The CHIPS and Science Act, approved in August 2022, aims to boost United States innovation and competitiveness with a $280 billion investment in new microprocessor manufacturing and R&D facilities, high-tech hubs, and a diverse STEM workforce.
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What is the CHIPS and Science Act?
The CHIPS and Science Act of 2022 is a law passed by the United States government in August 2022 that provides funding and incentives to boost semiconductor research, development, and manufacturing in the U.S. The Act allocates around $52 billion to support semiconductor manufacturing and research and around $200 billion more for investments in semiconductor and scientific research, technology, education, and training.
Objectives
The Act aims to fund and implement the semiconductor programs authorized by the 'Creating Helpful Incentives to Produce Semiconductors' (CHIPS) for America Act of 2021, which includes developing domestic semiconductor manufacturing to reduce dependence on foreign sources.
The CHIPS and Science Act seeks to boost R&D spending, particularly in critical fields, by authorizing the largest-ever five-year investment in public R&D in the U.S. It also establishes technology hubs to increase participation from underrepresented populations and regions.
Why Was the CHIPS and Science Act Published?
The CHIPS and Science Act was introduced in response to the decline in domestic semiconductor production and the vulnerability of the global supply chain.
Over the past few decades, there has been a steady migration of semiconductor manufacturing capabilities offshore, with the U.S. share of global semiconductor fabrication declining precipitously from around 37% in 1990 to only 12% today.
This heavy reliance on overseas production has left the U.S. semiconductor supply chain overly vulnerable to disruptions, as became evident during the COVID-19 pandemic when shortages badly impacted industries from autos to consumer electronics. With semiconductors being essential to defense systems and critical infrastructure, the lack of domestic production capacity also presents worrying national security implications.
The Act seeks to alleviate supply chain bottlenecks by increasing domestic capacity, addressing shortages, and maintaining the U.S.'s technological leadership in emerging industries.
What Are the Main Goals of the CHIPS and Science Act?
The first goal of the CHIPS and Science Act is to reduce the risk of disruptions in the semiconductor supply chain from foreign shocks, particularly in East Asia. It aims to diversify manufacturing locations, enhance supply chain resilience, and address potential bottlenecks in semiconductor production. Additionally, it encourages collaboration between the government and the private sector to improve demand planning and logistics to avoid damaging shortages during crises.
The second goal is to bolster America's long-term economic competitiveness by investing in semiconductor manufacturing. The Act aims to create high-paying domestic jobs, support the semiconductor sector's critical role in the global economy, strengthen U.S. semiconductor firms, maintain technological leadership, and counter East-Asia competition.
The third goal is to improve semiconductor security by establishing open standards and best practices, collaborating with industry and international partners to create a trusted supply chain, and addressing remote and covert threats of sabotage.
How Does the CHIPS and Science Act Measure Up Against Other Initiatives?
The US CHIPS and Science Act, the E.U. Chips Act, China's "Made in China 2025" plan, and South Korea's K-CHIPS Act aim to strengthen their semiconductor industries and enhance supply chain resilience. However, they differ in funding sources and scope.
The U.S. Act provides $52.7 billion in new funding, while the E.U. Act relies on existing programs and member state contributions. The U.S. Act focuses on first-of-a-kind facilities and workforce development, while the E.U. Act prioritizes leading-edge manufacturing and innovation.
South Korea's K-CHIPS Act offers tax incentives for facilities investment and R&D, aiming to create a large semiconductor cluster with Samsung's significant investment. Meanwhile, China has heavily invested in its semiconductor sector under its "Made in China 2025" plan.
Additionally, the E.U. expedites permitting for supported facilities, ensuring rapid construction while meeting rigorous sustainability and environmental standards—a critical advantage in the competitive semiconductor industry.
The CHIPS and Science Act and the Future of U.S.'s Chip Economy
The CHIPS and Science Act of 2022 has significantly impacted the U.S. chip economy, attracting major commitments from chipmakers and encouraging substantial investments in semiconductor manufacturing.
As a result, chip manufacturing giants such as Intel and Wolfspeed are investing $20 billion and $5 billion, respectively, to build semiconductor fabrication and power semiconductor plants in Ohio and New York. In addition, Qualcomm and GlobalFoundries have joined forces, contributing $4.2 billion for chip manufacturing in New York, while Micron's investment of $40 billion will create 40,000 new jobs in memory chip production.
Industry experts predict these investments will significantly enhance the United States' global semiconductor manufacturing capacity share from 12% to 20% over the next decade.
The legislation also includes provisions encouraging participation from women and minority-owned businesses in the semiconductor supply chains, promoting a more equitable and diverse ecosystem.
While the impact of the CHIPS and Science Act on domestic chip supplies may take time to materialize due to the lead time for building and starting up manufacturing facilities and the lengthy R&D process, it is widely applauded for its contributions to the science and technology sectors.
The legislation's provision of subsidies for domestic semiconductor manufacturing and its efforts to address challenges in the global market are seen as positive steps toward strengthening the semiconductor industry in the United States.
References and Further Reading
Badlam, J., et al. (2022). The CHIPS and Science Act: Here's what's in it. [Online]. McKinsey. Available at: https://www.mckinsey.com/industries/public-sector/our-insights/the-chips-and-science-act-heres-whats-in-it
Bourgeois, H. (2023). Europe takes a step ahead of the U.S. in chip policy. [Online]. EURACTIV. Available at: https://www.euractiv.com/section/industrial-strategy/opinion/europe-takes-a-step-ahead-of-the-us-in-chip-policy/
Burris, M., et al. (2022). How the CHIPS and Science Act Will Make Inclusive Innovation Possible. [Online]. The Century Foundation. Available at: https://tcf.org/content/report/how-the-chips-and-science-act-will-make-inclusive-innovation-possible/
Dahlgren, D. (2023). Chip Act versus Chip Act. [Online]. Evertiq. Available at: https://evertiq.com/news/53700
Kannan, V., Feldgoise, J. (2022). After the CHIPS Act: The Limits of Reshoring and Next Steps for U.S. Semiconductor Policy. [Online]. Carnegie Endowment for International Peace. Available at: https://carnegieendowment.org/2022/11/22/after-chips-act-limits-of-reshoring-and-next-steps-for-u.s.-semiconductor-policy-pub-88439
Mazewski, M., and Flores, C. (2022). Economic Impacts of the CHIPS for America Act. [Online]. Available at: https://www.filesforprogress.org/memos/USICA_Semiconductors.pdf
Micron. (2022). Micron Announces $40 Billion Investment in Leading-Edge Memory Manufacturing in the U.S. [Online]. Available at: https://investors.micron.com/news-releases/news-release-details/micron-announces-40-billion-investment-leading-edge-memory
Probasco, J. (2023). What Is the CHIPS and Science Act of 2022? [Online]. Investopedia. Available at: https://www.investopedia.com/chips-and-science-act-6500333
PwC. (2023). The CHIPS Act: What it means for the semiconductor ecosystem. [Online]. Available at: https://www.pwc.com/us/en/library/chips-act.html
Reuters. (2022). Qualcomm to spend $4.2 billion more on chips from GlobalFoundries. [Online]. Available at: https://www.reuters.com/technology/qualcomm-globalfoundries-sign-pact-double-chip-manufacturing-2022-08-08/
Stangarone, T. (2023). The Role of South Korea in the U.S. Semiconductor Supply Chain Strategy. [Online]. The National Bureau of Asian Research. Available at: https://www.nbr.org/publication/the-role-of-south-korea-in-the-u-s-semiconductor-supply-chain-strategy/
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