On August 9, the CHIPS and Science Act of 2022 (hereinafter referred to as the "CHIPS Act") was signed by U.S. President Biden. Among the attendees of the signing ceremony were the CEOs of Intel, Micron, AMD, and Hewlett-Packard, as well as the president of United Auto Workers, the governors of Pennsylvania, Illinois, Detroit, Cleveland, and Salt Lake City, all the major semiconductor regions in the United States, mayors, and members of the Congress.
In the U.S., for the development of a singular industry to be supported by national laws and high financial subsidies, with clear policy orientations and constraints, is rather unique. This is particularly historic, considering the U.S. as an advocator of market economy and free competition.
The core purpose of the CHIPS Act is to strengthen the semiconductor manufacturing capacity of the U.S. Biden said at the signing ceremony that although the U.S. maintains its lead in chip design and research, only 10% of the world's semiconductors are produced in the country. According to the U.S. Semiconductor Industry Association (SIA), the U.S. produced 12% of the world's semiconductors in 2020, down 25 percentage points from 30 years ago. Biden remarked, "we need to make these chips here in America to bring down everyday costs and create jobs". The act requires that any chip company that receives U.S. government funding must manufacture domestically developed technology. This means that the investment, research, and manufacturing will all have to be done in the U.S itself. Biden said the act would help the U.S. "win the economic competition of the 21st century".
The act would fund the entire U.S. semiconductor supply chain, boosting the chip industry's critical investment in research and development. The CHIPS Act would provide USD 52.7 billion for the country's semiconductor R&D, manufacturing, and workforce development. First of all, it allocates USD 50 billion to the CHIPS for America Fund to stimulate semiconductor manufacturing; the other is to allocate USD 2 billion to the CHIPS for America Defense Fund to more quickly translate laboratory results into military and other applications. The third is to allocate USD 500 million for the CHIPS for America International Technology Security and Innovation Fund to promote cooperation with international companies and establish a safe and reliable semiconductor supply chain. Then, there is the allocation of USD 200 million to the CHIPS for America Workforce and Education Fund, to cultivate talents in the semiconductor industry. In addition, companies building chip factories in the U.S. will receive a 25% investment tax credit, a policy estimated to be worth USD 24 billion.
In addition to direct support for the U.S. chip industry and manufacturing, the act also provides for a number of measures to increase investment in U.S. science and engineering. The CHIPS Act will establish a technology, innovation, and partnerships directorate at the National Science Foundation (NSF) to focus on fields like semiconductors and advanced computing, advanced communications technology, advanced energy technologies, quantum information technologies, and biotechnology. At the same time, the act also authorizes USD 10 billion to invest in regional innovation and technology centers across the country to strengthen cooperation between local governments, universities, and businesses in technological innovation and manufacturing. The overall amount involved in the act is as high as USD 280 billion and will be implemented over five years. Among them, the investment of more than USD 200 billion in the field of basic science and technology, and the siphoning effect of talents may be more worthy of attention than the direct subsidies of USD 52.7 billion to chip manufacturing.
According to industry insiders, the CHIPS Act will benefit five types of companies: (1) U.S. chip manufacturing giants such as Intel and GlobalFoundries are the biggest beneficiaries; (2) Micron and other integrated device manufacturers (IDMs) with chip manufacturing capabilities would be situated at the second echelon to benefit; (3) U.S. equipment companies related to chip manufacturing are at the third echelon; (4) international chip manufacturing companies such as TSMC and Samsung are at the fourth echelon; (5) American chip design companies will be indirectly benefited.
The CHIPS Act has already had a real impact. Micron Technology announced plans to invest USD 40 billion between now and the end of 2030 and create as many as 40,000 jobs, the largest investment in the history of U.S. chip manufacturing. It will use grants and subsidies from the act to start production between 2025 and 2030 and is expected to boost domestic chip capacity to 10% of the global market from less than 2% today. Qualcomm has also agreed to purchase USD 4.2 billion in chips from GF's New York factory and has committed to purchasing a total of USD 7.4 billion by 2028. In addition, some chip manufacturing giants outside the U.S. will increase or accelerate their investment in the country. In addition to TSMC and Samsung, South Korea's SK Group has indicated that it will invest in the U.S.
Another important objective of the CHIPS Act is to compete with "countries of concern", including China, in the semiconductor field. Notably, it includes country-specific provisions as follows: (1) Companies receiving federal award funds are prohibited from expanding or building new capacity for certain advanced semiconductor processes in certain countries that pose a threat to U.S. national security. (2) Prohibition of companies receiving CHIPS Act funding to expand certain critical chip manufacturing in China and other countries of special concern. (3) Companies that receive federal funding are prohibited from significantly increasing the production of advanced chips in China for a period of 10 years. Companies that violate the prohibition or fail to correct the violation may be required to fully refund the federal grant. In addition, if semiconductor companies increase the production of traditional semiconductors in order to expand the country's market, they are not subject to the Act. It should be pointed out that the "advanced chips" referred to in the Act include processes below 28nm, including 14nm, 7nm, 5nm, and 3nm.
As things stand, there will be significant synergies between the Chip Act and the U.S.-led CHIP 4, an alliance of semiconductor powerhouses involving the U.S., South Korea, Japan, and Taiwan. The alliance aims to coordinate internally in terms of capacity supply, technology and standard sharing, as well as equipment and material supply. It also attempts to impose certain restrictions externally. From Beijing's perspective, the main goal of CHIP 4 is to target China and exclude it from the semiconductor industry, strengthening the U.S.' control over the global semiconductor industry chain and technology transfer. Beijing sees the combination of the CHIPS Act and CHIP 4 will form many restrictions, not only in the sale of key equipment, industrial investment, advanced process production line construction, and production capacity expansion but also on restrictions on key materials, talents, technology research and development, and other aspects.
Final analysis conclusion:
The semiconductor industry, as a key industry related to national competitiveness, has become the focus of geopolitical games. The signing of the CHIPS Act in the United States will have a profound impact on the global semiconductor industry. It will not only strengthen the concentration of global semiconductor manufacturing capabilities in the U.S. itself but also politicize the market attributes of the global semiconductor industry.
