CHIPS and Science Act Spurs Semiconductor Investments

The US Senate voted 64 to 33 in favor of passing the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act. Parallel legislation passed in the House of Representatives on the same day and the bill was sent to the White House for signature by President Biden. The Act earmarks almost $250 billion in investment for domestic semiconductor manufacturing and for research in the fields of artificial intelligence (AI), cybersecurity, and quantum computing. According to CNBC,

Advocates say [the Act] is vital for the U.S. to boost its production of semiconductors, which are increasingly critical components in a vast array of products including consumer electronics, automobiles, health care equipment and weapons systems. Biden also has blamed the chip shortage for the sky-high inflation that has dogged his presidency. A lack of chips available for new car manufacturing has been linked to soaring prices for used cars, which are pushing inflation higher. The chips have been in short supply during the Covid-19 pandemic. Factory shutdowns at the beginning of the outbreak sidelined chip production in Asia while consumer demand for autos and upgraded home electronics that need the chips surged during the lockdowns. The U.S. share of global chip production also has fallen sharply in recent decades, while China and other nations have invested heavily in the industry.

According to the Financial Times,

Washington has been concerned about US reliance on microchips made in Taiwan for years, but the unease has been exacerbated over the past 12 months by China’s increasingly aggressive behavior around the island.

And as the New York Times notes,

With concerns growing about China’s economic and technological ambitions, the bill includes strict new guardrails for firms considering expanding into China. Chip manufacturers that want to take U.S. funding cannot make new, high-tech investments in China or other “countries of concern” for at least a decade — unless they are producing lower-tech “legacy chips” destined only to serve the local market.

However, some have questioned whether the Act might actually make things worse. An editorial in Bloomberg asked whether the Act might be a “boondoggle” and suggested that further action is needed:

As it stands … this vast new splurge is unlikely to be cost-effective. To make the most of it, Congress needs to act on two fronts. First, the US simply does not have the workforce to sustain this new capacity. About 40% of high‐skilled semiconductor workers in the US were born abroad. Since 1990, the number of foreign-born students in relevant graduate programs has nearly tripled. Yet current immigration policy makes it exceedingly difficult to retain this talent, while the US education system isn’t producing enough domestic graduates with appropriate skills…. A second challenge is that so much money will be difficult for the chip industry — already awash in record profits — to productively absorb.

As the Financial Times notes,

The industry has pointed out that many other countries subsidize chipmaking or are planning to do so. Germany, for example, has announced it will fund 32 semiconductor projects using a €10bn fund it announced in May. Japan has approved $6.8bn in funding for domestic semiconductor investment.