What the CHIPS for America Act Could Mean for the U.S. Semiconductor Industry

June 24, 2020 by Tyler Charboneau

The bill would secure $22 billion to promote more U.S.-based semiconductor manufacturing.

Semiconductor companies want to accomplish two things: 1) remain competitive (profitable) and 2) push the technical limits of their architectures.

This requires plenty of research and development, contingent largely on funding. Furthermore, we need a large workforce to meet these lofty goals. The U.S. semiconductor industry employs roughly 250,000 people to this end.

Recently, the United States Senate proposed a bipartisan bill that aims to invigorate domestic semiconductor production even more. U.S. Senator Mark R. Warner (D-VA) and Senator John Cornyn (R-TX) have brought the legislation forward, which faces a House vote prior to moving forward.


Michael McCaul

Representative John Cornyn is one of the sponsors of the proposed bill in the House of Representatives. Image used courtesy of Stefani Reynolds

The CHIPS for America Act (CHIPS stands for Creating Helpful Incentives to Produce Semiconductors) will earmark $22 billion to create a plethora of programs bolstering U.S. competitiveness in the space. 

With semiconductor production doing well in the States, why might the government be getting involved now?


The Manufacturing Landscape and a U.S. Goal of Autonomy

Those familiar with the semiconductor manufacturing sector likely know that some of most stalwart producers are based in Taiwan, South Korea, Japan, and China. However, the United States has traditionally claimed a massive piece of that manufacturing pie; American companies secured 45% of the global semiconductor market in 2019, according to the Semiconductor Industry Association.


'U.S. market share of global semiconductor sales in 2019

U.S. market share of global semiconductor sales in 2019. Image used courtesy of the Semiconductor Industry Association

With semiconductor manufacturing constantly gaining steam, the U.S. government has a vested interest in supporting future growth. Furthermore, the federal government wants to slash U.S. reliance on foreign imports. Control is a core part of that equation. Officials want to oversee where chipsets are being produced and how they’re produced, all while reducing global supply chain complexities. 

Many chips are produced overseas despite being designed in the States. Securing raw materials isn’t easy when the U.S. is so far removed geographically from overseas suppliers. Keeping that operation “in-house” will help ease existing concerns, like delays. 

The U.S. and China have also entered into semiconductor disputes. Blocked acquisitions of Qualcomm and later NXP—plus conflicting business interests—have ignited a push toward self-reliance. The bill explicitly mentions China, echoing the economic and geopolitical concerns underscoring chipset production. Keep in mind that the CHIPS for America Act is coming from the Senate Select Committee on Intelligence, which is certainly no coincidence.


Huawei reported that its predominant source of revenue in 2019 came from China

Semiconductor leader Huawei reported that its predominant source of revenue in 2019 came from China. Image (modified) used courtesy of Business Insider Intelligence

Lawmakers also fear that Chinese involvement with Taiwan could disrupt TSMC’s operations. The company owns the world’s largest semiconductor foundry. 


The Concrete Action Plan of CHIPS for America

The CHIPS for America Act has lofty goals as are the commitments made to industry players. Here’s a brief breakdown: 

  • An investment tax credit of 40% for semiconductor equipment or facility costs through 2024, dwindling each year until it disappears in 2027

  • $10 billion in federal matching to state and local funding in support of advanced manufacturing
  • New programs and funding to boost the nationwide STEM workforce, 5G leadership, and advanced assembly
  • Department of Defense funding for related projects, including the Defense Production Act tie-ins to support rapid production as needed
  • $750 in trust funding supporting transparency, policy negotiations with foreign powers, and consistency in the semiconductor industry
  • $12 billion towards numerous R&D pursuits in a variety of sub-industries, related fields, and training programs

These provisions have a few implications. Officials want to incentivize early progress, so companies won’t drag their feet or become complacent with their current offerings. The government also wants to invest in the long term, supporting knowledge building and years of innovations that extend beyond the next seven years. While the U.S. strives for supply chain independence, this movement is not explicitly nationalistic in nature; little emphasis would be placed on international cooperation if that were the case. 

Increased manufacturing means the production of additional foundries. We also need more engineers to tackle these projects. Legislators have taken both concerns into account with this new bill. Ample funding is devoted to training more electrical engineers. It’s unknown how production automation might impact staffing goals moving forward.


Steps for U.S.-Based Semiconductor Production

Just like automotive manufacturing sparked immense economic growth in its heyday, semiconductors are poised to carry that torch. Convincing companies that domestic production is optimal may go a long way in preserving the United States’ dominance.

There are signs that the sentiments inspiring the CHIPS for America Act are working outside the proposed bill already. TSMC is pouring $12 billion into a new Arizona chip foundry. This move will also benefit major domestic companies like Apple, who currently rely on Taiwanese production. This project will occur over an eight-year period. 


Semiconductors were the U.S.'s number one export in 2019

Semiconductors were the U.S.'s number one electronic product export in 2019 ($ Bn). Image used courtesy of the Semiconductor Industry Association

The U.S. government has also asked Intel and Samsung to produce more American-made chips. Intel is exploring a partnership with the Pentagon. Samsung’s plans are a little murkier, though talks are ongoing. The company’s sole American foundry resides in Austin, Texas. 

The United States is betting on both the short and long term. Proactive planning will hopefully ensure greater sustainability and a bright manufacturing future. Lawmakers introduced the bill to the House of Representatives on June 11th, though a vote is still pending.