The CHIPS and Science Act: What Will It Do for the U.S?

The CHIPS and Science Act: What Will It Do for the U.S?

By Fatty Fish - October 4, 2022

The CHIPS and Science Act of 2022 was signed into law with great fanfare in August of 2022, aimed at restoring the United States as a larger presence in global semiconductor manufacturing after decades of watching U.S. chip making dominance wither and go overseas.

So, what does the U.S. CHIPS and Science Act do for chipmaking in this nation and what will happen next?

The new law promises to help promote U.S. chip production by providing billions of dollars in funding for chip makers for research, development, manufacturing, and workforce development; strengthen supply chains; create new jobs; and to block certain types of chip development in China, which continues to be an untrusted technology presence and power in the eyes of the U.S. government.

For years, the U.S. has been dramatically losing its share of global semiconductor production. In the 1990s, America produced about 37 percent of the world’s chips. Today that number stands at about 12 percent for the U.S., compared to about 75 percent of global chip production coming from east Asia. About 25 percent of that alone is from China. Overall, Taiwan Semiconductor Manufacturing Company (TSMC) of Taiwan manufactures about 90 percent of the world’s semiconductor chips. These disparities are huge and unacceptable for America.

Impetus for the CHIPS and Science Act

The CHIPS (Creating Healthy Incentives to Produce Semiconductors) and Science Act was largely inspired by the onset of the Covid-19 pandemic, which quickly brought community lockdowns around the world as governments tried desperately to contain the deadly virus starting in March of 2020. The lockdowns swiftly showed the delicate nature of the world’s supply chains as manufacturers of everything from appliances to automobiles, trucks, computers, and a myriad of other consumer devices found they could not get access to the thousands to millions of chips they needed for their products. Factories across the nation and around the world were forced to slow or halt production until reliable chip supplies could be found.

The effects were immense. Car and truck sales lots emptied of available vehicles and vehicle prices soared due to the impacts. Used car prices rose dramatically because new vehicles were almost impossible to find, and custom-ordered vehicles continue to take months to be delivered due to ongoing chip shortages. Car and truck makers have even been delivering unfinished vehicles to their dealer networks, with instructions to install the missing chips as supplies arrive later so that the vehicles can eventually be sold. This continues to be an eye-opening situation.

All these scenarios provided the impetus for the bipartisan CHIPS and Science Act because the U.S. found itself flat-footed when the pandemic showed leaders just how unprepared we were for such a global catastrophe.

Targeting the U.S. Chip Production Crisis

With these immense challenges, the CHIPS and Science Act should help reverse these trends and boost American chip production so the nation can provide more of its own chips for a wide range of manufactured goods. Even with the newly passed Act, these issues will not change overnight, but the law is seen as a first step to bringing improvements in the U.S. tech response to the crises.

Here’s how the new CHIPS and Science Act targets these issues:

Funding for chip makers for research, development, manufacturing, and workforce development. About $52.7 billion will be provided to U.S. companies for semiconductor research, development, manufacturing, and workforce development, including $39 billion in manufacturing incentives. Those incentives include $2 billion for legacy chips used in automobiles and defense systems, $13.2 billion in research and development as well as workforce development, and $500 million for international information technology security and semiconductor supply chain improvements. Also provided is a 25 percent investment tax credit for capital expenses for manufacturing semiconductors and for related equipment. The U.S. government is making these investments to also aid military and critical national defense systems.

Strengthening supply chains. By seriously boosting chip production in the U.S., manufacturers here, including in the automotive industry, consumer appliances, suppliers to the military and more will gain access to more localized supply chains here in this country, which aims to make tomorrow’s chip supplies more reliable. These investments of billions of dollars will also improve supply chain security and expand chip supplies to reduce the need for imported chips. About $1.5 billion in funding is also included in the Act for wireless supply chains that promote and deploy technologies using open and interoperable radio access networks to empower the nation’s wireless networks.

Creating new jobs. The CHIPS and Science Act funding will also be used to create tens of thousands of construction jobs to build the new manufacturing facilities that are being slated, as well as paying for thousands of high-skilled manufacturing workers in the new chip fab plants and facilities, according to the Act. The law also mandates that funding recipients demonstrate significant worker and community investments using the money, including providing opportunities for small businesses and disadvantaged communities.

Blocking certain types of chip development in China. U.S.-based chip makers that receive funding under the Act will not be able to use the money to build certain kinds of facilities in China and other countries of concern, such as the Russian Federation, Iran, or North Korea, due to issues of national security and sensitive geopolitical disagreements. Forbidden investments using the funding will include any sensitive technology or product as determined by the U.S. Secretary of Commerce.

Analysis and Overview of the CHIPS and Science Act

It is hard not to be excited about these new initiatives, especially as we come out of a global health crisis that clearly revealed the deep and delicate cracks in our existing national technology ecosystem.

While CHIPs and Science Act is not a magic bullet or one that will immediately solve our challenges, we see it as an important step forward. By building new American-based chip making infrastructure and by funding these related job and R&D incentives, the U.S. government is taking positive and direct steps to help our nation again secure a bigger share of the critical chip market, while better supplying manufacturers here with the chips they need.

This won’t be an easy process, nor will it happen overnight, but within a few years we should begin to see real benefits of these sizable and responsible investments in chip making.

While a global pandemic may have inspired these critical actions, the long-term impacts will be incredibly beneficial for the U.S. as a whole and will outlast Covid-19 and its legacy. The CHIPs and Science Act funding is an important step in helping to refresh America’s importance in the world as a chip producer, and is a momentous first step toward progress, which is right where this country should be.

Disclosure: Fatty Fish is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.