The US finally passed the long-awaited Chips Act. What happens next?

After two long years of back and forth, the Senate finally passed the bill last Wednesday, passing the baton to President Biden who will need to sign the Chips Act into law.
1 August 2022

US Speaker of the House Nancy Pelosi, alongside members of Congress, holds the CHIPS and Science Act, providing domestic semiconductor manufacturers with $52 billion in subsidies to cut reliance on foreign sourcing, after signing it during an enrollment ceremony on the West Front of the US Capitol in Washington, DC, July 29, 2022. (Photo by SAUL LOEB / AFP)

  • The Chips and Science Act of 2022 provides more than US$52 billion to bolster US silicon manufacturing efforts, as well as billions more in tax credits for companies investing in similar efforts.
  • Skeptics are uncertain if the law is sufficient to tame China’s influence in the sector, and have the US compete in a market currently dominated by Asian manufacturers.

After a rather tumultuous journey, the US Chips and Science Act of 2022, more commonly known as the Chips Act, finally received bipartisan support in the House of Representatives and Senate on Friday, July 29th, ending years of legislative gridlock. The Chips Act, which is now on the desk of President Joe Biden, is waiting to be signed into law to allow for the release of billions of dollars in subsidies for US-based semiconductor manufacturing. For the US, the bill is a game changer, as it is expected to re-energize the domestic chip sector.

Most importantly, enforcing the Chips Act will finally open the way for the construction of new factories by chip giants like Intel, Taiwan’s TSMC and GlobalWafers, as well as other companies whose investment plans are contingent on those subsidies. In a White House statement, President Biden reiterated how the Chips Act would “make cars cheaper, appliances cheaper, and computers cheaper.”

“It will lower the cost of everyday goods.  And, it will create high-paying manufacturing jobs across the country and strengthen US leadership in the industries of the future at the same time,” Biden said, adding that by allowing companies to make more semiconductors in the US, the bill will increase domestic manufacturing and lower costs for families. And, it will strengthen our national security by making us less dependent on foreign sources of semiconductors.”

The President also shared that the bill includes important guardrails to ensure that companies receiving US taxpayer dollars invest in America, and that union workers are building new manufacturing plants across the country. “I look forward to signing this bill into law and continuing to grow our economy from the bottom up and middle out for working families all across the country,” he said.

What does the Chips Act provide?

At this point, almost all of these chips are made in Taiwan, and none are made in the US. This has US officials worried about the possibility of China trying to invade Taiwan and threaten America’s supply of advanced chips. As the Semiconductor Industry Association (SIA) puts it, the US share of modern semiconductor manufacturing capacity has decreased from 37% in 1990 to just 12% today, largely due to substantial manufacturing incentives offered by the governments of global competitors. 

That has placed the US at a competitive disadvantage in attracting new construction of semiconductor manufacturing facilities, or fabs. “Additionally, federal investment in semiconductor research has been flat as a share of GDP, while other governments have invested substantially in research initiatives to strengthen their own semiconductor capabilities, and existing US tax incentives for R&D lag those of other countries,” the Association said.

Through the Chips Act, US$50 billion would be allocated over the next five years to expand domestic manufacturing capability, fund R&D and support workforce development programs. Of that money, US$39 billion is for “legacy” chip production for the auto, defense and other important industries, while US$11 billion will be for R&D and workforce development.

Another US$2 billion will be set aside for defense-related R&D and semiconductor workforce training. Some $500 million will be used to coordinate with foreign governments in support of information and supply chain security for semiconductor, telecom and other advanced technologies. Finally, US$200 million is allocated to educate people in the skills required to work in the facilities created by the manufacturing incentives. The US also estimates that the semiconductor industry will need an additional 90,000 trained workers by 2025.

For companies like Intel, which recently delayed the groundbreaking ceremony for its US$20 billion chip-making facilities in Ohio because of a lack of government funding, the bill passing is great news after lengthy delays. “I congratulate Congress on voting to approve funding for the Chips Act,” Intel CEO Pat Gelsinger said. “This is a critical step to support the entire US semiconductor industry and to help ensure continued American leadership in semiconductor manufacturing and R&D. Congress has done its part, and now we are going to do ours. I’m excited to put shovels in the ground as Intel moves full speed ahead to start building in Ohio.”