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The US CHIPS Act, 2 Years Later
The White House, Adam Schultz
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The US CHIPS Act, 2 Years Later

The CHIPS Act can succeed, but only if U.S. policymakers give it time to work and a mandate to focus on the future.

By Jacob Feldgoise

Chips – the tiny processors that underpin the electronic world – have major geopolitical significance. The United States Congress recognized that when it passed the CHIPS and Science Act (the CHIPS Act for short) in August 2022, appropriating over $50 billion to support the U.S. semiconductor industry.

This year, the Commerce Department’s Chips Program Office (CPO) has begun allocating those funds to build advanced chip manufacturing facilities (fabs) in the United States and to revitalize the nation’s semiconductor R&D infrastructure. Two years in, policymakers and pundits are asking whether the rollout of those funds is too slow.

However, whether progress to date is viewed as success or failure depends on which objective is in focus. The CHIPS Act aims to achieve three key objectives: reduce the risk of foreign supply shocks, bolster U.S. technological competitiveness, and reduce risks of foreign-produced chips used in critical national security systems. Considering these three key goals in conjunction, the speed of the initial rollout matters less than whether the investments will, in the long term, sustain manufacturing capacity and bolster innovation. 

Woven into the rationale of the CHIPS Act is the recognition that advanced chips carry particular geopolitical importance. These chips are fabricated using the most sophisticated available equipment and techniques, enabling them to operate more quickly and with greater energy efficiency compared to prior generations. Because of these benefits, advanced processors are used in the latest smartphones, laptops, and servers – powering the virtual assistant on your phone and training new AI models in vast datacenters. Biden administration officials rightly view the computational capabilities of advanced chips as a “force-multiplier” that drives both economic growth and military modernization.

As for the advanced manufacturing processes needed to fabricate these chips, U.S. firms that once dominated the market gradually ceded ground to foreign competitors, and production largely shifted to East Asia. As of 2022, no advanced chip fabrication capacity was located in the United States. Congress aimed to reverse that trend with the CHIPS Act.

Progress to date has been promising. So far, through preliminary deals, the CPO has allocated about $28 billion of the total $39 billion toward the construction of new, leading-edge fabs.

In early 2023, U.S. Secretary of Commerce Gina Raimondo stated that she hoped to establish two geographic clusters with fabs capable of producing leading-edge processors. Preliminary deals signed with TSMC, Samsung, and Intel would now establish three separate clusters – in Arizona, Texas, and Ohio, respectively – to produce that type of chip. These facilities are forecasted to grow the U.S. share of fabrication capacity for advanced processors from zero to 28 percent by 2032. A fourth deal (with Micron) would establish a cluster for leading-edge memory production in upstate New York.

A portion of the funding will also go toward the production of mature chips needed for defense applications and toward the complex supply chain of equipment and materials needed to run a fab. Ten deals of this type – representing nearly $3 billion of CPO funds – have been negotiated so far. The CPO is also in the process of establishing a suite of new semiconductor R&D programs and facilities, most of which are still being planned.

As this complex set of deals and programs takes shape, attention has focused on whether the funds are being dispersed quickly enough. This attention is primarily motivated by the high concentration of advanced fabrication capacity in Taiwan, coupled with concerns that China could invade the island as early as 2027.

A conflict over Taiwan would send shockwaves through the global economy, in part because of the island’s critical role in semiconductor supply chains. For example, the main chip in Apple’s latest iPhone 15 was fabricated in Taiwan on TSMC’s most advanced three-nanometer process line. Those phones, which made up half of Apple’s March 2024 iPhone revenue, as well as many other products, would likely be disrupted by conflict.

A rapid build-out of U.S. advanced fabrication capacity may help mitigate the disruptions of a potential Taiwan conflict, but focusing on speed would only address a narrow slice of the CHIPS Act’s ambitions. Instead, it’s worth considering what success could look like through the lens of each of the CHIPS Act’s three objectives.

Reducing Risk of Supply Chain Disruptions

A Taiwan crisis is not the only foreign supply shock worth preparing for. Just in the past few years, an earthquake in Taiwan, a factory fire in Japan, and spiking COVID-19 cases in Malaysia and Vietnam disrupted semiconductor supply chains. These and other events will continue to pose risks to the global chip value chain. 

To reduce the impact of a wide range of supply shocks, the CHIPS Act should aim to maintain a sizable share of advanced fabrication capacity in the United States in the long term. The program is off to a good start with each of the three most advanced fabrication companies committing to building facilities in the United States. But the key question is whether that activity can be sustained.

One measure of long-term success would be if the leading fabrication companies each make repeated investments in new, advanced U.S. facilities – even after the helpful government incentives of the CHIPS Act have run out. That would be no small feat because baseline government incentives for the semiconductor industry are much lower in the United States than in Taiwan or South Korea, where most leading-edge fabrication is already located. This makes it far less attractive to build a new fab in the United States.

Here, the CPO’s efforts to support the suppliers of semiconductor fabs will be critical. Helping chemical, wafer, equipment, and component suppliers set up production facilities in the United States will likely reduce costs to build and operate an advanced chip fab. Some of these suppliers are already being drawn to the U.S. by the gravitational pull of new leading-edge fabs, but others will not relocate without assistance. This presents a clear opportunity that the CPO is already acting on with investments to reshore silicon wafers and advanced fabrication materials.

Bolstering U.S. Competitiveness 

The CHIPS Act also aims to increase U.S. technological competitiveness by supporting innovation in the semiconductor industry. Since semiconductors are a “force-multiplier” for nearly every industry, accelerating the pace of technological development for chips should pay dividends across the U.S. economy.

To accomplish this, the CHIPS Act directly invests $11 billion in semiconductor R&D programs, most of which will be used to set up a network of state-of-the-art facilities where companies, universities, and the government can collaborate on cutting-edge research. Success here would look like U.S. facilities consistently leading the world in semiconductor research and invention as well as translating those discoveries into new products and successful companies. Given the long time horizons even for commercializing applied research, this investment will take time to pay off.

As the CHIPS Act’s R&D programs take shape, they should both aid and be aided by efforts to reshore advanced fabrication to the United States – a mutually reinforcing cycle.

The proximity of new leading-edge fabs to universities and other semiconductor supply chain companies should benefit semiconductor innovation. These agglomeration economies spark commercial opportunity because in these environments knowledge diffuses more quickly and infrastructure can be shared. Success would look like a high density of equipment companies, chemical suppliers, chip design firms, and university labs accumulating around each leading-edge fab that the CPO invests in. Evidence of cross-pollination and R&D collaboration between semiconductor firms could be observed by examining semiconductor-related patents and start-ups originating from each cluster.

The CHIPS Act’s R&D efforts should make it easier to sustain advanced chip fabrication in the United States, in part by reducing workforce constraints. Finding talent with the right set of knowledge, skills, and abilities is a critical issue for semiconductor fabs. As of October 2023, about half of the 2,200 staff at TSMC’s new plant in Phoenix, Arizona, were flown in from Taiwan because of workforce challenges in the United States. To improve the domestic talent base moving forward, TSMC is working with local schools in the Phoenix area.

The CHIPS Act’s new research programs and facilities would complement existing workforce development efforts – providing valuable hands-on learning and research opportunities to young engineers. In doing so, the CHIPS Act’s R&D efforts would make them more attractive candidates to semiconductor fabs like TSMC, helping to reduce workforce shortages and improve the United States’ overall cost competitiveness for advanced chip fabrication.

Securing Defense Systems

Lastly, the CHIPS Act is about more than cutting-edge fabrication and research. The bill also aims to domestically produce a greater share of the mature chips used in defense systems, thereby reducing the risk that those systems could be compromised.

The full scale of the Defense Department’s vulnerability to these risks is largely unknown – even to the department itself. According to the Biden administration’s 100-day supply chain review, the Defense Department is “still building visibility into the sub-tiers of the microelectronics supply chain.”

In 2012, a U.S. Senate Armed Services Committee report studied a slice of the problem: counterfeits. The Committee identified 1,800 cases where a defense system had incorporated counterfeit electronic components, and a deeper analysis of 100 cases revealed that more than 70 percent of the counterfeit parts in those cases originated in China.

The CHIPS Act aims to address these challenges by building capacity to manufacture more chips for defense systems in the United States. The CPO has already announced investments for this purpose in Microchip Technology, GlobalFoundries, and Rogue Valley Microdevices. 

Success in this context is also long term because the Defense Department and companies in the defensive industrial base often need to procure the same mature chip for decades – even when the product is no longer commercially viable. As investments are made and monitored, it will be critical that these facilities provide an assured source of supply for defense systems well in the future.

The CHIPS Act is an unprecedented investment in the United States’ domestic semiconductor industry. It presents an opportunity to reduce the risk of foreign supply shocks, spur domestic innovation, and secure supply chains for national security systems. Each of the CHIPS Act’s main objectives imagines a different vision for success and necessitates a different evaluation metric, but the objectives are consistent on one point: success is a matter of sustaining the bill’s long-term benefits. The CHIPS Act can succeed, but only if U.S. policymakers give it time to work and a mandate to focus on the future.

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The Authors

Jacob Feldgoise is a Data Research Analyst at Georgetown University’s Center for Security and Emerging Technology (CSET). His work explores economic security, semiconductor supply chains, and emerging technologies talent flows.

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