than a year to compose and agree on the legislation, but the resulting commitment to advanced science, technology and manufacturing should lay the groundwork for long-term improvement in American competitiveness. What matters now is the follow-through.

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