Jason Miles
CHIPS Act Chip Funding Spurs Massive Interest in Rebuilding US Semiconductor Leadership
The United States government has dedicated $52 billion in subsidies to catalyze domestic semiconductor research, development and manufacturing under the CHIPS and Science Act. This historic investment has already attracted enormous interest, with over 460 applicants spanning chip producers, equipment makers, materials suppliers, research institutions and more.
The funding aims to rebuild America’s strategic chip fabrication capabilities after decades of attrition, boost innovation, and enhance supply chain resilience. Bolstering homegrown chip production capacity is viewed as vital for both economic competitiveness and national security.
Eroding US CHIPS Act Manufacturing Dominance Raises Alarm Bells
Semiconductor chips provide the fundamental brains within electronics products and systems. However, decades of offshoring have eroded America’s once dominant position in chip fabrication.
The US share of global chip manufacturing capacity has steadily declined from 37% in 1990 to just 12% as of 2020. This sharp erosion seeds vulnerabilities, as America now relies heavily on imported chips, especially from Taiwan.
With Taiwan supplying over 60% of semiconductors, its geopolitical friction with China jeopardizes US chip access long-term. A potential Chinese attack or blockade of Taiwan could severely disrupt the global chip supply chain.
China Mobilizes Billions to Achieve Semiconductor Dominance
Meanwhile, China is dedicating over $150 billion to develop its domestic chip industry, eyeing self-sufficiency and primacy in the sector. This poses risks as China aims to compete directly with the US in next-generation technologies enabled by advanced semiconductors.
Fears of China acquiring capabilities that could undermine American interests have already prompted US export controls on Chinese chip firms. The CHIPS Act funding aims to double down on strategic investments that preserve America’s innovative edge.
Chip Manufacturing Requires Multi-Billion Investments
Building new semiconductor foundries demands billions in capital investment along with highly specialized engineering talent. Constructing an advanced chip fabrication facility in the US costs upwards of $15 billion – 30-50% more than plants in Taiwan or South Korea.
Once built, plants also require expensive ongoing upgrades to iteratively advance manufacturing processes and produce new generations of higher-performing chips. Government incentives help defray the immense upfront risks associated with such complex, capital-intensive projects.
CHIPS Act Subsidies and Tax Credits Entice Domestic Chip Investments
The CHIPS Act provides an initial $39 billion in semiconductor manufacturing subsidies, plus $13.2 billion for research and development. Recipients are required to prove long-term viability and beneficial economic impact.
An additional $24 billion investment tax credit allows chip makers to deduct 25% of costs related to building new fabrication plants on American soil. This credit makes domestic investments more appealing.
Together, direct subsidies and tax breaks aim to entice chip makers to expand their US manufacturing footprints after years of offshoring production overseas.
Projected Job Growth and Broad Economic Benefits
Increasing US global chip production from 12% to 25% could create 280,000 new semiconductor manufacturing jobs and spur positive ripple effects across related industries.
America will benefit from chip research in areas like AI, quantum computing, biotech and more. This compounds economic gains.
Enhancing supply chain resilience through chip production diversification also promises security and cost benefits across electronics industries heavily reliant on semiconductors.
Prudent Oversight Needed to Safeguard Public Funds
While interest in the CHIPS Act funding runs high, the government must exercise judicious oversight on several fronts:
- Ensure subsidies are awarded based on rigorous assessments of applicant viability and potential public benefits. Avoid misallocating resources.
- Balance roles as funder and regulator. Guard against market distortions or foreign policy conflicts arising from subsidies.
- Monitor for unintended consequences related to environment, trade, jobs, prices, and geopolitics. Intervene cautiously.
- Maintain realistic expectations on timeline given long ramp-up for capacity expansion. Manage stakeholder frustrations.
- Remain nonpartisan. Make objective decisions and structure programs to sustain over time across administrations.
CHIPS Act Sets Long-Term Semiconductor Leadership in Motion
Fulfilling the CHIPS Act’s vision will require years more sustained investment between government, academia and industry. But the heavy early interest marks a promising start to restoring America’s strategic chip capabilities after decades of deterioration.
Policymakers maintain this reboot is vital for both US global technology leadership and national security interests. While benefits will accrue gradually, the $52 billion down payment plants important seeds for shaping America’s semiconductor future.
With meticulous oversight and prudent allocation of public funds, the country can capitalize on the enthusiasm to rebuild the vibrant, self-reliant domestic chip ecosystem needed to power US innovation and competitiveness.
FAQ’s
What is the CHIPS Act?
The CHIPS and Science Act provides $52.7 billion in subsidies, grants, and tax incentives to stimulate semiconductor chip research, development, and manufacturing in the United States.
What are the benefits of the CHIPS Act?
The funding is projected to create nearly 280,000 US jobs, catalyze innovation, strengthen supply chain resilience, enhance national security by securing domestic access to advanced chips, and spur economic growth across related industries.
What companies are eligible for CHIPS Act funding?
Over 460 companies across the semiconductor supply chain have applied, including chip designers, manufacturers, equipment makers, materials suppliers, foundries, and research entities. Applicants must prove financial viability.
How much money is available in CHIPS Act subsidies?
The Act includes $39 billion in semiconductor manufacturing subsidies ranging from 5-35% of project costs. There is also $24 billion in investment tax credits for chip fabrication plants.
Why are semiconductors a national security issue?
US military systems rely on advanced microelectronics. Unless China’s goal of dominating next-generation chips is achieved, it poses risks to US interests and technological superiority.
How does the CHIPS Act impact US-China relations?
The funding is designed to counter China’s own massive semiconductor investments and protect US competitive advantage. Ongoing tensions with China add urgency to securing domestic chip supplies.
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