America mounts extraordinary action to reclaim semiconductor manufacturing and research

Mayank Chhaya-

Mayank Chayya

With President Joe Biden signing into law the bipartisan CHIPS and Science Act, America is taking an extraordinary action to reclaim its dominance over the globally consequential semiconductor industry.

“The CHIPS and Science Act supercharges our efforts to make semiconductors here in America,” Biden said in a speech Tuesday at the White House’s Rose Garden. “America invented the semiconductor, and this law brings it back home.”

As part of that new action, the administration is giving subsidies worth nearly $53 billion to the industry whose impact is felt profoundly in every walk of life with ever-increasing automation.

Semiconductors, more popularly known as chips, are at the center of every technology. The fact that so far, the industry is dominated by one country, namely Taiwan and just one manufacturer, Taiwan Semiconductor Manufacturing Co. (TSMC) makes it strategically crucial for Washington to revitalize it domestically.

Apart from their obvious importance as a driver of all technologies as well as potential job creators, semiconductors have long been viewed as a subject of national security. With China breathing down Taiwan’s neck and making provocative military moves, the world generally and America particularly are worried that Beijing would eventually end up controlling the semiconductor industry, an area where it has already been making rapid strides. If China ever takes over Taiwan, which it considers a Chinese province, its stranglehold on the chips industry could have serious national security implications for America.

Over the years the U.S. share in chip manufacturing has dropped dramatically and according to the Semiconductor Industry Association (SIA), it now stands at barely 10 percent.

“The U.S. has a strategic opportunity to reverse the decades-long trajectory of declining chip manufacturing in America, strengthen national security and make our supply chains more resilient, and make our country one of the most attractive places in the world to produce semiconductors, which are the brains of modern technology,” had said in a report in September 2020, four months before Biden took over.

The joint SIA-Boston Consulting Group report that year said, “Federal manufacturing grants and tax relief totaling $20-50 billion would re-position the U.S. from an unattractive investment destination to the most attractive (excluding China) and create as many as 19 fabs in the U.S. over the next 10 years, a 27 percent increase over the current number of U.S. commercial fabs (70). Federal manufacturing incentives would create up to 70,000 high-paying jobs in the U.S., ranging from highly educated engineers to fab technicians and operators to material suppliers. The global semiconductor industry is expected to increase manufacturing capacity by 56 percent in the next decade. With a $50 billion federal investment, the U.S. is projected to capture nearly a quarter of new global capacity that is not yet in development, compared to only 6 percent with no government action.”

Much of that seems to be a reality now with Biden signing into law the CHIPS and Science Act.

In a fact sheet, the White House said, “Micron is announcing a $40 billion investment in memory chip manufacturing, critical for computers and electronic devices, which will create up to 40,000 new jobs in construction and manufacturing. This investment alone will bring the U.S. market share of memory chip production from less than 2 percent to up to 10 percent over the next decade.

Qualcomm and GlobalFoundries are announcing a new partnership that includes $4.2 billion to manufacture chips in an expansion of GlobalFoundries’ upstate New York facility. Qualcomm, the leading fabless semiconductor company in the world, announced plans to increase semiconductor production in the U.S. by up to 50 percent over the next five years.”

Of the $52.7 billion that the new law provides in subsidies for American semiconductor research, development, manufacturing, and workforce development, $39 billion is for manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in R&D and workforce development, and $500 million to provide for international information communications technology security and semiconductor supply chain activities.

“It also provides a 25 percent investment tax credit for capital expenses for manufacturing of semiconductors and related equipment. These incentives will secure domestic supply, create tens of thousands of good-paying, union construction jobs and thousands more high-skilled manufacturing jobs, and catalyze hundreds of billions more in private investment,” the fact sheet said.

The law requires recipients of these subsidies “to demonstrate significant worker and community investments, including opportunities for small businesses and disadvantaged communities, ensuring semiconductor incentives support equitable economic growth and development.”

The way the law’s language has been structured it is aimed at systematically challenging China’s steady emergence as an alternative semiconductor powerhouse apart from Taiwan, South Korea and Japan. The four account for 77 percent of the global chip manufacturing with China leading the pack at 24 percent, according to the SIA.

Hence this caveat in the new act: “These funds also come with strong guardrails, ensuring that recipients do not build certain facilities in China and other countries of concern, and preventing companies from using taxpayer funds for stock buybacks and shareholder dividends. It will also support good-paying, union construction jobs by requiring Davis-Bacon prevailing wage rates for facilities built with CHIPS funding.”