The Chips for America Act: National Security and a Chinese Perspective

On February 28, the Joe Biden government unveiled the rules for his Chips for America Program which aims to strengthen research and manufacturing of semiconductors in the United States, thus initiating a new avalanche of federal funding in the sector.

The Ministry of Commerce has $50 trillion distribute under the modality of direct financing, federal loans and loan guarantees. This is one of the largest federal investments in a single industry in decades and underscores the deep Washington worries about America’s addiction to foreign fleas.

Due to the enormous cost of building highly advanced semiconductor facilities, funding could come quickly and competition for money has been intense.

Next, a look at the law of fleas and science, its purposes and how it works.

Most of the money – $39 billion – will be used to finance the construction and expansion of manufacturing facilities. An additional 11 trillion will be distributed this year to support research into new chip technologies.

Much of the money for manufacturing will likely go to a few companies that make the world’s most advanced semiconductors – including Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung Electronics, Micron Technology and, perhaps future, Intel – to help them. build facilities in the United States.

Some will go to older chipmakers that remain essential for cars, devices and weapons, as well as suppliers of raw materials to industry and companies that package chips into their end products.

Although some critics have questioned the wisdom of subsidizing a profitable industry, semiconductor company executives say they have little incentive to invest in the United States.due to higher costs for workers and keeping a factory running.

The government does not intend to fund entire projects. According to Biden administration officials, they plan to offer grants of between 5 and 15% of a company’s capital expenditure for a project, with funding no more than 35% of the cost. Companies can also apply for a tax credit which reimburses them for 25% of the construction of the project.

Gina Raimondo, Secretary of Commerce, describes the program as one of the most important national security initiatives.

Although the United States remains a leader in chip design, most manufacturing has been shipped overseas. Currently, more than 90% of the most technologically advanced chips, crucial to the US military and economy, are produced in Taiwan. This raised concerns about the vulnerability of the supply, due to the Chinese aggression towards Taiwan and the possibility of a military invasion of the island.

At the same time, China has increased its share in the market for less advanced chips that remain essential for cars, electronics and other products. The United States makes 12% of the chips, but none of the most advanced in the world.

Shortages of chips during the pandemic forced factories to halt work and showed up in tangible ways how vulnerable is the supply chain to interruptions. On just three occasions last year, workers at Ford Motor plants in Michigan and Indiana worked a full week due to chip shortages, Raimondo said in a speech at Georgetown University last week. This served to create a shortage of cars and raise their prices, which fueled inflation.

According to the Department of Commerce, the program will also provide a national source of the world’s most advanced chips to the Department of Defense and the Homeland Security community.

According to Raimondo, the goal is to build at least two manufacturing centers in the United States to produce the most advanced types of logic chips, as well as facilities for other types of chips and complex supply networks for take charge.

Commerce Department officials declined to speculate on the location of those facilities, saying they must review the applications. However, chipmakers have already announced billions of dollars in new investment plans across the US.

TSMC, the company that makes most of the world’s most advanced chips, has been busy expanding in Arizona, while Samsung, the second-largest producer, is expanding in Texas. Micron, which makes advanced memory chips, has announced big expansion plans in New York. And Intel, an American tech giant investing heavily to give itself a technological edge, has started building a “megasite” in Ohio.

However, there is skepticism about what the program can do. For example, a 2020 study found that a $50 billion investment in the industry would only increase US market share by 14%.

The Biden administration is risking big to show that this foray into industrial policy can work. Critics argued that the federal government may not be the best judge of winners and losers. If the government gets it wrong, it could face intense criticism.

The Commerce Department said it will look closely at companies that have applied for funding, to try to make sure they don’t get more taxpayer money than they need.

In a decision that could upset some companies, the department said that projects receiving grants are expected to share part of windfall profitsto ensure that companies provide accurate financial projections and do not overestimate costs to obtain higher subsidies.

The Commerce Department also said it would spread funding over time as companies reach project milestones and that he was going to give preference to those who undertook to refrain from buying back shareswhich often enriches the shareholders and management of the company by increasing the price of a company’s shares.

Companies also have banned from making new high-tech investments in China or other “countries of interest” for at least a decadeto do its best to ensure that taxpayers’ money is not used to finance new operations in China.

However, analysts say it remains to be seen how difficult these provisions will be to enforce. A company’s finances can be opaque and when a company saves a dollar in the United States, it may decide to invest it elsewhere.

© The New York Times 2023