US Aims to Revitalize Semiconductor Production With CHIPS Act
Between a global pandemic, rapid shifts in consumer spending and even inclement weather, there are a wide range of factors that have contributed to the semiconductor chip shortage. These semiconductors, which are essential to the production of many everyday electronics, have become increasingly scarce. In response, the U.S. has passed new legislation that will incentivize semiconductor production and attempt to mitigate the ongoing crisis.
The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act authorizes $200 billion in federal funding to promote domestic semiconductor manufacturing. Zachary Collier, an assistant professor in the Department of Management at Radford University, spoke about the legislation and its potential impact on the shortage.
“The intent of the CHIPS Act is to provide incentives to make the United States more globally competitive in the semiconductor research and manufacturing space, and create a semiconductor ecosystem that can support the nation’s strategic, economic and national security objectives,” Collier said. “Offering one-time grants and tax credits for companies to construct manufacturing facilities at home will boost our domestic production, as well as create jobs.”
Over the next five years, $50 billion will be used to develop semiconductor manufacturing. Of that, $39 billion will be used for financial assistance to build or modernize manufacturing capabilities, $6 billion will go toward direct loans and loan guarantees and $11 billion will go toward research and development programs.
“In today’s digitally enabled world, nearly everything runs on chips. Semiconductors are the fourth-most traded commodity in the world and are up there with oil in terms of how important they are for the functioning of the global economy,” Collier said. The legislation will help the U.S. stay competitive in the semiconductor market and rely less on foreign manufactured semiconductors and the associated shortages.
Furthermore, the legislation establishes a $2 billion America Defense Fund, which will be dedicated to Department of Defense applications. It also includes a $200 million American Workforce and Education Fund, which is aimed at promoting an increase in the semiconductor workforce. Currently, the U.S. Senate estimated that 90,000 workers will be needed within the next three years to support the increased production.
Another major component of the CHIPS Act is the creation of a 25% tax credit for investments in semiconductor manufacturing, as the U.S. looks to ditch its dependency on foreign chip suppliers.
“When the United States is dependent on foreign suppliers of chips, it puts us in a vulnerable position, both from an economic and a security perspective,” Collier said. “Foreign dependence on semiconductors puts the nation at risk for supply chain disruptions, security vulnerabilities and intellectual property theft.”
China is currently the largest producer of semiconductors. It accounts for 24% of the world’s semiconductor supply followed by Taiwan at 21% and South Korea at 19%, according to the latest report from the Semiconductor Industry Association. As political tensions between the U.S. and China rise, relying on them to produce something as pivotal as semiconductors seems dicey, to say the least, Collier said.
“We don’t want most of the chips that power our critical infrastructure and defense systems to be made by countries who might not have our best interests in mind,” Collier added.
Another stipulation in the bill would deny federal incentive funding to manufacturers who expand or build facilities in countries that are a national security threat to the U.S. Although the act is geared toward encouraging domestic manufacturing success, it’s clearly conscious of foreign threats.
The act also increases funding for the Department of Energy’s Office of Science, the National Science Foundation and the National Institute of Standards and Technology (NIST). This funding will go toward establishing a directorate for technology and innovation while also promoting advanced research programs across the department.
While it does take steps in the right direction, it’s unclear how soon the CHIPS Act will yield results.
“Semiconductor manufacturing facilities take a long time to build, and so there will naturally be a lag time between the passage of the CHIPS Act and when new facilities will begin to produce chips,” said Collier. “The CHIPS Act is an important strategic policy step toward strengthening our domestic manufacturing base and ensuring that we remain technologically competitive on the international stage.”
All in all, the CHIPS Act isn’t going to solve every issue associated with the semiconductor shortage overnight, but it may prove to be fundamental in preventing another disruption from happening down the line.
