Above: A look inside Intel's massive Hillsboro, Oregon microprocessor facility. Source: Intel Corp
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After three years of uneven progress toward overhauling the U.S. semiconductor supply chain, Congress has passed the CHIPS for America Act, with the bill signed into law August 9th, 2022. This article explores the reasons for the Act and its advantages and disadvantages for American manufacturers.
Evolution of the CHIPS Act
The Act started as a bill intended as a push from both major parties to strengthen U.S. manufacturing and research. Unfortunately, the parties disagreed on policy toward China. However, concern over the United States’ dependence on Asia for semiconductors continued to spur the development of the legislation.
Through three administrations, China’s increasing influence has sparked fear in both legislative bodies and the White House. While aiming for a similar outcome, the two parties addressed the issue differently, but the pressure of chip shortages and broken supply chains forced an agreement on the legislation.
Related: Top 10 Semiconductor Manufacturers in the U.S.A.
Specifics of the Act
The legislation is an initial $52 billion package designed to address three areas. It provides incentives and funding to domestic semiconductor manufacturing. An essential provision grants a tax credit through 2026 for equipment or capital investment in semiconductor facilities.
While the long-term costs of the bill are not yet established, the Government Budget Office projects the final price tag at $79 billion over the next decade. Observers expect the release of a more thorough analysis soon, but with the reallocation of existing funds, the final total could rise as high as $280 billion.
The Act provides 4.2 billion in tax credits for:
● Military initiatives
● Innovation
● Domestic 5G technology
Another aim of the Act is to reach a meeting of minds with foreign governments. To achieve this, the U.S. will establish a trust fund to:
● Encourage consistency in microelectronics policies.
● Promote transparency in microelectronics supply chains.
● Help align policies toward trade outside the market system.
The many portions of the Act use different approaches to boost the U.S. in the global semiconductor market.
Industry-Specific Benefits of the CHIPS Act
A notable provision of the Act is allocating $50 billion for U.S. chip manufacturers. Of that, $39 billion goes toward building and updating facilities. The legislation earmarks the remaining $11 billion for research and development.
Under the “Advanced Manufacturing Investment Credit,” the Act also provides a 25% tax benefit for U.S. semiconductor manufacturing.
For the Critical Industries Manufacturing Fund, the act provides $45 billion over six years for new supply chains.
The Act also takes some of the burden of research and development from manufacturers’ shoulders. It provides that The National Institute of Standards (NIST) will pursue an R&D program to accelerate the production of the next chip generation. NIST must create a Manufacturing USA Institute to further those aims.
Furthermore, the Commerce Department will match state incentives to build semiconductor fabrication facilities. Commerce will also assess the capabilities of the U.S. semiconductor industry to support national defense. The Defense Department will prioritize semi-conductor-related programs.
The Act’s support of the semiconductor industry will bring high-skill jobs back to the United States. In addition to supporting defense industries, it’s expected to affect the cost of diverse items from smartphones and PlayStations to refrigerators and vacuum cleaners. Lower costs will make “Made in the USA” more competitive at home and abroad.
The Act will address, over time, the suffering of the automotive industry under the chip shortage. While vehicle demand is high, production is hobbled for lack of crucial parts. Once a minor component, lack of chips is now the biggest hurdle on the road to the dealership. Products that lack national attention, such as dog-washing booths, will also benefit from the increased availability of chips.
Helping U.S. Manufacturers Move Forward
By providing tax credits for innovation, the CHIPS Act will push the U.S. industry to the tip of the global electronic spear. Maryam Rofougaran, CEO of a startup, Movandi, says companies like hers are creating the technology of tomorrow and that it is critically important to have stable, reliable manufacturing partners and a resilient supply chain. Moreover, making chips in the U.S. will help companies get them consistently and will create good-paying jobs which is good for the economy.
What Industry Groups are Saying
Industry groups enthusiastically weigh in on the CHIPS Act. He adds, “Our industry will continue to partner with the U.S. government and communities across the country as the measure is implemented.”
Industry sees this legislation as a large step forward in the digital age.
Potential Downsides of the CHIPS Act
While many government and industry leaders may be throwing their hats in the air, not everyone agrees. Democratic socialist, Bernie Sanders, senator from Vermont, as well as many in conservative ranks, have a different view of the act. They perceive the large price tag as “corporate welfare.” They believe the bill is the result of powerful interest groups hanging the little guy out to dry. Large corporations with existing contracts could use the Act to gain an advantage over smaller companies. Both positive and negative long-term effects of the Act on consumers and the economy will emerge in years to come.
Keeping Up
In a time of procurement uncertainty, current industrial data becomes increasingly important to effective sourcing. IndustryNet offers a wide breadth of accurate information on the capabilities of U.S. manufacturers. Fingertip accessibility to the entire supply chain begins here.
Article Sources:
https://www.bloomberg.com/news/articles/2022-02-04/house-to-pass-china-competition-bill-boost-u-s-chip-production
https://www.congress.gov/bill/116th-congress/house-bill/7178
https://www.commerce.senate.gov/2022/8/view-the-chips-legislation
https://finance.yahoo.com/news/chips-bill-advances-in-senate-heres-whats-in-the-79-b-legislation-161413736.html
https://www.cnbc.com/2022/08/02/after-chips-act-us-has-long-road-to-rival-asia-in-semiconductors.html
https://www.eetimes.com/architect-of-chips-act-speaks-on-its-impact/
https://techcrunch.com/2022/07/27/u-s-senate-advances-chip-funding-bill-to-encourage-local-semiconductor-manufacturing/
https://time.com/6200728/chips-act-congress-supply-chain/
https://www.fedscoop.com/it-and-tech-industry-groups-applaud-passage-of-semiconductor-chips-act/
https://apnews.com/article/inflation-technology-congress-government-and-politics-7993ca0bb5e31d0f2141d0c2b349f370
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