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In this edition, we delve into the CHIPs Act and its role in bringing semiconductor manufacturing back to America. We'll explore how this move aims to strengthen national security, supercharge the economy, and build a resilient supply chain for the future.

Homemade Chips

Can the CHIPs Act revive U.S. chip manufacturing and reshape global supply chains

They say the magic lies in the smallest of things, and nothing embodies this better than semiconductor chips. These tiny yet powerful components are the hidden engines, quietly fueling technological breakthroughs, propelling economies, and pushing the boundaries of science. From the smartphones in our pockets to the spacecraft exploring the cosmos, semiconductor chips are found everywhere, making them one of the most transformative inventions of our time.

The current semiconductor chip production is dominated by Taiwan, South Korea, and China, which has left the U.S. in a precarious position. And for the United States, the ability to produce semiconductor chips domestically is not just a mere economic advantage but a critical strategic necessity. The COVID-19 pandemic triggered a severe chip shortage in 2020, and the ongoing US-China trade tensions have underscored the urgent need for America to secure its supply chain and reduce dependency on foreign chip production.

So, the U.S. is now working hard to bring chip manufacturing back home, with the CHIPs Act at the forefront of this strategy. The Act has gained renewed attention as the U.S. partners with India to expand and diversify the global semiconductor supply chain. 

In this issue of CrossDock, we’ll deep dive into what led to the passing of the CHIPs Act, assess its impact over the past two years, and explore how it has influenced both global and U.S. semiconductor supply chains and its effect on other industries. Let’s first look at what led to the birth of the CHIPs Act.

Weak link 

If oil fueled the Industrial Era, semiconductors are the driving force of the Digital Age, powering everything from smartphones to advanced computing. The global semiconductor market is valued at about a whopping $611 billion in 2024 but is also quite fragile. A few major players dominate the industry, with Taiwan Semiconductor Manufacturing Company (TSMC) holding nearly 60% of the market and South Korea’s Samsung another 20% approximately. These two companies produce nearly three-fourths of the world’s advanced chips. This heavy reliance on just a couple of manufacturers means the entire supply chain is at risk of being disrupted by geopolitical tensions, natural disasters, or unexpected crises.

The vulnerabilities of this concentrated supply chain were laid bare during the COVID-19 pandemic when chip shortages wreaked havoc on industries reliant on these essential components. 

The U.S. automotive industry was among the hardest hit, with the chip shortage costing it an estimated $210 billion in revenue in 2021. Around 11 million fewer vehicles were produced globally, and major U.S. automakers like Ford and General Motors had to halt production at several plants due to the lack of chips. Ford parked thousands of unfinished vehicles while waiting for chips, and Toyota planned to cut vehicle production by 40% globally in September 2021. In fact, the global chip shortage increased new car prices by approximately 12% in 2021 compared to the previous year.  

The consumer electronics sector also faced the brunt of the global chip shortage, leading to increased prices and supply constraints across key products such as smartphones, laptops, and gaming consoles. Laptop prices surged by 10% to 30% in 2021, driven by supply chain disruptions and heightened demand because of COVID-induced remote work trends. Apple reported a revenue loss of around $6 billion in 2021 as the shortage hampered iPhone production. Overall, the chip shortage cost the automotive and electronics sectors an estimated $210 billion in lost revenue in 2021. 

Another looming threat to the global chip supply chain is the escalating political tension between China and Taiwan. This ongoing conflict raises serious concerns about the stability of semiconductor production, as any aggressive move by China could disrupt Taiwan’s chip manufacturing. In recent years, China has increased its military presence near Taiwan, and a full-blown war or potential invasion could bring the entire semiconductor manufacturing and global supply chain to a standstill. 

This is exactly why the U.S. is ramping up efforts to bring chip production back home. Through initiatives like the CHIPS Act, the U.S. is investing billions in boosting domestic manufacturing to reduce reliance on foreign suppliers and shield itself from global supply chain disruptions.

Made in America 

It is impossible to discuss the CHIPs Act without mentioning Alexander Hamilton, one of the Founding Fathers and the first U.S. Treasury Secretary, who advocated the importance of domestic manufacturing. In fact, the CHIPs Act reflects the same Hamiltonian principle he championed centuries ago in his 1791 Report on Manufactures: building a robust domestic manufacturing base to safeguard national security and economic independence. 

Hamilton believed in the power of government support to boost industrial growth, and the CHIPs Act follows the same playbook. By investing heavily in semiconductor production, the US government aims to build a strong domestic manufacturing base and a resilient supply chain to keep America ahead in the tech race.

Interestingly, The CHIPs Act isn’t the first time the U.S. has strategically stepped in to safeguard its industrial leadership. Other major examples are the Defense Production Act during World War II, which ramped up the production of critical goods, and the Space Race investments that spurred technological dominance. The CHIPs Act draws on this legacy to put the United States back on the global map, build a resilient supply chain, and lure top players to invest in the country.

What is the CHIPs Act?

The CHIPs Act, officially known as the CHIPS and Science Act of 2022, was signed by President Joe Biden. It was America’s answer to the vulnerabilities in the global semiconductor supply chain that became painfully clear during the COVID-19 pandemic and rising geopolitical tensions, especially with China. 

The bill allocates $52 billion in subsidies and tax credits for global chip manufacturers who set up new facilities or expand their existing operations in the United States. Additionally, it provides over $200 billion for scientific research in fields such as artificial intelligence, robotics, and quantum computing.

But why is the US doing this now? There are two core reasons for this. The U.S. was once a powerhouse in semiconductor manufacturing, but over the years, its production of semiconductor chips has plummeted drastically. In the early 1990s, the US contributed 37% to the manufacturing of global semiconductor chips. Today, the number has dwindled to a meager 12%. 

Sadly, the United States does not produce any higher-end chips. The US relies heavily on Asian countries like Taiwan, South Korea, and China for its chip needs. In 2022, the U.S. imported approximately $53 billion worth of semiconductor chips. It wants to reduce or completely eliminate this dependence through the Chips Act. If all goes well, according to the Semiconductor Industry Association and the Boston Consulting Group, the U.S. share of global chip manufacturing will reach 14% by 2032.

Chinese checkers

Secondly, America’s decision to ramp up domestic semiconductor manufacturing through the CHIPs Act isn’t just about making chips; it’s a strategic play on the geopolitical chessboard. With rising geopolitical tensions with China, the U.S. plan was to cut its heavy reliance on Asian suppliers and secure its supply chains from potential disruptions. The move was aimed at ensuring that critical technologies—everything from national defense to everyday consumer electronics—remain within American control.

Over the years, China has aggressively pursued dominance in the global semiconductor market, pouring billions into its domestic chip industry to reduce its reliance on Western technologies. According to the Semiconductor Industry Association, China’s share of manufacturing rose to 15% from almost nothing in the same time period the US’s impact was waning. So, the CHIPs Act is the US’s response to counter the Chinese dominance in the tech landscape. 

Chain reaction 

The main objective of the CHIPs Act is to revive America’s domestic semiconductor manufacturing. The Act is reshaping the U.S. semiconductor landscape by funneling billions into new fabs and expanding existing facilities. Since its enactment, companies have pledged over $166 billion in semiconductor and electronics manufacturing investments across the U.S., launching more than 80 new projects in 25 states and bringing the total projected investment to nearly $450 billion. Key players like Intel, with a $100 billion commitment in Arizona, Ohio, New Mexico, and Oregon, Samsung’s $40 billion initiative in Texas, and TSMC’s $12 billion advanced chip plant in Arizona, are leading this transformative shift.

The second vital reason was to address the vulnerabilities and gaps in the global semiconductor supply chain, posing significant risks to the U.S. economy and national security. By building a robust domestic manufacturing hub, the U.S. can significantly reduce its dependence on a supply chain that is heavily concentrated in politically volatile areas. This shift protects critical US industries from potential disruptions. Furthermore, it strengthens America’s ability to control essential technologies, ensuring a more secure and resilient supply chain in an increasingly uncertain world. 

But the CHIPs Act isn’t just about hardware—it’s about investing in people. With significant funding dedicated to workforce development, the Act is building a talent pipeline through partnerships with universities, technical schools, and community colleges. This effort will train the next generation of engineers, technicians, and researchers to sustain and strengthen America’s semiconductor supply chain.

Impact on major industries

Just as homemade chips offer the benefits of health and cost savings, reshoring semiconductor manufacturing brings similar advantages to the U.S. tech industry. By reducing dependence on Asian suppliers and relocating production closer to home, the companies dependent on these chips can minimize long wait times and simplify lengthy and complex supply chains. In short, domestic manufacturing also means quicker and more reliable access to chips, mitigating risks associated with overseas shipping delays and geopolitical uncertainties.

The impact of reshoring will be felt in multiple industries, especially the ones heavily reliant on semiconductors, including automotive (particularly EVs), consumer electronics, and even the defense sector. For tech giants like Apple, Dell, and others, the CHIPs Act could be a game-changer. Recent chip shortages caused significant disruptions, delaying their product launches and complicating efforts to meet consumer demand.

To address this, the CHIPs Act seeks to enhance domestic semiconductor production, with the U.S. aiming to manufacture 20% of the world’s leading-edge logic chips and at least 10% of sub-10nm chips—vital for processors, computers, servers, and other key technologies. The automotive sector is also set to benefit, with the CHIPs Act allocating $2 billion specifically for mature-node chip production, which plays a critical role in many automotive applications.

Forging an alliance  

Under the CHIPs Act, the US Department of State recently announced its partnership with India’s Semiconductor Mission to expand and diversify the global semiconductor ecosystem. Interestingly, the United States and India have a long history of collaboration in technology and innovation, partnering on various groundbreaking projects that have strengthened their strategic alliance. 

One notable example is the US-India Civil Nuclear Agreement signed in 2008, which opened the door for cooperation in nuclear energy and allowed India access to U.S. technology, fuel, and reactors. Another significant partnership is in space exploration, where NASA and ISRO have collaborated on several missions, including India’s Mars Orbiter Mission (Mangalyaan).

Under the CHIPs Act’s International Technology Security and Innovation (ITSI) Fund, which allocates $100 million annually until 2027, this partnership aims to diversify and secure the global semiconductor supply chain by leveraging India's growing capabilities in chip manufacturing. 

The initiative's first step is conducting a detailed assessment of India’s semiconductor ecosystem, including its infrastructure, workforce, and regulatory environment. This partnership aims to strengthen the global supply chain, ensuring that the future of tech innovation is shaped by diverse players rather than being concentrated in a single region.

Other than creating a comprehensive semiconductor ecosystem, what’s in it for India? Let’s break it down for you. China’s assertive stance in the technology space has not only raised alarms in the U.S. but has also been a concern for India, which has faced its own challenges with Chinese influence and competition. This partnership is a timely response to diversify the global semiconductor supply chain away from over-reliance on Chinese and East Asian production, creating a more balanced and resilient network that supports their mutual interests.

Bumpy road

The CHIPs Act, despite its ambitious goals, has seen its share of criticism. While designed to boost U.S. semiconductor manufacturing, some argue that it misses the mark on tackling the broader challenges of the global chip landscape.

Many critics, including Vermont Senator Bernie Sanders, argue that the CHIPs Act essentially functions as a corporate giveaway, particularly benefiting large companies like Intel. The Act provides billions in subsidies to already profitable semiconductor giants, sparking concerns that these funds might not be used efficiently or lead to meaningful advancements in domestic manufacturing. 

Moreover, companies like Intel, which have received substantial incentives, could still prioritize profits and offshore operations rather than significantly expanding U.S. production capabilities. Also, prioritizing bigger companies can completely destroy the smaller companies competing in this space. 

Another point of contention is while the CHIPs Act is focused on promoting advanced semiconductor manufacturing in the U.S., China is doubling down on producing older, less advanced chips, which are still critical for many industries, including automotive and consumer electronics. These chips, known as mature-node semiconductors, typically range from 28nm to 65nm and beyond and are critical components in products like microcontrollers, sensors, and power management devices.

Intellectual property theft has long plagued the tech industry, and semiconductor chips are no exception. There are fears that as companies receive funding to set up fabs in the U.S., they may still have significant portions of their operations in China or other countries with weak IP protections. This could lead to situations where advanced manufacturing techniques and proprietary technologies developed in the U.S. could be vulnerable to IP theft or replication by Chinese entities. In its current form, the Act does not include stringent measures to ensure that funded companies adequately protect their innovations or keep advanced technologies from being transferred to China.

Finally, the CHIPs Act focuses solely on the front end of semiconductor manufacturing (i.e., the production of chips themselves) but does not sufficiently address other critical aspects of the supply chain, such as raw material sourcing and packaging of chips – the process of attaching finished chips onto a flat component called substrate. In short, this means that while chip production might increase in the US, it will still be dependent on Asian countries for overall semiconductor output. 

Final thoughts 

So, how do we gauge the success of the CHIPs Act? Is it a groundbreaking win for the U.S. in the tech world, or just another flashy but ineffective project? The truth lies somewhere in between. The CHIPs Act has shown promising signs, with billions pledged toward U.S. semiconductor manufacturing, but it's a challenging path ahead. Around 40% of these major investment projects are experiencing delays or are on hold. This is mainly due to slow funding approvals, policy uncertainties, and shifting market dynamics like declining demand and economic pressures.

Take TSMC, for example. It postponed mass production at its second Arizona plant by two years. And they’re not alone; other suppliers are facing similar setbacks, grappling with supply chain snags and a shortage of skilled workers, pushing timelines back for some of the most anticipated projects. Adding to the complications, companies are seeking more funding than the Act currently provides, with requests topping $70 billion — nearly double the allocated amount. That is because building new chip manufacturing facilities comes with a hefty price tag ranging anywhere between $5 billion to $20 billion.

Yes, the CHIPs Act is making headway in rebuilding America’s semiconductor ecosystem, but the road is bumpier than expected. The slow rollout of funds and project delays underscore the challenges of executing such an ambitious policy, revealing that while progress is being made, there’s still a long way to go to turn the CHIPs Act into a great American success story.

Thank you for reading. We’ll see you at the next edition!

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