The act, which promises tax breaks and other incentives for chip companies investing in America, is seen as vital for US economic and national security interests, given the global chip shortage and rising competition with China. A number of major semiconductor projects recently announced in the US are dependent, to varying degrees, on it being passed.
Intel has blamed the act’s delay for its decision to indefinitely postpone breaking ground on a US$20 billion chip fabrication facility, or fab, in Ohio. The US chip giant originally scheduled a groundbreaking ceremony on July 22.
The company told Nikkei Asia it still plans to build the fab in Ohio but said that “CHIPS Act funding has moved more slowly than we expected, and we still don’t know when it will get done”.
Intel compatriot GlobalFoundries, the world’s third-largest contract chipmaker, said the fate of CHIPS Act will affect the rate and pace at which the company expands its US manufacturing capacity. GlobalFoundries plans to invest US$1 billion to build a chip facility in upstate New York.
Asian chipmakers, meanwhile, argue that the act is vital for them to shift production to the US, given the higher operational costs compared with Asia.
Taiwan Semiconductor Manufacturing Co has started construction of a US$12 billion chip plant in Arizona but, like its US peers, says the speed of construction will depend on US subsidies.
“TSMC has already begun their construction in Arizona, basically because of trust. They believe the CHIPS Act will be passed by Congress,” Kung Ming-Hsin, minister of Taiwan’s National Development Council and a TSMC board member, said in an interview at the annual SelectUSA foreign investment summit in Washington last week.
At the company’s annual shareholders meeting in June, TSMC’s chairman said the cost of building its US chip plant is higher than previously estimated, and called for Washington to extend planned support for the chip industry to foreign as well as domestic companies.
As of now, it is unclear whether incentives under the CHIPS Act will be available to non-US companies, as it will be up to the Commerce Department to decide how exactly to implement the bill after it is finalised and signed into law.
Taiwan’s GlobalWafers, the world’s third-largest producer of silicon wafers for chipmaking, announced on June 27 that it will build a US$5 billion plant in Texas. Doris Hsu, chair and CEO of the company, implied that US government incentives will be critical if the plant is to materialise.
“We have all eyes on the CHIPS Act and all the investment incentives and support related to this. That would really help us offset the high cost to produce in the US,” the executive told reporters. “If the CHIPS Act can’t be passed quickly, we will likely have to adjust our plans eventually.”
US Commerce secretary Gina Raimondo was even more direct: “This investment that they’re making is contingent upon Congress passing the CHIPS Act.”
If everything goes smoothly and the subsidies are in place as hoped, construction on the plant will begin around November this year, Hsu said.
The CHIPS Act – Creating Helpful Incentives to Produce Semiconductors for America Act, to give its full name – was first proposed in June 2020 in the midst of an unprecedented global semiconductor supply crunch. It is a rare example of legislation that enjoys support from both Democrats and Republicans, and companies themselves are eager to see it enacted.
“The CHIPS Act does have strong bipartisan support, as well as the backing of state and local leaders, business leaders, national security experts and two-thirds of American voters,” said John Neuffer, CEO of Semiconductor Industry Association, a US trade association.
Supporters say pouring roughly US$52 billion worth of federal money into semiconductor research, development and manufacturing will help create hundreds of thousands of jobs and spur more private investment into the sector.
Among other incentives, the act will provide an income tax credit for semiconductor equipment or manufacturing facility investment in the US through 2026.
“It would commence a renaissance in American research, design and manufacturing the chips that power the modern world,” Neuffer said.
In the short term, the bill is expected to shore up chip supply chains for sectors across the economy and strengthen US national security, and promote innovation in a range of critical chip-powered technologies.
It would also send a strong political message that the US is serious about defending its leading position in technology development, even if the US$52 billion incentives alone are not enough to immediately shake Asia’s dominance in chipmaking.
So why has the act languished? The short answer is politics and money.
CHIPS Act was first introduced by the US House of Representatives in June 2020 and then signed into law as part of a larger national defence act in January 2021. But lawmakers were unable to secure funding for the CHIPS Act at that time, meaning the programmes under CHIPS Act were passed on paper but essentially dead in the water.
The Senate then passed its own version of CHIPS Act as part of another package of legislation, this one aimed at boosting American competitiveness more broadly, dubbed the US Innovation and Competition Act in June 2021.
House Democrats then unveiled their own version of a US competition bill earlier this year, titled the America COMPETES Act, which also includes the US$52 billion CHIPS Act.
Since then, lawmakers from both the upper and lower houses have been attempting to hammer out differences between the two versions of the CHIPS Act, which agree on broad outlines and the amount of money needed. The differences are on several finer points, including climate issues and trade.
There has also been scepticism around the necessity of such sizable government funding to subsidize semiconductors companies that are generally well-funded with ample cash in hand.
“There are folks on the left of the spectrum as well as the right of the spectrum that ask why is it that the industry that is relatively well-resourced requires US$52 billion from the government to do what they should be doing?” said Sujai Shivakumar, director of Renewing American Innovation Project at Washington think tank CSIS.
Domestic politics are also hampering its passage.
“There are many competing priorities in Washington, and large-scale legislation like this can take time to move through the legislative process,” Neuffer said.
On June 30, Senate Republican leader Mitch McConnell threatened to block the legislation if Democrats do not back down on issues such as tax hikes on the rich and corporations, along with energy and climate provisions.
Supporters are hoping for a breakthrough in July. That would involve a compromise version of the competition bill, which would include the CHIPS Act, being passed in Congress. If Congress heads into its August recess without achieving this, the road ahead could become even tougher.
“After July we’ll get into the reelection season,” said Shivakumar. “Things are hard now, but it gets even harder after that when there is an election involved.”
Many companies have become more vocal in their support of the CHIPS Act, with executives paying visits to Capitol Hill as they see the next several weeks as crucial for getting the bill across the finish line.
And on June 15, the CEOs of Alphabet, Amazon, GM and Intel, along with TSMC, Samsung and dozens of other American and foreign companies, sent a letter to the House and Senate leaders urging them to reach a consensus on a competitive bill that will fund CHIPS Act soon.
“The rest of the world is not waiting for the US to act,” the CEOs wrote in the letter. “Now is the time for Congress to complete its work on this important bill.”