US Congress Approves CHIPS Act to Boost Semiconductor Production and Pour Billions in Chip Fight Against China

The long-awaited CHIPS and Science Act, which aims to increase semiconductor manufacturing in the United States, was passed by the House by 243-187, with no Democrats voting against the bill.

The bill is now headed to the White House, where US President Joe Biden will sign it into law. This bill is expected to help the US compete against China, by steering billions toward domestic semiconductor manufacturing.

Biden, on July 26, wrote on Twitter: “Semiconductor chips are the building blocks of the modern economy – they power our smartphones and cars. And for years, manufacturing was sent overseas. For the sake of American jobs and our economy, we must make these at home. The CHIPS for America Act will get that done.”

Some Republicans who opposed the bill claimed it lacked “guardrails” to prevent any of the funding from falling into the hands of China, while other critics have stated that the US would need to spend many billions more to compete in a market currently dominated by Asian manufacturers.

However, supporters of the bill argue that it is necessary for America’s economy and national security to produce more chips, which are increasingly important components in a wide range of items such as consumer electronics, autos, medical equipment, and weapons systems.

For example, the Semiconductor Industry Association (SIA) has highlighted major facts regarding how CHIPS Act would help the country. It stated that semiconductors are not only critical for the US economy but also for the country’s national security, and technology leadership.

While further explaining why this Act is important, the SIA stated that semiconductors enable important technologies that will drive the future economy and national security such as AI, 5G/6G, quantum computing, cloud services, and so on.

The SIA stated: “The current shortage of chips highlights the vital role of semiconductors throughout the entire economy — including aerospace, automobiles, communications, defence systems, information technology, manufacturing, medical technology, and others.”

Meanwhile, well-known NASA astronaut and Arizona Senator Mark Kelly said in an interview with Fast Company that the US cannot allow China to become the world leader in semiconductor chip manufacture.

“We used to make the best chips in the world. We made the first one. This stuff was invented here, and we used to have about 40% of the worldwide production. We’re now at 12%. And it’s getting worse,” he added.

Intel, who along with other US chip makers, told the US Congress that if the CHIPS Act is not passed, they will relocate their fabrication facilities to other nations, stands to benefit from the bill’s passage.

Intel had also delayed the start of construction on its $20 billion Ohio fabrication site after prior iterations of the measure were rejected by Congress.

Now, Intel CEO Pat Gelsinger wrote on Twitter following the vote: “This investment will shape the future of America’s leadership in semiconductor manufacturing and innovation. We are excited to move full speed ahead to start building #IntelOhio!”

THE FUND DISTRIBUTION

The CHIPS and Science Act, which stands for Creating Helpful Incentives to Produce Semiconductors for America, comprises e $52.7 billion in funding for US computer chip manufacturers, as well as billions more in tax breaks to stimulate investment in chip manufacturing.

According to the bill, $50.0 billion will be allocated over 5 years for a CHIPS for America Fund. It says that the funding must be utilised to implement the Commerce Department’s semiconductor incentive, as well as R and D and workforce development programmes.

Around $2 billion would go toward the Microelectronics Commons, a national network for onshore, university-based prototyping, the lab-to-fab transition of semiconductor technologies, including Department of Defense-specific applications, and semiconductor workforce training.

According to the bill, $500 million in funding would be allocated over five years to the Department of State, in collaboration with the US Agency for International Development, the Export-Import Bank, and the US International Development Finance Corporation. This is expected to support international information and communications technology security and semiconductor supply chain activities, including supporting the development and adoption of standards.

Additionally, the National Science Foundation will get $200 million over five years to foster the growth of the semiconductor workforce. A highly skilled domestic workforce is critical to the success of new and enlarged facilities built under CHIPS Act incentives.

It also comprises a $39 billion fund that will assist enterprises that expand or establish new semiconductor manufacturing facilities in the US.

The bill also stated that by 2025, the semiconductor industry is expected to require an extra 90,000 people.

Y.D Wasaskar, Founder and Director of Wyse Biometrics systems Pvt Ltd told News 18: “Bringing production activities back to the country shall always have good effects in the long run and the money allotted reflects its importance on every side of the economy in terms of Biometrics, AI, 5G or robotics.”

“But it may appear to be an expensive proposition for both the industry and customers,” he added.

Meanwhile, Atul Modi, Cofounder of AXL World said that the US appears to aspire to lead in technological research and manufacturing based on the way they are concentrating on and spending on chip manufacturing.

“Technology around will further expand its dynamics in emerging areas like AI, robotics, 5G and biotechnology. This will impact the economical advantage of outsourcing as it turns out to be the tide that will fold and may have an impactful effect on different nations,” he added.

SORTING OUT THE CHIP ISSUE

During the peak of the Covid-19 pandemic, the chips were in scarce supply. Factory shutdowns at the start of the outbreak halted semiconductor manufacturing in Asia, while consumer demand for automobiles and improved home devices that require the chips increased throughout the lockdowns.

The US produces a few of the most modern types of semiconductors, which are mostly manufactured in Taiwan, which is at the heart of escalating political tensions with China.

So, increasing semiconductor manufacturing in the US appears to address the global supply constraint for chips, as it caused major roadblocks to purchasing everything from vehicles to medical devices during the peak of the pandemic.

Senate majority leader Chuck Schumer (D-NY) has claimed that the financing plan could help fight inflation by making certain things cheaper.

While it is fair to call the legislation a bipartisan victory, it is mostly focused on keeping up with China’s rising investment in its own domestic chip industry, rather than addressing the current challenges with the tech supply chain.

It should be understood that this package’s chip factories won’t be finished for years and the Act alone may not be enough to spark a long-term semiconductor revolution in the US.

Especially when other countries, such as China, South Korea, and European Union member states, are also scaling up chip manufacturing and investing tens of billions of dollars in the business.

Additionally, India has also proposed its own ‘Semiconductor Mission’ to become a global chip-making hub.

Regarding India’s participation in this race, Pankaj Garg, CEO, and Co-Founder of DailyObjects told News18: “In the context of these recent geopolitical developments, India ought to look inwards and try to claim a space in this ~$600 Billion industry.”

“India already has capabilities like Design, Prototyping, etc but building an ecosystem for manufacturing and finding a market for the Chips would be a gamechanger in the country’s economy,” he added.

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