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Credit: Chris Reid | Unsplash
Importance of Semiconductors
Semiconductors, or “chips,” are the foundation for most modern technological products and are often referred to as the “brain of modern electronics.” These silicon-based pieces control and manage the flow of electric currents through transistors in electronic equipment and devices, making them critical components in the production of electronic devices that process, store, and receive information within electronic devices.
Recent Struggles in the Semiconductor Chip Supply Chain
The vast production of electronic devices over the last two decades has substantially increased the demand for semiconductors. Semiconductors play an important role in our daily lives. They are in our cell phones, computers, central heating and cooling systems, televisions, cars, and refrigerators. Furthermore, these chips advance our nation’s security capabilities, as they are utilized in drones, guided missiles, helicopters, fighter jets, and vehicles. Gartner, an information technology research and consultancy company, forecasts the global revenue of semiconductors at $594.9 billion for fiscal year 2021, up 26.3% from 2020. In the midst of semiconductor growth, the COVID-19 pandemic resulted in inoperable factory conditions to produce the chips, limiting its presence in the global supply chain.
Increasing geopolitical tensions between China and Taiwan have raised concerns about the stability of the semiconductor supply chain with 75% of all semiconductor chips produced in the regions. Taiwan contributes more than 60%. The United States only produces between 12% of the world’s semiconductor chips, compared to 40% in the 1990s. The inability to domestically produce semiconductors to meet the demand for necessary electronics led analysts and policy-makers to advocate for an increase in domestic semiconductor production.
CHIPS and Science ACT of 2022 (P.L. 117-167) Procedural History
The Senate passed the CHIPS and Science ACT of 2022 (P.L. 117-167) (hereinafter “the ACT”) by a 64-33 vote on July 27, 2022, followed by the House passing the act by a 243-187 vote on July 28th. The ACT adopted provisions from the Senate’s U.S. Innovation and Competition Act (USICA) and the House’s America COMPETES Act. Both bills passed in their respective chambers, however, they stalled in the reconciliation phase due to an inability to parse out the differences of the language.
The CHIPS and Science ACT includes most popular provisions from both the USICA and the COMPETES, but modifies and omits contentious clauses that stalled both bills in the Senate and House. The ACT imposes substantial conditions and restrictions that recipient companies must adhere to for benefits therein. Compared to the USICA and COMPETES Act, the ACT received bipartisan support with its narrowed scope, focused primarily on semiconductor incentives and research and funding development. In contrast, the USICA and COMPETES Act omitted trade provisions regarding Section 301 tariff exclusions, antidumping and countervailing duties, trade preference programs, and de minimis tariff treatment of China-origin goods. This omission by the USICA and COMPETES Act motivated both parties to support the ACT.
On August 9th, 2022, United States President Joe Biden signed the bipartisan law, citing the goal of bolstering the United States’ semiconductor production capabilities, stimulating research and development into the aforementioned technologies, and reducing foreign dependence on semiconductor production.
Key Provisions of the ACT
The ACT’s main provision warrants $39 billion in financial assistance for the development of semiconductor facilities. The Department of Commerce will disburse funds to covered entities in an attempt to incentivize investment “to build, expand, or modernize domestic facilities and equipment in the United States for the fabrication, assembly, testing, advanced packaging, production, or research and development.” A “covered entity” is defined as:
“a nonprofit entity, a private entity, a consortium of private entities, or a consortium of nonprofit, public, and private entities with a demonstrated ability to substantially finance, construct, expand, or modernize a facility relating to fabrication, assembly, testing, advanced packaging, production, or research and development of semiconductors, materials used to manufacture semiconductors, or semiconductor manufacturing equipment.”
Although the ACT provides a large sum of money to approved investors, § 4652(a)(3)(B) places a $3 billion cap, unless the Executive Branch certifies that more funds will produce a reliable domestic supply of semiconductors used for national security and economic competitiveness. Yet, no “foreign entity of concern” may receive funding under the ACT. A “foreign entity of concern” includes foreign terrorist organizations and countries such as China, Russia, Iran, and North Korea. In recognition of national security concerns, the “technology clawback” provision requires the Secretary to recover any awarded funds from a covered entity that collaborates with a foreign entity of concern.
The ACT also includes an additional $13.2 billion in funding for other programs. The funded programs include $2 billion for the consortium of private companies to manufacture semiconductors solely for national security, $500 million to coordinate with foreign governments on semiconductor supply chain problems, and $200 million for education on chips manufacturing. In addition, the ACT awards $1.5 billion to entities to further the U.S. mobile communications market.
Impact of the ACT
Motivated by the ACT, American tech companies have already committed to increased investment in chip manufacturing. Micron, an American manufacturer of computer memory and data storage, announced an additional $40 billion investment in memory chip manufacturing in conjunction with the ACT, creating an additional 40,000 jobs. Qualcomm and GlobalFoundries announced a partnership and an investment of $4.2 billion to expand a GlobalFoundries facility to manufacture chips. Additionally, Qualcomm, the lead global fabless semiconductor company, announced plans to bolster semiconductor production in the United States by 50% over the next five years. In light of these advancements, the ACT has the potential to restore outsourced and skilled jobs in America, while reestablishing the future of American dominance in the semiconductor chip supply chain.