What the CHIPS Act Really Means for U.S. Semiconductor Manufacturers

The U.S. is closer to passing the CHIPS Act into law, a $250 billion Senate bill of which some $52 billion goes to U.S.-based semiconductor manufacturers to build chip fabrication facilities, or “fabs”, in the U.S. Hefty tax breaks and other incentives will make it happen, said Jeff Ferry, chief economist for CPA.

The CHIPS Act passed the Senate on Tuesday by a vote of 64 to 33. The bill now goes to the House, where it can be amended. Regardless, we expect this will become law by August.

After it looked like the CHIPS Act would die a slow death due to its inclusion in Congress’ broader China competition bill, most recently dubbed the Bipartisan Innovation Act, major chipmakers said they would stop new projects in the U.S. without a support signal from Washington. That signal came this week when the CHIPS Act became a stand-alone bill once again.

Samsung says it is considering building 11 new chipmaking facilities in Texas over the next 20 years. They had already announced plans to build a $17 billion semiconductor factory in Taylor, Texas.

Jeff Ferry, Chief Economist at the Coalition for a Prosperous America. (Photo by Max Taylor).

Why does the U.S. need to provide subsidies and incentives to Intel and other global chip makers?

“A lot of people in Congress are concerned with China and Taiwan, and a clash between the two becoming a reality someday. So much of our chips business depends on Taiwan,” said Ferry. “A lot of politicians are concerned about the auto industry, for example. We had thousands of temporary auto layoffs last year because carmakers couldn’t get access to chips. The CHIPS Act addresses that. It will provide incentives not just to make high-end chips, it’s also to make low-end chips for automotive. We need companies like Intel, Texas Instruments, and Taiwan Semiconductor (TSMC) to build in America, and these companies and others are expected to build new fabs here if they get these tax credits. It is important for our economy; it is important for innovation, and it is important for national security.”

How would the CHIPS Act keep innovation at home?

“The U.S. is the home of the vast majority of the latest and greatest chips. Our engineers develop them here. Each new chip has its own manufacturing process and it works best if the chip maker is near the inventor companies like Nvidia that are the cutting edge of chip design.  It takes time to perfect the manufacturing process to make these chips work the way you want. So a designer must partner with a manufacturer,” said Ferry. “To turn out thousands of chips a day or millions a year require fabs to work closely with the designer to get the process right and that can be done more easily when you have that ecosystem domestically. If you don’t have it domestically, if you have all the designers like Nvidia outsourcing to Asia, then over time every other aspect of the semiconductor industry will follow the fabs to Asia. You won’t have the brainchild players like Nvidia that design the chip here anymore; you will have them move to Asia where the entire ecosystem will be located.  And then where will the Defense Department get the chips to power the next generation of smart missiles or satellites? This is the problem the CHIPS Act addresses.”

What kind of subsidies are we talking about?

“They have to build in the United States and buy the equipment to make the chips from the U.S. in order to get CHIPS Act funding, of course. That is the conditionality of it all. The law would work in partnership with state and local government funding mechanisms. States like Ohio have always been willing to give incentives to technology manufacturers, such as tax abatements or building roads. The new CHIPS Act tax credit for building a fab will add to the support, enabling chipmakers to get substantial write-offs on their annual taxes, adding to their bottom line and their earnings per share,” said Ferry.  “Companies care about profits. But they also care about being at the technological cutting edge and providing good quality products for their customers. They would have to build that in the United States and buy the equipment to make the chips from the U.S. in order to get CHIPS Act funding, of course. That is the conditionality of it all. Think about this: TSMC was started when the Taiwanese government hired the number two executive out of Texas Instruments, Morris Chang, and said: ‘We want to start a chipmaking industry in Taiwan. We are going to put a lot of money into not just the company but into building university departments to give you the expertise you need, and suppliers to make the essential supplies you will need.’ It was an investment of billions of dollars” said Ferry. “And today TSMC is a $57 billion company and the whole Taiwanese GDP is $689 billion so around 10% of the Taiwanese economy is in chip manufacturing. That’s how crucial this sector is.”

CHIPS Act critics say we are getting involved in “corporate welfare”. Isn’t this a China-style policy?

Editorials in the Wall Street Journal have argued against the CHIPS Act, saying that major Asian players like TSMC and Samsung do not benefit from subsidies. Instead, they tap capital markets for growth via debt. What they forget, however, is the fact that Taiwan and South Korea, like China today, have spent decades and billions of dollars lifting this industry up to where it is today.

“China and Taiwan have been using subsidies to pick favorites over the last several years and if we don’t do the same, we are just going to be left with the industries they choose to leave us with,” said Ferry, “such as low-value industries in retail or food service. Since we invented most of the technology in these chips, it is logical and strategic that we have the capacity to make chips in this country. And to maintain and grow that ecosystem from design to fabrication in the U.S. This is a $600 billion industry growing at a pace of around 10% a year. To give the bulk of it to Asia would be a travesty and a national security risk.”

See “Silicon Sell-Out: Five Risks of Apple’s Deal with YMTC” by Jeff Ferry and China Tech Threat co-founder Roslyn Layton.

Is it true that China is still years behind Japan, South Korea, and Taiwan in semiconductor manufacturing?

“China is gaining fast. They have many smart, diligent people and their universities turn out tons of engineers, many of whom graduate from the best schools in the U.S. and return to China. Look at where Semiconductor Manufacturing International Corporation (SMIC) is today. They can make seven nano-meter chips now. They are beginning to do state-of-the-art work in their fabs,” Ferry said. “This is a partially state-owned publicly listed Chinese semiconductor foundry and it is the largest contract chip maker in China and the 5th largest globally. And like others in China, they get there by stealing U.S. and western technology. SMIC’s latest chips are reportedly ‘based on’ TSMC technology. Do not underestimate China. They will catch up to TSMC, Intel, and Samsung before we know it. And they will eventually build a world-class ecosystem. Ours will deteriorate without the CHIPS Act becoming law. You’d have sales offices and maybe some customization in the U.S., but all of the design and manufacturing would hightail it to Asia, including China, where the U.S. can never match them on price due to subsidies and state support.”

There is serious concern about the R&D component of the CHIPS Act. What’s the risk of money going to academic institutions for corporate R&D winding up in partnership with China firms and academic institutions now that the Senate removed guardrails from the bill?

Senator Rick Scott (R-FL) called the CHIPS Act a “reckless spending spree” mainly because of this R&D component to the bill. Recently, Sen. Chuck Schumer (D-NY) removed guardrails that would ban that funding from going to universities doing work in partnership with Chinese universities, or for work with U.S. tech companies in partnership with Chinese tech companies. Removing this provision, which was authored by Sen. Rob Portman (R-OH), now ensures that the Chinese Communist Party will benefit from U.S. taxpayer-funded, cutting-edge research.

These guardrails should remain in place, said Ferry.

“My take on the R&D money is that China will be applauding loudly,” he said. “If money goes to Stanford or MIT or Harvard, Chinese grad students, hackers, and spy-professors will turn the results over to China before the researcher can even drive over to Apple to tell them about the results.”

CPA Demands Restoration of CHIPS Act Provision Preventing Taxpayer Funded Research from Benefitting China






CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.

The latest CPA news and updates, delivered every Friday.


Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.