The CHIPS Act: Fueling Domestic Semiconductor Production and Research
The CHIPS Act (Creating Helpful Incentives to Produce Semiconductors) is a comprehensive initiative aimed at strengthening the domestic semiconductor industry in the United States. It seeks to address national and economic security concerns by promoting the production and research of advanced semiconductors. With a focus on creating jobs, fostering innovation, and building resilient supply chains, the CHIPS Act outlines various strategies and funding programs to enhance the country's competitiveness in the semiconductor sector.
The initiatives under the CHIPS Act include large-scale investments in leading-edge semiconductor manufacturing, the establishment of new manufacturing capacity for current-generation chips and specialty technologies, and the strengthening of U.S. leadership in R&D. Notable programs include the creation of a National Semiconductor Technology Center, National Advanced Packaging Manufacturing Program, and up to three new Manufacturing USA Institutes. The funding allocated for these initiatives amounts to billions of dollars, supporting innovation and growth in the semiconductor industry.
The CHIPS Act focuses on several key technology areas critical to the semiconductor industry. These include leading-edge logic, advanced packaging, leading-edge memory, and current-generation and mature-node semiconductors. The United States aims to establish geographically compact clusters of leading-edge logic fabs, multiple high-volume advanced packaging facilities, and domestic production capacity for various types of semiconductors essential to economic and national security.
How can companies benefit from the CHIPS act?
The CHIPS Act offers three types of incentives: direct funding, loans, and loan guarantees. The funding opportunities are not subject to a set maximum amount, and the specific amount awarded depends on the project's capital expenditures and eligibility for the Investment Tax Credit. Recipients receiving over $150 million in direct funding will be required to share a portion of cash flows or returns with the U.S. government.
Critique and future prospects
While the CHIPS Act has garnered support for its focus on boosting domestic semiconductor production, it also faces criticism. The Cato Institute, for instance, includes the CHIPS Act semiconductor subsidies on its list of worst U.S. trade policies. Concerns have been raised about the inclusion of certain requirements, such as using unionized labor and buying only American iron and steel, which may increase costs for manufacturers. However, proponents argue that these subsidies are necessary to maintain global competitiveness and build a resilient domestic electronics manufacturing industry.
All in all, the CHIPS Act represents a significant investment in the U.S. semiconductor industry and aims to enhance national security, preserve leadership in emerging technologies, and create economic opportunities. While there are differing perspectives on the effectiveness and implementation of the act, its long-term success will depend on the collaboration between the CHIPS Program Office, industry stakeholders, and policymakers to navigate the complexities of global supply chains and foster a robust and resilient domestic semiconductor ecosystem.
Building independent supply chain seems to have become a long-term trend, and it’s not just limited to the U.S. The EU also passed its own €43 European Chips Act, which aims to “reinforce the semiconductor ecosystem" in the region. This effectively provides the European bloc with an opportunity to deepen international collaboration on securing semiconductor supply chains for themselves as well.
Reverse CIFIUS & Ecosystem Pressure: Slow Down China
Together with the CHIPS act focused on promoting development in its own regions, there is an array of international initiatives to support the same goals using a different angle: limiting exports.
In the US domestically, the Outbound Investment Control Regime (also known as reverse CIFIUS) established through the Consolidated Appropriations Act of 2023, involves the development of a new investment review program administered primarily by the Treasury and supported by the Commerce Department. The program will collect information on a range of investments, potentially restricting or prohibiting certain outbound investments in China. Complementing the CHIPS Act, it provides an additional layer of oversight and control to safeguard national security interests. The regime will likely prohibit or restrict certain outbound investments in China, and specific target sectors include semiconductors, quantum computing and AI.
However, the U.S. can't achieve its goals all by itself and continues to convince allies to introduce similar measures. Now, both the Dutch government and Japan are rolling out new semiconductor export control measures aimed at keeping sensitive technology away from China due to concern for potential misuse.
Dutch multibillion company ASML, the world’s largest supplier of photolithography machines used to produce computer chips, has already blocked exports of its most high-tech EUV machines to China. New export controls could be applied to its less advanced DUV machines and other products as well, limiting China’s production of more advanced, high-end chips for as long as they’re unable to develop own EUV / DUV capabilities.
In March, Japan announced that starting July 2023, it will implement controls on 23 types of advanced semiconductor manufacturing equipment, including lithography stepper and scanner equipment consistent DUV performance level or better. While the restrictions align with the U.S. and Dutch controls, Japan, similar to the Netherlands, did not explicitly reference China in its announcement about the controls, taking a more diplomatic stance while essentially pushing the same agenda.
The adoption of new semiconductor export controls by major economies in the semiconductor ecosystem signifies a transformative phase in the global market of which impact on major players remains to be seen. Geopolitical and national security considerations are now gaining equal importance alongside market dynamics. Nvidia could for instance be severely hit by U.S. export controls that make it hard to sell advanced chips to China. The region historically accounted for about 1/4th of Nvidia’s data center-related product revenue, meaning that losing these customers would be detrimental.
In contrast, China has consistently prioritized national security objectives over market efficiency. However, changes are on the horizon. In May, China already banned the country’s infrastructure operators from buying chips from Micron, a U.S.-based semiconductor maker, which is its first in-kind retaliation against the numerous U.S. policies targeting China’s semiconductor firms. In conclusion, the United States and its allies must anticipate and prepare for increased retaliatory actions from China, which are already underway. Further evaluation of how far political involvement can and should go is essential to make sure all parties are able to develop their markets while allowing their businesses to thrive.