The CHIPS Act Passes, but Will It Solve Semiconductor Woes?

A decade from now, the US could be the global hub of semiconductor manufacturing.  On Tuesday, President Biden signed into law the nearly $300 billion CHIPS and Science Act. The legislation, which Biden called “a once-in-a-generation investment in America itself,” is designed to boost manufacturing, research, and education in a variety of scientific fields, including designating over $50 billion towards developing the domestic semiconductor industry.

By bringing chip manufacturing to the US, the bill aims to reduce chip prices and prevent future supply chain disruptions. 

A Breakdown of the Bill

The bill includes wide-ranging measures to encourage and subsidize semiconductor manufacturing within the US. For instance, around $24 billion is directed towards tax credits for chip plants. The legislation also allocates $11 billion to the Department of Commerce to fund research and development of semiconductor technologies.

Outside of the total of $52.7 billion set aside for the semiconductor industry, the CHIPS Act calls for a $200 billion investment in research, manufacturing, and education across science and engineering, especially in cutting-edge areas like AI, robotics, and quantum computing.

The CHIPS Act comes at a time when the semiconductor industry is highly volatile and unstable, facing challenges ranging from component shortages and production delays to tense international political conditions.

Shifting Demand, Geopolitical Factors, and Ever-Present Shortages

New innovations in the automotive and consumer electronics industries have shifted demand for semiconductors, and the complexities of the production process make it difficult to scale quickly, creating widespread chip shortages. 

These global supply chain disruptions have exposed just how dependent the US is on other nations for semiconductor manufacturing. In the 1980s, the US held a dominant position in semiconductor manufacturing, responsible for around 53% of global market share in 1983. Since then, however, the US’s share of the market has declined significantly. 

In particular, American manufacturers produce virtually none of the advanced semiconductors used in military devices and smartphones. Instead, the US, along with the rest of the world, relies heavily on the Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures over 90 percent of these chips.

American businesses and lawmakers have grown concerned about this dependence as China takes an increasingly aggressive political stance on Taiwan. If China were to impede TSMC’s production or disrupt trade, the lack of access to semiconductors would have massive ramifications on many sectors of the American economy, as well as the military. 

Thus, in addition to the economic benefits of manufacturing semiconductors at home, foreign relations are at the heart of the CHIPS Act. China lobbied against the passage of the bill, while many American lawmakers cited the national security implications as a key reason why they voted for the legislation.

The program stipulates that any companies that receive funding will face restrictions in expanding manufacturing in China for the next 10 years to prevent further jeopardization and politicization of access to chips. 

With CHIPS Signed into Law, What’s Next?

Although the bill has already been signed into law, many questions remain about its implementation. The logistics of distributing funding have yet to be disclosed, such as how the Department of Commerce will evaluate grants and how long the underwriting process will take.

The CHIPS Act is far from an instant solution to all semiconductor-related problems: it will likely take at least a decade to see the full effects, and the expansion of American semiconductor manufacturing will not necessarily alleviate issues like long lead times and shortages in the automotive industry.

However, even with these uncertainties, the benefits of the legislation are already starting to become apparent. Intel plans on using funding from the bill to build a new semiconductor plant in Ohio.

Meanwhile, Qualcomm announced that the CHIPS Act will allow the company to buy an additional $4.2 billion worth of semiconductors from a GlobalFoundries plant in New York. Micron announced that they will be investing $40 billion in manufacturing memory chips thanks to the bill’s grants.

Like semiconductors themselves, this new bill and funding will take time to bear fruit for the industry. In the meantime, volatility and shortages will continue to be the norm. To stay up-to-date on the latest global market intelligence, learn more about Commodity IQ today!