Biden Signs the $280B CHIPS Act in a Major Boost to U.S. Semiconductor Manufacturing
The CHIPS and Science Act is one of those rare instances where legislation had bipartisan support, unlike the ongoing debate on several privacy-related regulations.
On August 9, President Joe Biden enacted the CHIPS and Science Act by signing it into law, making the U.S. government’s stance on the revival of domestic semiconductor production official. The new legislation entails incentives of up to $280 billion, a part of which will help fuel chip manufacturing in the U.S.
Precisely $52.7 billion of the total $280 billion earmarked for incentives is for incentivizing semiconductor manufacturing, $39 billion of which is earmarked as manufacturing incentives, $13.2 billion for R&D and workforce development, and the remaining $500 million for semiconductor supply chain activities.
The new legislation, an acronym for Creating Helpful Incentives to Produce Semiconductors for America Act, also entails a 25% investment tax credit for capital expenses for manufacturing semiconductors and related equipment.
“America invented the semiconductor, but today produces about 10 percent of the world’s supply—and none of the most advanced chips. Instead, we rely on East Asia for 75 percent of global production,” noted the White House.
“The CHIPS and Science Act will unlock hundreds of billions more in private sector semiconductor investment across the country, including production essential to national defense and critical sectors.”
The CHIPS and Science Act is one of those rare instances where legislation had bipartisan support, unlike the ongoing debate on several privacy-related regulations. It was put to the vote in Congress last week, passing with a 64-33 margin in the Senate and a 243-187 margin in the House.
The need for domestic production became apparent as the semiconductor shortages hit due to supply chain woes caused by COVID-19-necessitated lockdowns, wiping out 1% of the U.S. GDP in 2021 and impacting the production of washing machines to cars, and defense equipment.
Moreover, China’s economic, trade, and military ambitions rang alarm bells in several quarters of the U.S. government. In terms of GDP, China is presently the only major rival to the United States’ $22.99 trillion economy.
See More: Loss of Access to Taiwan’s Chips May Kickstart a Recession, Commerce Secretary Warns
Located just 110 miles from China and facing a threat of invasion, Taiwan houses some of the biggest semiconductor manufacturing companies in the world. It is responsible for approximately 64% of the global semiconductor revenue in 2021. U.S. commerce secretary Gina Raimondo warned in July that disruption in the supply of Taiwanese chips could push the U.S. into recession.
As such, the CHIPS and Science Act is a way to pull back part of the global $555.9 billion semiconductor industry while China deals with corruption in its chipmaking industry. Ding Wenwu, chief executive of the China Integrated Circuit Industry Investment Fund, and at least three other top executives associated with the Chinese state-owned semiconductor fund, were charged with corruption and arrested late in July.
Singed off by premier Xi Jinping, these funds were intended to foster chip design and development in China. Similar government funding efforts led to the rise of semiconductor giants in various countries, such as Taiwan’s TSMC, Netherlands’ ASML, South Korea’s Samsung, as well as Qualcomm, AMD, Intel, and NVIDIA in the U.S.
However, China’s efforts haven’t fetched desired technological results and instead led to corruption in the ranks and subsequent arrests. Additionally, the CHIPS Act could prove even more frustrating for China, given its biggest tech company, chip designer-cum-manufacturer Huawei, is reeling from sanctions imposed by the U.S.
How the incentives under the CHIPS Act will be handed out remains unclear. The U.S. Department of Commerce will likely handle the task.
Biden signed the CHIPS and Science Act in the presence of executives from Micron, HP, Lockheed Martin, and Intel. Micron announced a $40 billion investment through the end of the decade for U.S-based manufacturing. Meanwhile, Qualcomm and GlobalFoundries announced a $4.2 billion partnership to boost semiconductor production in the latter’s New York facility.
Samsung and Intel have previously announced multi-billion USD investments in chip manufacturing plants in Texas and Arizona, and New Mexico, respectively.
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