CHIPS and Science Act
Great Seal of the United States
Other short titles
  • CHIPS Act of 2022
  • Research and Development, Competition, and Innovation Act
  • Supreme Court Security Funding Act of 2022
Long titleMaking appropriations for Legislative Branch for the fiscal year ending September 30, 2022, and for other purposes
NicknamesCHIPS-Plus
Enacted bythe 117th United States Congress
EffectiveAugust 9, 2022
Citations
Public lawPub. L.Tooltip Public Law (United States) 117–167 (text) (PDF)
Statutes at Large136 Stat. 1366
Legislative history
  • Introduced in the House of Representatives as H.R. 4346 the Supreme Court Security Funding Act of 2022 by Tim Ryan (D–OH) on July 1, 2021
  • Committee consideration by House Appropriations
  • Passed the House on July 28, 2021 (215–207)
  • Passed the Senate as the Chips and Science Act on July 27, 2022 (64–33) with amendment
  • House agreed to Senate amendment on July 28, 2022 (243–187–1)
  • Signed into law by President Joe Biden on August 9, 2022

The CHIPS and Science Act is a U.S. federal statute enacted by the 117th United States Congress and signed into law by President Joe Biden on August 9, 2022. The act authorizes roughly $280 billion in new funding to boost domestic research and manufacturing of semiconductors in the United States, for which it appropriates $52.7 billion.[1][2][3] The act includes $39 billion in subsidies for chip manufacturing on U.S. soil along with 25% investment tax credits for costs of manufacturing equipment, and $13 billion for semiconductor research and workforce training, with the dual aim of strengthening American supply chain resilience and countering China.[4][5]: 1  It also invests $174 billion in the overall ecosystem of public sector research in science and technology, including in NASA, the NSF, the DOE, the EDA, and NIST.[6][7][8]

The act does not have an official short title as a whole but is divided into three divisions with their own short titles: Division A is the CHIPS Act of 2022 (where CHIPS stands for "Creating Helpful Incentives to Produce Semiconductors"); Division B is the Research and Development, Competition, and Innovation Act; and Division C is the Supreme Court Security Funding Act of 2022.[9]

By March 2024, analysts estimated that the act incentivized between 25 and 50 separate potential projects, with total projected investments of $160–200 billion and 25,000–45,000 new jobs. However, these projects are faced with delays in receiving grants due to bureaucratic hurdles and shortages of skilled workers, both during the construction phase and upon completion in the operational/manufacturing stage, where 40% of the permanent new workers will need two-year technician degrees and 60% will need four-year engineering degrees or higher. [10][11][12] In addition, Congress had routinely made several funding deals that underfunded key basic research provisions of the Act by tens of billions of dollars.[13][14]

History

The CHIPS and Science Act combines two bipartisan bills: the Endless Frontier Act,[15] designed to boost investment in domestic high-tech research, and the CHIPS for America Act,[16] designed to bring semiconductor manufacturing back to the U.S. The act is aimed at competing with China.[17]

The Endless Frontier Act was initially presented to Senators Chuck Schumer (D-NY) and Todd Young (R-IN) by Under Secretary of State Keith Krach in October 2019, as part of the Global Economic Security Strategy to boost investment in high-tech research vital to U.S. national security.[18][19] The plan was to grow $150 billion in government R&D funding into a $500 billion investment, with matching investments from the private sector and a coalition of technological allies dubbed the "Techno-Democracies-10" (TD-10).[20][19] On May 27, 2020, Senators Young and Schumer, along with Congressmen Ro Khanna (D-CA) and Mike Gallagher (R-WI.), introduced the bipartisan, bicameral Endless Frontier Act to solidify the United States' leadership in scientific and technological innovation through increased investments in the discovery, creation, and commercialization of technology fields of the future.[21]

The United States Innovation and Competition Act of 2021 (USICA) (S. 1260), formerly known as the Endless Frontier Act, was United States legislation sponsored by Senate Majority Leader Chuck Schumer and Senator Young authorizing $110 billion for basic and advanced technology research over a five-year period. Investment in basic and advanced research, commercialization, and education and training programs in artificial intelligence, semiconductors, quantum computing, advanced communications, biotechnology and advanced energy, amounts to $100 billion. Over $10 billion was authorized for appropriation to designate ten regional technology hubs and create a supply chain crisis-response program.[22]

The CHIPS for America Act portion stemmed from Under Secretary of State Krach and his team brokering the $12 billion on-shoring of TSMC (Taiwan Semiconductor Manufacturing Company) to secure the supply chain of sophisticated semiconductors, on May 15, 2020.[23][24][25] Krach's stated strategy was to use the TSMC announcement as a stimulus for fortifying a trusted supply chain by attracting TSMC's broad ecosystem of suppliers; persuading other chip companies to produce in U.S., especially Intel and Samsung; inspiring universities to develop engineering curricula focused on semiconductor manufacturing and designing a bipartisan bill (CHIPS for America) to provide the necessary funding.[26] This led to Krach and his team's close collaboration in creating the CHIPS for America component with Senators John Cornyn (R-TX) and Mark Warner (D-VA).[27] In June 2020, Senator Warner joined U.S. Senator John Cornyn in introducing the $52 billion CHIPS for America Act.[28]

Both bills were eventually merged into the U.S. Innovation and Competition Act (USICA). On June 8, 2021, the USICA passed 68–32 in the Senate with bipartisan support. The House version of the Bill, America COMPETES Act of 2022 (H.R. 4521), passed on February 4, 2022. The Senate passed an amended bill by substituting the text of H.R. 4521 with the text of the USICA on March 28, 2022. A Senate and House conference was required to reconcile the differences, which resulted in the bipartisan CHIPS and Science Act, or "CHIPS Plus".[29] The bill passed the U.S. Senate by a vote of 64–33 on July 27, 2022.[30] On July 28, the $280 billion bill passed the U.S. House by a vote of 243–187–1.[31] On August 1, 2022, the magazine EE Times (Electronic Engineering) dubbed Under Secretary of State Keith Krach (as of February 2023, now the current Chairman of the Krach Institute for Tech Diplomacy at Purdue University) the architect of the CHIPS and Science Act.[26] The bill was signed into law by President Joe Biden on August 9, 2022.[32]

Background and provisions

The bill constitutes an industrial policy initiative which takes place against the background of a perceived AI Cold War between the US and China, as artificial intelligence technology relies on semiconductors.[33] The bill was considered amidst a global semiconductor shortage and intended to provide subsidies and tax credits to chip makers with operations in the United States. The U.S. Department of Commerce was granted the power to allocate funds based on companies' willingness to sustain research, build facilities, and train new workers.[34]

For semiconductor and telecommunications purposes, the CHIPS Act designates roughly $106 billion. The CHIPS Act includes $39 billion in tax benefits and other incentives to encourage American companies to build new chip manufacturing plants in the U.S.[35] Additionally, $11 billion would go toward advanced semiconductor research and development, separable into $8.5 billion of that total going to the National Institute for Standards and Technology, $500 million of the $11 billion to Manufacturing USA, and $2 billion of the former to a new public research hub called the National Semiconductor Technology Center. $24 billion would go to a new 25 percent advanced semiconductor manufacturing tax credit to encourage firms to stay in the United States, and $200 million would go to the National Science Foundation to resolve short-term labor supply issues.[6][36]

According to McKinsey, "The CHIPS Act allocates $2 billion to the Department of Defense to fund microelectronics research, fabrication, and workforce training. An additional $500 million goes to the Department of State to coordinate with foreign-government partners on semiconductor supply chain security. And $1.5 billion funds the USA Telecommunications Act of 2020, which aims to enhance competitiveness of software and hardware supply chains of open RAN 5G networks."[6][36] Companies are subjected to a ten-year ban prohibiting them from producing chips more advanced than 28-nanometers in China and Russia if they are awarded subsidies under the act.[37]

The act authorizes $174 billion for uses other than semiconductor and telecom technologies.[6][7] It authorizes, but does not appropriate, extended NASA funding for the International Space Station to 2030, partially funds the Artemis program returning humans to the Moon, and directs NASA to establish a Moon to Mars Program Office for a human mission to Mars beyond the Artemis program. The bill also obligates NASA to perform research into further domesticating its supply chains and diversifying and developing its workforce, reducing the environmental effects of aviation, integrating unmanned aerial vehicle detection with air traffic control, investigating nuclear propulsion for spacecraft, continuing the search for extraterrestrial intelligence and xenology efforts, and boosting astronomical surveys for Near-Earth objects including the NEO Surveyor project.[1][38]

The bill could potentially invest $67 billion in accelerating advanced zero-emissions technologies (such as improved energy storage, hydrogen economy technologies, and carbon capture and storage) to mass markets, advancing building efficiency, and improving climate science research, according to the climate action think tank Rocky Mountain Institute. The bill would invest $81 billion in the NSF, including new money for STEM education and defense against foreign intellectual property infringement, and $20 billion in the new Directorate for Technology, Innovation, and Partnerships, which would be tasked with deploying the above technologies, and authorizes but does not appropriate $12 billion for ARPA-E.[8] It contains annual budget increases for the United States Department of Energy for other purposes including supercomputer, nuclear fusion and particle accelerator research, and directs the United States Department of Commerce to establish $10 billion worth of research hubs in post-industrial, mostly rural economies.[6][7]

Passage

President Joe Biden signing the bill into law on the South Lawn of the White House on August 9, 2022
July 27, 2022 Senate vote by state
  Two yeas
  Yea and not voting
  Yea and nay
  Two nays
  Nay and not voting
July 28, 2022 House vote by congressional district
  Democratic yea (219)
  Democratic "present" (1)
  Republican yea (24)
  Republican nay (187)

Every senator in the Senate Democratic Caucus except for Bernie Sanders voted in favor of passing the CHIPS Act, and they were joined by seventeen Republican senators, including Senate Republican leader Mitch McConnell, Utah senator Mitt Romney, and South Carolina senator Lindsey Graham.[30]

Reception

Support

Many legislators and elected officials from across both the federal government and various state governments endorsed the passage. A large group of governors consisting of Pennsylvania's Tom Wolf, Alabama's Kay Ivey, California's Gavin Newsom, Kentucky's Andy Beshear, Michigan's Gretchen Whitmer, Wisconsin's Tony Evers, Illinois' J. B. Pritzker, Kansas' Laura Kelly, and North Carolina's Roy Cooper pushed for the passage of the bill back in November 2021.[39][40]

Separately, Ohio governor Mike DeWine, whose state became the home of Intel's newest semiconductor fabrication plant in the Columbus suburb of New Albany, as well as Texas governor Greg Abbott and Texas senator John Cornyn, whose state was the home of a major investment from Samsung, each pushed for the bill to be passed and applauded its advancement through Congress.[41][42][43] It has received widespread support from chip firms, though they were concerned about the provision banning them from further investments in China.[44][45]

Intel CEO Pat Gelsinger said during an earnings call on September 30, 2022, that CHIPS Act subsidies were leading the company to explore building empty fab buildings (known as a "shell-first strategy") and aggressively acquire smaller competitors before installing any equipment, to avoid contributing to a predicted semiconductor glut.[46][47]

Opposition

The bill was criticized by Republican House leader Kevin McCarthy and senator Bernie Sanders as a "blank check", which the latter equated to a bribe to semiconductor companies.[30][48][49] China lobbied against the bill and criticized it as being "reminiscent of a 'Cold War mentality'".[50]

Concerns of protectionism

In a piece for the Brookings Institution on December 20, 2022, Sarah Kreps and Paul Timmers expressed concerns regarding the protectionist provisions of the CHIPS and Science Act and the risk of a subsidy race with the EU, which proposed its own European Chips Act in 2022.[51]

Concerns of inaction on labor and stock buybacks

Robert Kuttner, economic nationalist commentator and editor of The American Prospect, expressed concerns that the bill did not provide enough resources to allow local residents near fabs to organize or form a trade union (thereby making unions rely too heavily on community benefits agreements compared to federal policy), that the Commerce Department would be too friendly to states with right-to-work laws (where the first new fabs would be built), that the bill did not restrictively define a "domestic company" regarding financing, and that fab owners would simply use CHIPS Act money to buy back stocks.[52] In response to these concerns, on February 28, 2023, United States Secretary of Commerce Gina Raimondo published the first application for CHIPS Act grants, which encourages fab operators to use Project Labor Agreements for facilitating union negotiations during construction, outline their plans to curtail stock buybacks, share excess profits with the federal government, and open or point out nearby child care facilities.[53][47][54] The application led to over 200 statements of interest from private companies within the first month and a half, looking to invest across the entire semiconductor supply chain in 35 states;[55][56] by June 2023, the number had reached over 300.[57] The Prospect later covered the lack of progress in PLA talks between key investor TSMC and local unions in Phoenix, and included both author Lee Harris's claim that the Raimondo guidance was insufficient in helping the talks, and liberal commentator Ezra Klein's criticism of the Raimondo guidance as excessive.[58] Harris later reported that as a consequence TSMC and its non-union subcontractors had routinely engaged in alleged wage theft, underreported safety violations, and cut out various installation procedures that would have prevented costly repairs, delaying its projects.[54]

Antitrust concerns

In February 2024, the antitrust think tank American Economic Liberties Project released a report evaluating the state of the semiconductor industry after the CHIPS and Science Act passed. It found that the Act was insufficient in dealing what it saw was the effective monopolization and monopsony of the American semiconductor industry by TSMC and by 'fabless' semiconductor firms that practiced routine outsourcing, such as Nvidia and Apple Inc., the result of shareholder-driven decisions. It also found the Act was insufficient in shoring up American mid-level, consumer market-oriented manufacturing by increasing competition and resiliency there. It recommended that the Commerce Department increasingly involve the Federal Trade Commission and other antitrust agencies in its decision-making, incubate four mid-size competitors to TSMC, require 'fabless' firms to double their source numbers, and strategically levy tariffs and fees on select consumer electronics deemed lacking in American sourcing.[59]

Impact

This section needs to be updated. Please help update this article to reflect recent events or newly available information. (September 2023)

Project announcements

Many companies and ecosystem suppliers have announced investment plans since May 2020, when TSMC announced that it would build a fab in Arizona.[60][26][10][61]

These include (before the act passed on August 9, 2022):

After the act passed:

The following projects were announced after the Act's first anniversary:

Tech Hubs

On October 23, 2023, the Biden administration announced that it directed the Economic Development Administration to focus on 31 areas (across 32 states and Puerto Rico) that it designated "Tech Hubs", for the purposes of spreading development evenly around the country, and incubating advanced technology and research. The Tech Hubs' organizers will compete for a total of $500 million in implementation grants, the first such appropriation out of a budgeted $10 billion over the next five years. The Biden administration also gave out "Strategy Development Grants" to 29 consortia of businesses, labor unions and governments in areas that lost out, encouraging further organizational improvements before vying again to become a Tech Hub.[87][88][89]

Macroeconomic impact

Estimates of the results of the CHIPS Act vary. The trade group Semiconductor Industry Association, which analyzed announced investments from May 2020 to December 2022, claimed the CHIPS Act had led to more than 50 projects worth more than $200 billion that would create 44,000 jobs.[61] By the count of independent policy researcher Jack Conness, the CHIPS Act led to 28 projects worth $157 billion and a predicted 25,400 jobs as of March 27, 2024; when considered together with Inflation Reduction Act investments, the total comes out to 182 projects worth $263 billion creating 113,400 jobs.[10][needs update]

Arizona is in line for the two largest individual investments (TSMC's $40 billion investment, predicted to create 4,500 jobs; and a $30 billion investment from Intel creating 3,000 projected jobs), the most total jobs created (9,765) and the most dollars overall ($72.2 billion). New York received the second-most overall dollars ($40.3 billion) and jobs created (3,600) and the third largest investments ($20 billion each from Micron and IBM). Counties that voted for Biden in 2020 received more dollars from the Act ($124,096,000,000) than counties that voted for Donald Trump ($33,799,000,000).[10][needs update][90][91][56][92]

In December 2023, the Financial Times found the IRA and CaSA together catalyzed over $224 billion in investments and over 100,000 new jobs by the preceding July.[93]

According to the New Democrat-linked think tank Center for American Progress, the CHIPS and Science Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act have together led to more than 35,000 public and private investments.[94] The Biden administration itself claimed that as of April 1, 2024, the IIJA, CaSA, and IRA together catalyzed over $688 billion in private investment (including $245 billion in electronics and semiconductors, $165 billion in electric vehicles and batteries, $141 billion in clean power and $77 billion in the clean energy industry) and over $478.4 billion in public infrastructure spending (including $41.5 billion in energy aside from tax credits in the IRA).[95]

California

Manufacturing

In California, where the semiconductor industry was founded in Silicon Valley, experts say that it is very unlikely that any new manufacturing facilities will be built, due to tight regulations, high costs of land and electricity, and unreliable water supplies.[5] These factors have contributed to the state's 33% decline in manufacturing jobs since 1990.[5]

Research

In May 2023, Applied Materials announced it would build a new collaborative advanced research and development center (distinct from traditional fabs) named the "EPIC Center", short for "Equipment and Process Innovation and Commercialization Center", by 2026, next to its existing facility in Sunnyvale, California. The first known CHIPS Act-linked investment in Silicon Valley, the EPIC Center is worth $4 billion and is projected to create 2,000 jobs.[96][97][57]

Implementation

Underfunding of science agencies

In June 2023, after the passage of the debt-ceiling deal, Federation of American Scientists analysts Matt Hourihan and Melissa Roberts Chapman and Brookings Institute analyst Mark Muro noted that the Consolidated Appropriations Act, 2023 had underfunded three key agencies to the Science Act (the NSF, the DOE's Office of Science, and NIST) by $2.7 billion, or 12 percent compared to the Act's intent, and that the President's proposal for the 2024 United States federal budget would likely shortchange them by $5.1 billion, or 19 percent compared to the Act's intent. Upon reviewing the effects the shortfalls would bring on defense policy and the economy, they recommended that more science and technology spending be moved into the mandatory category, as had been done with some semiconductor spending.[13]

In March 2024, Politico contributor Christine Mui cited Hourihan in detailing how the Science Act interacted with later spending deals. In the actual 2024 budget, the NSF was underfunded by 42 percent compared to the Act's authorization; the Department of Energy's Office of Science was underfunded by 13 percent, while the Economic Development Administration's regional hubs program was funded with $41 million ($541 million since 2022) against an annual authorization of $2 billion ($4 billion from 2022); NIST's budget, for which the 2023 Appropriations Act appropriated $1.564 billion and the Science Act authorized $1.562 billion, saw an 11 percent cut.[13][14]

Rule on business deals with countries of concern

In September 2023, the Commerce Department finalized its rule prohibiting Act funding recipients from expanding their manufacturing presence by more than 5 percent for advanced and 10 percent for mid-market chips through deals worth $100,000 or more, and brokering licensing agreements for technology transfers in China and other "countries of concern", as well as setting out how the Secretary would be notified of violations.[98][99]

Stock buybacks and economic equality

In October 2022, Senators Elizabeth Warren and Tammy Baldwin and Representatives Sean Casten, Jamaal Bowman, Pramila Jayapal and Bill Foster sent a letter to Secretary Raimondo urging her to detail how the Commerce Department would enforce the law's provisions preventing companies from using CHIPS Act money directly on stock buybacks (they noted the law does not prevent recipients from using the money to free up their own funds for stock buybacks), as well as whether the Department would claw back misused funds and resolve conflicts of interest.[100] On February 10, 2023, they and Senators Bernie Sanders and Ed Markey repeated many of the same points to Michael Schmidt, head of the Department's CHIPS Program Office, and urged even stronger action, outlining what regulatory crackdowns the law authorizes the Department to do.[101]

In January 2024, Warren and Jayapal wrote to Secretary Raimondo, Schmidt, and CHIPS Program Office investment head Todd Fisher expressing their concerns over who was staffing the main funds allocator, which reporting from The Wall Street Journal and Bloomberg News the previous summer and fall had found to be a small collection of elite bankers, consultants and lobbyists from Wall Street firms with potential conflicts of interest.[102][103][104]

At the time BAE Systems was announced to be receiving a CHIPS Act grant, Warren and Casten wrote to CEO Tom Arsenault that they wanted BAE Systems to conform with the spirit of the Act, noting that BAE had engaged in $9.4 billion in stock buybacks the previous year.[105] Journalist Les Leopold later cited the letter and Chris Van Hollen's statements on the subject to denounce Intel's engagement in similar practices netting them nearly $153 billion since 1990 and their recent mass layoffs, following the $8.5 billion grant receipt announcement.[106]

Grant delays

As of January 2024 only two small grants had been awarded, neither for production of the most advanced chips.[11]

One hurdle delaying the release of award monies is the National Environmental Policy Act, which requires that projects receive federal approvals before any funds can be dispersed. A federal government analysis cited by The Wall Street Journal found that these approvals, from 2013 to 2018, have taken an average of 4.5 years to receive.[11]

Shortage of skilled workers

The US lacks the workforce required for fulfilling fab projects, with one study estimating a need of 300,000 additional skilled workers just to complete ongoing fab projects, not including new projects. Comparatively, the number of US students pursuing relevant degrees has been stagnant for 30 years, while international students face difficulties in staying to work. Plants planned by both TSMC and Intel have reportedly been struggling to find qualified workers.[107][12] Even after completion, in the operational/manufacturing stage, 40% of the permanent new workers will need two-year technician degrees and 60% will need four-year engineering degrees or higher.[12]

In Arizona, local unions clashed with TSMC after it reported that fab construction in Arizona was running behind schedule due to "an insufficient amount of skilled workers" with the expertise needed to install specialized equipment. TSMC planned to send experienced Taiwanese technicians to train local workers, which local unions characterized as "a lack of respect for American workers". The Arizona Building and Construction Trades Council subsequently asked Congress to block visas for 500 Taiwanese workers. TSMC reported that due to issues with labor, its $40 billion investment in the Arizona fab (the largest investment ever made by a foreign company in the US) is expected to be delayed into 2025.[12][108] In contrast, in February 2024 TSMC completed construction of its first fab in Japan, located in the Kumamoto region, in 20 months, by running 24-hour shifts, helped by the Japanese government and locals being welcoming to the influx of skilled Taiwanese workers needed for the project.[109]

Intel similarly experienced delays from labor issues, with its planned Ohio fab expected to be delayed into 2026 due to a lack of skilled workers, as well as delays in grant funding.[109]

Secure enclave issue

In March 2024, Bloomberg News reported that Intel was poised to receive $3.5 billion in the 2024 United States federal budget (specifically the second 'minibus') as part of a "secure enclave" program which Intel claimed would help facilitate national security through carrying out United States Department of Defense contracts with high levels of secrecy.[110][111] Citing interviews of Charles Wessner of the Center for Strategic and International Studies, key congressional aides, and a risk assessment report from the United States Department of the Air Force, Austin Ahlman of the antitrust think tank Open Markets Institute criticized the plan, not least because it would take up more than 10 percent of the $39 billion the Act designates for domestic semiconductors, as well as increase concentration in the domestic semiconductor industry.[111]

See also

References

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