A new era of industrial policy kicks off with signing of Chips Act

President Joe Biden on Tuesday signed legislation providing $52 billion in subsidies to the semiconductor industry, kicking off what will be one of the largest industrial development programs the federal government has ever administered.

The long-pursued bipartisan legislation looks set to spur construction of more than a half-dozen big semiconductor manufacturing facilities in the United States, providing more secure supplies of the tiny components that are so important to modern electronics that they are viewed as essential to national security.

The bill also authorizes tens of billions of dollars to support federal research and development and regional tech startups, which the administration hopes will lead to commercial breakthroughs in new fields such as quantum computing and artificial intelligence. Congress must still appropriate those funds, however.

“Today is a day for builders. Today, America is delivering,” Biden said just before signing the legislation in a White House ceremony. “I honest to God believe that 50, 75, 100 years from now, people will look back on this week, they’ll know that we met this moment.”

The funds appropriated for subsidies come amid acute global shortages of computer chips, caused by soaring demand and a lack of investors willing to build the multibillion factories needed to make the components. The lack of supply has hobbled automakers and other manufacturers that use chips, forcing them to cut production.

The federal funds won’t solve those shortages in the short term but will incentivize big construction projects by Intel, Taiwan Semiconductor Manufacturing Co., Micron, GlobalFoundries and others that aim to build chip factories in the coming years.

The United States today depends heavily on Asia and particularly Taiwan for its chips manufacturing, a reliance that has worried U.S. officials as the self-governing island’s tensions with China rise.

The Commerce Department will be responsible for overseeing the subsidies program and is in the process of hiring new staff that could include a few dozen people, according to people familiar with the matter who spoke on the condition of anonymity to discuss preliminary plans.

The United States isn’t completely new to industrial policy, through which the government intervenes in the economy to support sectors it believes are critical to national security and growth. Heavy federal research and development spending in the post-war era, for instance, helped the United States invent the semiconductor industry. But industrial policy fell out of fashion in recent decades, often criticized by conservatives as a wasteful form of picking winners and losers.

Mounting technology competition with China, however, has forced many U.S. lawmakers, including Republicans, to embrace more government intervention. Republican senators including Todd Young of Indiana and John Cornyn of Texas joined Democratic proponents including Senate Majority Leader Chuck Schumer of New York and Sens. Maria Cantwell of Washington and Mark Warner of Virginia in backing the legislation.

“The adoption of the CHIPS and Science Act is a watershed in U.S. economic policy,” said Scott Kennedy, an expert on U.S.-China competition at the Center for Strategic and International Studies. “It feels . . . as if a new era is beginning in which government support to strengthen the competitiveness of industries—for reasons of business, national security, public health and the environment—will be seen as more necessary and normal than in the past.”

Dani Rodrik, a professor of international political economy at Harvard University, called the law historically significant “because it is a sign that we have moved well beyond market fundamentalism and because it shows there is now bipartisan support for industrial policies.”

He cautioned, however, that the legislation might be promising “to kill too many birds at once—promote manufacturing, enhance national security vis-a-vis China, and generate good jobs.” Particularly when it comes to jobs, the United States needs “different types of industrial policy to address our labor market and regional inequities,” he said by email.

Some critics of the funding, including Sen. Bernie Sanders, I-Vt., called it corporate welfare for a highly profitable industry. Liberal members of the House backed the legislation but pushed for the inclusion of language that prohibits companies from using the federal funds to buy back shares or pay dividends. Commerce Secretary Gina Raimondo, a champion of the legislation who spoke at the signing ceremony, has vowed to strictly enforce that measure.

Asian governments have long subsidized chip manufacturing, helping them corner the lion’s share of production in recent decades, to the detriment of the United States and other Western nations that took a more laissez-faire approach. About 37% of the world’s semiconductors were manufactured in the United States in 1990 versus about 12% in 2020, according to the Semiconductor Industry Association.

Past U.S. government spending has helped spur some of the world’s best research and development, leading to enviable scientific and commercial breakthroughs. But the United States “didn’t have mechanisms to ensure that production stayed in the United States, so other countries like China could come along and use public sector dollars to incentivize the relocation of the production from the U.S. to China,” said Todd Tucker, director of industrial policy and trade at the Roosevelt Institute think tank.

“I think that the really novel thing about this legislation is it’s the biggest effort in U.S. history to re-shore an industry that has been offshored,” he said.

Micron on Tuesday became the latest chipmaker to seek a share of the federal subsidies, saying it plans to invest $40 billion on new chip-manufacturing facilities in the U.S. through the end of the decade.

The company, based in Boise, Idaho, said the investment will create 5,000 high-tech jobs at Micron and will boost the United States’ share of global manufacturing of memory chips to 10% from 2% today. Memory chips store data and are vital to new technologies such as artificial intelligence, 5G communications and cloud computing.

“This legislation is enabling us to make investments that we would not have made otherwise in the U.S.,” Micron chief executive Sanjay Mehrotra told The Washington Post, adding that the new facilities would manufacture “leading edge” chips. “Without the Chips Act, this production would not have been in the U.S. and that 2% over time would have gone down even to a smaller number.”

Micron is considering “multiple states” as the future site of the manufacturing facilities and will announce its decision in the coming weeks, he said. The company does some manufacturing in Virginia, but it makes most of its chips, and all of its highest-tech chips, in Japan, Singapore and Taiwan, he said.

Intel, the chip giant based in Santa Clara, Calif., has said it will apply for subsidies to support its planned $20 billion investment in two chip factories in Ohio—a project that it has said could grow in the future on a site near Columbus that can accommodate eight factories in all. It will also seek subsidies for a $20 billion expansion underway in Arizona and for a $3.5 billion chip-packaging facility it is building in New Mexico, the company said Tuesday.

“Intel is committed to restoring end-to-end leadership, innovation and manufacturing here in the U.S. We are doing our part and the federal government has now done their part,” chief executive Pat Gelsinger said in a statement Tuesday.

Taiwan’s TSMC, the world’s largest chip maker, has said it will seek subsidies for a $12 billion factory that it has begun building in Phoenix and is aiming to finish late next year.

Other manufacturers seeking subsidies include GlobalFoundries, which plans to double output at its chip factory in upstate Malta, New York, and a partnership between SkyWater Technology and Purdue University that intends to build a new $1.8 billion factory and research facility next to the university in West Lafayette.

Tom Caulfield, chief executive of GlobalFoundries, told The Post that the company is lining up a group of chip customers to help fund its manufacturing expansion and will then apply to the government for subsidies. He wouldn’t say which customers are interested, though last year the chipmaker signed a preliminary agreement with Ford to collaborate on chip production and research.

Samsung and Texas Instruments have also announced large chip-making construction projects in Texas, though they didn’t respond to requests for comment Tuesday about whether they would seek subsidies.

The money is also expected to help fund construction of domestic facilities to make the blank silicon wafers, chemicals and other materials that chip factories need to produce semiconductors.

The legislation includes funds to train workers to run the facilities, which chip experts say is among the biggest challenges to restoring domestic production. More than 30,000 high-tech workers could be needed if all the planned manufacturing projects comes to fruition, according to Will Hunt, a research analyst at Georgetown University’s Center for Security and Emerging Technology.

“The No. 1 issue we all lose a little sleep about is the talent pipeline,” Caulfield said in an interview. “All of us can create the physical assets, but none of us will succeed if we can’t fix the human supply chain.”

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One thought on “A new era of industrial policy kicks off with signing of Chips Act

  1. Nice giving breaks to an industry we started in the US and allowed to move almost entirely over seas….what other industries are we moving back to US??

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