CHIPS Act

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

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. 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). On May 27, 2020, 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.

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 Schumer and 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.

The CHIPS for America Act portion stemmed from 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. …

The law 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. The law 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.

For semiconductor and telecommunications purposes, the CHIPS Act designates roughly $106 billion. The CHIPS Act includes $39 billion in tax benefits, loan guarantees and grants, administered by the DOC to encourage American companies to build new chip manufacturing plants in the U.S. 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 to Manufacturing USA, and $2 billion 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.

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." (The open RAN research innovation fund is controlled by the National Telecommunications and Information Administration.) Companies are subjected to a 10-year ban prohibiting them from producing chips more advanced than 28 nanometers in China and Russia if they are awarded subsidies under the law.

The law authorizes $174 billion for uses other than semiconductor and telecom technologies. …

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.

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.

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. It has received widespread support from chip firms, though they were concerned about the provision banning them from further investments in China.

Intel's then-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.

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. China lobbied against the bill and criticized it as being "reminiscent of a 'Cold War mentality'".

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.

In a piece for Brookings on May 25, 2023, Annelies Goger and Banu Ozkazanc-Pan found the Act was vague in many of its workforce development provisions, and criticized the statute for failing to offer a comprehensive, 'wraparound' approach to workforce development. …

In August 2023, around the one-year anniversary of the act becoming law, the NSF released a fact sheet outlining what it had done in the first year. Notably, the Technology, Innovation and Partnerships Directorate had awarded more than 760 grants and signed 18 contracts in research and development, and incentivized $4 billion in private capital and 35 exits from federal seed funding for private companies; the NSF issued two letters to employees on research security, increased STEM scholarship amounts, and created a National Secure Data Service per the act's directives. The DOE also issued a press release to commemorate the anniversary, noting materials science, quantum computing and biotechnology had received major attention from the act, as well as efforts to improve energy use, materials sourcing transparency and recycling of computer chips.

On the second anniversary of the Act becoming law, the NSF put out an updated fact sheet. The TIP Directorate had now awarded a two-year total of 2,455 grants and signed 25 contracts in research and development, and incentivized $8.15 billion in private capital and more than 75 exits from federal seed funding; the NSF also designated 10 new Regional Innovation Engines in January 2024, issued the first 40 awards in the ExLENT program promoting experiential learning in semiconductor engineering at universities, launched the NSF SBIR/STTR Fast-Track pilot program for certain startups and the APTO program promoting technology prediction, and signed a memorandum of understanding with the Commerce Department for further action in workforce development.

In September 2024, the National Academies of Sciences, Engineering, and Medicine produced a report on NASA's organizational efficiency mandated by the law, which found several critical weaknesses, namely, in long-term planning, workforce retention, headquarters staffing levels, budgetary support from Congress, aging infrastructure, and emphasis on research and development as part of instrument planning.

Many companies and ecosystem suppliers have announced investment plans since May 2020, when TSMC announced that it would build a fab in Arizona, which upon completion began producing Apple A16 chips in earnest in mid-September 2024, according to independent journalist Tim Culpan, achieving 4 percent higher production yields than the average in Taiwan by late October.

These …