The new CHIPS and Science Act, also known as the Creating Helpful Incentives to Produce Semiconductors for America Act, has passed the house and senate with bipartisan support. All that is left is for President Biden to sign the bill into law, a forgone conclusion due to his vocal support.
This bill will inject $280 Billion dollars into the computer chip manufacturing industry. This money will hope to increase domestic chip output and therefore lessen the US’s reliance on foreign chip manufacturers like TMSC, however, TMSC might also be a beneficiary but more on that later.
It is also a way to increase competitiveness with China and other companies with a rapidly growing chip market. But most importantly, it aims to provide an answer to the global chip shortage that has impacted nearly every industry from commodities like video games to necessary health equipment.
This bill has a lot of aims and it is easy to get lost in the weeds. So, we are going to break down the bill, the impact it hopes to have, and who will ultimately benefit from it.
Where is the money going?
The bill will allocate $280 Billion toward creating incentives for chip manufacturers and researchers. According to a White House briefing on the bill, around $53 billion will go toward “research, development, manufacturing, and workforce development.” This means that companies willing to commit to building up the chips industry in the US will be eligible for these grants.
There is also a tax incentive involved for companies that bring their operations to the US. Micron has already announced a $40 billion memory chip manufacturing investment. Others like Qualcomm and Global Foundries have stated their intent to expand their operations already running in the US.
It is unclear how the rest of the money will break down. There are estimates of what will go to each aim, but it is still broad. We do know that fully $200 billion will go toward scientific research into AI, robotics, and quantum computing, among other burgeoning technologies. The goal is not only to improve US output economically but keep up with modern technology.
What Problem is The CHIPS and Science Act Trying to Solve?
One of the major reasons the bill has picked up steam is the ongoing chip shortage. The pandemic has had an undeniable impact on the supply chain and demand in the US. Americans, and all countries really, have had a hard time getting their hands on new laptops, EVs, gaming consoles, phones, you name it. The shortage has impacted nearly every industry and even national security.
While the US has seen unprecedented growth of tech companies like Apple, Microsoft, AMD, and Nvidia. These companies are at the cutting edge of tech, but they are reliant on other companies for the chips they use.
All these companies use TSMC, the Taiwanese semiconductor giant, to manufacture the chips they use. Companies like Apple or Nvidia might design the chips themselves in their stateside labs. But for mass production, they ship the design off to TSMC and other foreign companies like Samsung.
Even companies like Intel and Qualcomm that do make their chips have struggled to keep up with TSMC’s manufacturing techniques. Intel has even outsourced some of its chip production to TSMC.
This creates a bottleneck of sorts. Demand for goods that need chips is at an all-time high. And there are only a handful of manufacturers making these chips. Making it hard to get into the hands of consumers and stalling economic growth in the US.
What Will The Impact Be of the CHIPS and Science Act?
Right now, it is hard to speculate what the exact outcome will be. Proponents of the bill, including the chip manufacturers that will benefit most, say that this is the best way to ensure the stabilization of chip supply and growth of the US market.
Jobs are another major component of the bill both now and in the future. The production facilities that semiconductor companies are investing in will create hundreds of thousands of jobs for contractors, engineers, and builders giving the economy a boost in the short term.
Education is a major part of this job push. The bill authorizes investments in programs in minority and underserved communities across the US. Mainly, these investments will go to majority black universities to improve and expand their STEM programs.
The aim is to create new jobs in STEM and educate a more diverse workforce. These programs will mostly be through the National Science Foundation, or NSF, which will receive $80 billion in grants between now and 2026.
The goal of these incentives for semiconductor companies like Intel is twofold. Not only does the US want to reap the benefits of a profitable American-based company like Intel taking more of the global market share. It would also be a boon in the issues with supply chain interference.
As we stated earlier, the pandemic did a number on the chip supply in the US. But so, too did Trump’s senseless trade war with China. It made brokering deals with Chinese manufacturers very difficult and cut the US off from much-needed supply.
Processor chips are too important to be left to chance and the upheaval in the market over the past few years has been a perfect example of that. Having US-based chip producers that aren’t reliant on foreign operations will, at least, give the US a domestic stock of chips that can be counted on.
Who Benefits from the CHIPS and Science Act?
The clear beneficiaries of this bill are the major chip manufacturers who already have a foothold in the US. Also, foreign companies like TSMC and Samsung who have stated their plans to build facilities here will enjoy some governmental support.
These incentives are designed to stop companies from outsourcing labor and production in favor of keeping it domestic. It gives companies that do outsource their chip production incentive to use US-based companies like Intel instead of TSMC.
Scientific researchers also benefit from the bill, but it is not clear how the money will be allocated among these groups. The R&D departments of major chip producers will be funded in part by the $53 billion but it will also incentivize them to work on newer technologies.
Companies that invest their research dollars in cutting-edge technologies will be more likely to receive this support. The bill will also help fund STEM programs that will develop a new generation of engineers, scientists, and technologists.
The Drawbacks of the CHIPS and Science Act
Despite the bipartisan support for the bill, there is one notable detractor in the Democratic caucus, Bernie Sanders D- VT. He equates these incentives to bribes to get these companies to invest here instead of overseas. He reasons that US chip companies have been outsourcing jobs and shutting down plants for years and it has contributed to the chip crisis we are now in.
Outside of the political sphere, there is also concern that this bill will only benefit already huge chip producers like Intel, who have spent millions lobbying the US government for subsidies programs like this.
One of the chief concerns is that it won’t do enough to impact the current shortage, which honestly, it won’t. These chip factories will take years to build, and they are highly advanced intricate facilities. It isn’t like other building projects like roads, bridges, or even other types of manufacturing.
The Biden administration claims this will create good-paying jobs for highly skilled workers. However, there isn’t a current provision in the bill for companies to keep these operations open in America. Furthermore, no worker protections are outlined in the new bill. These incentives are basically just free money for chip companies whose profits are already sky high.
The only way to know how this bill will affect our day-to-day lives is through time. For now, the chip shortage is an unfortunate reality that this bill is years away from addressing. There are also questions to be answered about how companies will use this money. If it will go toward the kinds of research needed to keep pace with the rest of the world or not.
To do this companies like Intel and Qualcomm will need to focus on creating techniques that can rival overseas competition. Instead of simply shipping designs overseas to cut costs. Whether they can do that or not remains to be seen.
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