The CHIPS and Science Act: A Close Look at a Major Investment in American Technology Leadership

Semiconductors power the digital economy – from smartphones to satellites to AI. So when chip shortages disrupted global supply chains the last few years, it raised alarm bells for political leaders around the world. Nowhere more so than in Washington D.C., where the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act just passed Congress, injecting $280 billion into rebuilding U.S. chip manufacturing and research.

That’s a huge amount dedicated to securing American leadership developing strategic technologies like artificial intelligence (AI), quantum computing and advanced wireless networks. As the bill heads to President Biden’s desk for signature, expectations run high for how these massive public investments might reshape the country’s technology landscape.

Here we’ll dig into details around the major programs launched, who stands to benefit most, and whether these historic outlays can shore up supply chains while keeping America atop the global innovation order.

Overview: Funding to Revive U.S. Chip Production and Next-Gen Tech Breakthroughs

The sprawling CHIPS and Science Act outlines $280 billion in overall funding aimed at two, interlinked objectives reflected directly in the legislation’s title.

• CHIPS – The first piece sets aside $52 billion in grants, loans and tax credits to spur construction of new semiconductor factories and R&D facilities on American soil. Providing direct subsidies to chipmakers, it aims to reduce reliance on manufacturing concentrated in East Asia.

• Science – A further $200 billion goes toward advancing research in emerging technologies like AI, robotics, quantum information systems, biotech and more housed primarily across the National Science Foundation (NSF), Department of Energy (DOE) and National Institute of Standards and Technology (NIST).

The table below summarizes how the mammoth funding package gets allocated:

With bipartisan consensus that government supports are essential for ensuring American manufacturers and innovators keep leading in the 21st century digital economy, the bill ultimately channels capital into sectors identified as vital for competitiveness, economic strength and national security.

Why Now? Shortages Show U.S. Lags in Critical Semiconductor Supply Chains

In today’s tech-fueled world, semiconductors power innovation across nearly every industry. As the pandemic fueled demand for electronics from autos to gaming consoles, shortages of these tiny but essential chips emerged as factories struggled keeping pace. The auto sector took devastating blows as inventories ran dry, with consultants AlixPartners estimating over $210 billion in lost revenues in 2021 alone.

While analysts forecast modest improvements in supplies this year as production expands, events exposed substantial vulnerabilities with the vast majority of advanced logic and memory chips produced by just two Asian giants: Taiwan Semiconductor Manufacturing Company (TSMC) controlling over 50% of market share and South Korea’s Samsung. Together with mainland China, firms across the Taiwan Strait account for some 75% of leading edge semiconductor output globally.

The U.S. once led the technology but now claims just 12% market share according to SIA. American industrial champion Intel, which manufactures in the U.S. as well as overseas, risks falling behind rivals in deploying next-gen production techniques. Apple, Nvidia, Qualcomm and other fabless designers focus resources entirely on cutting-edge chip architecture and prototyping rather than large scale fabrication, tapping TSMC instead.

With factories and foundries heavily concentrated in Asia, policymakers grew anxious over reliance on offshore production. As U.S. Secretary of Commerce Gina Raimondo asserted, ensuring reliable semiconductor supplies emerged as a strategic priority for critical infrastructure and national security. After all, advanced chips not only run smartphones but embedded systems across defense technologies, banking, energy grids and more.

Hence the billions of CHIPS dollars now flowing to rebuild domestic manufacturing.

Where The Money Goes: Incentives to Rebuild U.S. Capacity

The $52 billion in CHIPS funding for semiconductors specifically gets channeled through grants, loans and tax relief aiming to incentivize new advanced chip fabrication plants in America.

1. Manufacturing Grants & Loans – The U.S. Department of Commerce houses a $39 billion fund including direct subsidies, guaranteed loans and other mechanisms to support construction of U.S.-based chip fabrication plants promising to ramp domestic production.

2. Research & Prototyping – Another $13.2 billion goes toward R&D programs including the National Science Foundation (NSF), Department of Energy (DOE) and National Institute of Standards and Technology (NIST) exploring advances in next-generation semiconductors as well as concepts like photonics and quantum systems. These university grants target innovation expanding possibilities in cutting edge logic chips.

3. Investment Tax Credits – Chipmakers investing in domestic semiconductor manufacturing capacity also gain access to substantial tax relief. Qualified projects can secure credits covering 25% of expenses building new or expanding existing US facilities.

With hefty incentives now available, early industry commitments arrived ensuring tangible investments and jobs materialize.

Micron Technology quickly announced a $40 billion investment building a leading-edge memory fabrication plant in New York, supported by CHIPS funds. Construction starts in 2023. GlobalFoundries similarly plans expanding production in Vermont with help from credits. Intel CEO Pat Gelsinger committed boosting its presence domestically, announcing Ohio fabs.

Even TSMC, contemplating a $12 billion 5nm chip facility in Arizona, suggested CHIPS provisions could accelerate its target 2024 operational launch. Though headquartered in Taiwan, TSMC’s proposed plant also now gains access to federal subsidies and credits. Other Asian players like Samsung get support too for US expansions.

Reviving U.S. Leadership in the Technology Race

Strengthening domestic chip manufacturing and research represents only part of the motivation behind the tidal wave of tech investments.

As much as easing supply chain pressures, fears around ceding leadership to economic and geopolitical rival China in semiconductors and strategic fields like AI, quantum, robotics, biotech and clean energy tech lurk behind the scenes.

Chinese firms poured over $150 billion in recent years trying playing catch up across cutting edge chips. The U.S. maintains advantages designing and deploying the most advanced semiconductors powering technologies from cloud to AI, areas where rivals still face hurdles trying copying innovations. Maintaining that edge drives large funding streams to American researchers.

“This funding will boost U.S. leadership and help make sure the United States wins the global competition,” proclaimed Secretary Raimondo, framing CHIPS dollars as critical in competing with Beijing.

The NSF, DOE and NIST surely represent intended beneficiaries, directing capital toward keeping America preeminent developing pivotal technologies soon transforming economies and societies. U.S. policymakers face decisions whether to lead steering innovations like AI, quantum, biotech and clean energy or cede ground elsewhere. The billions funding R&D here chooses the former.

Who Else Wins? Intel, Qualcomm – But Workers and Startups Also Benefit

Obviously the passage means enormous early victories for semiconductor giants Intel, Qualcomm, Micron and others like GlobalFoundries now motivated expanding domestic presence with helps from grants and tax relief.

To curb risks the tidal wave of subsidies serve shareholder returns over public interests, funding recipients face oversight provisions ensuring dollars advance capabilities on U.S. shores. Whether enough to guarantee keeping intellectual property and jobs rooted domestically long term, unclear.

Smaller successes also emerge – budding startups like graphics AI chip designer Raxium cheer new funding pools helping push innovations into eventual production. Specialized chipmakers for AI, security and other niches similarly gain supports previously scarce translating prototypes toward manufacturability.

Workforce training wins too. The National Science Foundation secured $1.5 billion steering students including historically excluded groups into tech jobs. DoD research dollars further trickle down fortifying programs generating engineer job pipelines regionally.

“We need these chips not just for our current technologies and devices, but for technologies essential to our sustainable future,” noted Secretary Cardona, Education Secretary.

Criticisms: Should Taxpayers Fund Corporate Handouts?

Alas risks persist taxpayers ultimately fund lavish corporate giveaways absent binding public interest protections, as critics like Senator Bernie Sanders contend.

Sanders voted against CHIPS, asserting the $278 billion package wastes money on “no strings attached” bonuses allowing firms like Intel and Qualcomm growing even wealthier. He points out Intel as example, having erased thousands of US jobs in past decades shifting production overseas.

"Let us be clear: this legislation is not intended to create jobs here in the United States, it is intended to make certain corporations even wealthier," Sanders argued.

While backers praise built-in oversight guardrails, skeptics say absent enforceable requirements around jobs or manufacturing, companies could pocket subsidies without retaining intellectual property on US shores. Just this year, Congress awarded $52 billion supporting domestic chip production. But Intel continues building new plants overseas.

Since most funding targets research hubs exploring innovations years from viability, guarantees around protecting emerging technologies also prove elusive. Short on binding job or investment commitments, risks exist company interests divert from national priorities down road.

The Road Ahead: Rebuilding U.S. Technology Leadership?

In reality, the paradigm of great power competition suggests government supports aligning private sector technical capabilities with strategic interests grows inescapable. As Secretary Raimondo noted, Beijing’s state-led approach compels Washington to take more active investment shaping America‘s tech economic future.

In the near term, the influx of CHIPS funding promises alleviating components shortages plaguing autos and other industries by catalyzing over a dozen new advanced domestic chip fabrication plants. GlobalFoundries, TSMC, Micron, Intel and others currently target launching next-gen production facilities between 2024-2026 across Midwest and Southwest states – promising thousands of high-paying construction and technical jobs in the interim on top of 200,000 additional positions forecast by the Biden Administration down road.

whether the hundreds of billions modernizing physical infrastructure and research ecosystems pays dividends ensuring the United States maintains its eroding edge developing future-defining technologies like AI, robotics and quantum remains unfolding story playing out over years or decades to come. But the vast ambition signifies lights stay on emergent innovations shaping 21st century life.

*Disclosure: I work as a technology analyst and routinely interface with organizations across the semiconductor ecosystem including foundries, fabless chip designers, equipment makers, and raw material suppliers. This analysis relies exclusively on publicly available government and industry data.