The global shortages of semiconductor’s may have been accelerated by the COVID-19 pandemic, but according to Koray Köse, an analyst at Gartner, the situation has been developing for years. From the rise of 5G creating additional demand, to the United States decision to prevent the sale of domestic semiconductors and other technology to Chinese telecommunications competitor, Huawei, causing major foreign orders from the company, the pandemic was the last drop in an already overflowing bucket. Even more recently, a string of bad luck has exacerbated the problem after the major 2021 winter storm in Texas shutdown semiconductor factories and a plant fire in Japan caused delays.
As of 2019, nearly four-fifths of global semiconductor chip manufacturing was done in Asia. Since 1990, there has been a 25% decline in domestic manufacturing in the United States, from 37% in 1990 to 12% in 2022, according to the Semiconductor Industry Association. This decline has been likened to substantial manufacturing incentives offered by foreign global competitors, placing the United States at a competitive disadvantage when trying to attract new construction of chip manufacturing facilities.
Comparatively, federal investment in semiconductor research has previously been unremarkable as a share of GDP, while other governments have substantially invested in research.
However, a new law could change everything.
On Tuesday, President Biden signed the CHIPS and Science Act (Creating Helpful Incentives to Produce Semiconductors for America Act) into law, opening access to more than $50 billion in research and manufacturing of semiconductor chips.
The bill, which was passed by lawmakers in late July, will help the country regain a leading position in chip manufacturing by bringing more facilities back to the United States, which will help lower costs and prevent supply disruptions.
The law will invest $39 billion over five years to expand domestic manufacturing, providing companies incentives to build, expand, and modernize facilities and equipment. Additionally, it creates a new 25% tax credit for companies that invest in semiconductor manufacturing equipment or the construction of manufacturing facilities. However, private companies that receive financial assistance will be restricted from expanding certain chip manufacturing in China for 10 years.
As for the new tax credit, the president pushed back on criticism of subsidizing the industry by stating that the law is “not handing out blank check to companies.”
"I'm ordering my administration to be laser-focused on the guardrails that will protect taxpayers dollars," said Biden, at the signing ceremony. "It means making sure that companies partner with community colleges and technical schools, offer training and apprenticeship programs, and work with small minority-owned businesses. We'll have the power to take back any federal funding if the companies don't meet these commitments required by the bill."
The act will also provide $11 billion over five years to the Department of Commerce for research and development into advancing semiconductor manufacturing, new technologies, and expanding employee training opportunities. To help domestic telecommunications companies compete with Huawei and limit the pull of other telecommunication companies with close ties to China, another $1.5 billion will go to the Public Wireless Supply Chain Innovation Fund.
"We're going to construct an entire semiconductor ecosystem right here in the United States of America," Commerce Secretary Gina Raimondo said at the White House event.
The legislation is one of the recent bipartisan bills to make it to the president’s desk, with 17 Senate republications, and 24 House republicans voting in favor of the bill.
In reaction to the bill signing, Semiconductor Industry Association president and CEO, John Neuffer, commended the president and Secretary Raimondo for the action.
“We thank President Biden and Secretary Raimondo for their unwavering support and leadership and applaud the bill’s champions in Congress–led by Sens. Schumer, Cornyn, and Warner, as well as Reps. Matsui and McCaul–for their tireless efforts to get this critical legislation across the finish line,” he said. “The CHIPS Act will help usher in a better, stronger American future built on semiconductors.”