The US House of Representatives passed the $280 billion CHIPS and Science Act, the most significant government intervention in the industrial economy in decades, in the last week of July. Aimed primarily at boosting semiconductor manufacturing in the country, the legislation titled Creating Helpful Incentives to Produce Semiconductors or CHIPS comes with a $52 billion provision for the semiconductor industry alone, with another $200 billion earmarked for scientific research in Artificial Intelligence, quantum computing, and other relevant technologies. The law provides for subsidises to companies building production plants in the USA and sets aside billions of dollars to foster a semiconductor ecosystem with elaborate research and development facilities. Domestically, CHIPS is being touted by the Joe Biden Administration as a milestone for policies to ensure that underrepresented people and places can participate more in the nation’s innovation economy. “It affirms social and spatial inclusion as central to American strength,” says analyst Mark Muro of Brookings.
It is indeed true that the Bill received bipartisan support as there is across-the-board concern in America about the worrying shortfall in semiconductor production which could seriously impair the US economy going forward. Business organisations such as the US Chambers of Commerce and the National Association of Manufacturers too have been strong supporters of the legislation. Covid-19 exposed American vulnerabilities to semiconductor supply chains, most of which are deeply embedded in Asia. Despite being the global leader in semiconductor design and R&D, the USA outsources most chip manufacturing to Asia. Close to 50 per cent of total semiconductor sales worldwide are in America but the USA accounts for only 12 per cent of global production. During the pandemic, US automobile manufacturers were forced to cut jobs and some of the biggies including, General Motors and Ford, had to temporarily stop and/or scale down production.
The US auto industry is estimated to have taken a hit of $210 billion in revenue as a result. But CHIPS is of vital import for the rest of the world too. Given the emerging geopolitical situation, the CHIPS and Science Act needs to be seen in the context of China’s aggressive posture on Taiwan. For example, the Taiwan Semiconductor Manufacturing Company (TSMC), which has more than 50 per cent of the market share in the global semiconductor industry, said in 2020 it was setting up a production plant in Arizona, USA. Japan too is in talks with TSMC for a project to hedge against supply-chain worries. Europe, which has a 10 per cent share in global semiconductor production, is also vulnerable to any crisis. The European Commission has already announced an allocation of 11 billion euros from public funds to study, design, and produce semiconductors. Beijing’s unhappiness with the US legislation is apparent; a Chinese foreign ministry spokesperson said earlier this month the Act “could derail technological cooperation between China and the USA”. But then the aim of CHIPS is to regain the technological supremacy America has lost to China and other countries in recent years so that’s par for the course.