Five keys to the US Chip Law

On February 28, the Joe Biden government announced the rules for “Chips for America,” a program that seeks to strengthen semiconductor research and manufacturing in the country, thereby initiating a new avalanche of federal funding in the sector.

The Department of Commerce has 50,000 million dollars to distribute under the modality of direct financing, federal loans and loan guarantees. It’s one of the largest federal investments in a single industry in decades and underscores Washington’s deep concern about America’s reliance on foreign chips.

Because of the enormous cost of building highly advanced semiconductor facilities, funding could come fast, and competition for money has been intense.

Next, we analyze the most important aspects of the Law on Chips and Science, its objectives and its operation.

Financing of chip production and research

Most of the money — $39 billion — will go toward financing the construction and expansion of manufacturing facilities. Another 11,000 million will be distributed this year to support research into new chip technologies.

Much of the money for manufacturing is likely to go to a few companies that make the world’s most advanced semiconductors—among them Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung Electronics, Micron Technology and, perhaps in the future, Intel— to help them build facilities in the United States.

A portion will go to older chipmakers that remain essential for cars, appliances and weapons, as well as suppliers of raw materials for industry and companies that package the chips inside their final products.

Although some critics have questioned the wisdom of subsidizing a profitable industry, executives at semiconductor companies argue that they have little incentive to invest in the United States, due to labor investments and the high costs of running factories. .

The government has no plans to finance entire projects. According to Biden administration officials, they plan to offer subsidies of between 5 and 15 percent of a company’s capital expenditures for a project, with the funding no more than 35 percent of the cost. Businesses can also apply for a tax credit that reimburses them for 25 percent of the construction of the project.

Limit foreign dependency

Gina Raimondo, Secretary of Commerce, describes the program as one of the most important national security initiatives.

Although the United States remains a leader in chip design, most manufacturing has been shipped abroad. Today, more than 90 percent of the most technologically advanced chips critical to the US military and economy are produced in Taiwan. This has raised concerns about supply vulnerability, due to China’s aggressiveness towards Taiwan and the possibility of a military invasion of the island.

At the same time, China has increased its share of the market for less-advanced chips that remain essential for cars, electronics and other products. The United States makes 12 percent of the chips, though none of the most advanced in the world.

During the pandemic, chip shortages forced factories to halt work and put in tangible light just how vulnerable the supply chain is to disruptions. On just three occasions last year, workers at Ford Motor factories in Michigan and Indiana worked a full week due to chip shortages, Raimondo said in a speech at Georgetown University last week. That situation generated a shortage of cars and raised their prices, which fueled inflation.

According to the Department of Commerce, the program will also provide a national source of the world’s most advanced chips to the Department of Defense and the homeland security community.

Construction of chip centers

According to Raimondo, the goal is to build at least two manufacturing centers in the United States to produce the most advanced types of logic chips, as well as facilities for other types of chips and complex supply networks to support them.

Commerce Department officials have refused to speculate on where these facilities might be located, saying they need to review the applications. Yet manufacturers have already announced billions of dollars in new investment plans across the United States.

TSMC, the company that makes most of the world’s most advanced chips, has been busy expanding in Arizona, while Samsung, the second largest producer, is growing in Texas. Micron, which makes advanced memory chips, has announced big expansion plans in New York. And Intel, an American tech giant that is investing heavily to give itself a technological edge, has begun building a “megasite” in Ohio.

Raimondo says the idea is to get the United States back into a leading position in semiconductor technology, to the point that all the world’s big chip companies want to have research and manufacturing facilities in the country.

However, there is skepticism about what the program can achieve. For example, a 2020 study found that a $50 billion investment in the sector would only increase the US market share by up to 14 percent.

Protect taxpayer funds

The Biden administration is risking a lot to show that this foray into industrial policy can work. Critics say the federal government may not be the best judge of winners and losers. If the government gets it wrong, it could face harsh criticism.

The Commerce Department said it was going to closely scrutinize companies that applied for funding, to try to ensure they didn’t get more taxpayer money than necessary.

In a move that could upset some companies, the department said projects that receive subsidies will have to share a portion of the windfall to ensure companies give accurate financial projections and don’t overstate costs to get higher subsidies.

The Commerce Department also mentioned that it will spread funding over time as companies reach project milestones and will give preference to those that commit to refrain from repurchasing shares, which often enriches shareholders and company executives. companies by increasing the price of shares.

Companies are also barred from making new high-tech investments in China or other “countries of interest” for at least a decade, to do their best to ensure that taxpayer money does not go to finance new operations in China.

However, according to analysts, it remains to be seen how difficult these provisions will be to enforce. Company finances can be opaque, and when a company saves a dollar in the United States, it may decide to invest it elsewhere.

Important conditions to help workers

The program also includes some ambitious and unusual requirements intended to benefit the people who will work in semiconductor facilities.

For example, the department will require companies applying for $150 million or more in grants to ensure high-quality, affordable daycare for plant workers and laborers. This could include building company daycare centers close to construction sites or new plants, paying local daycare providers to add capacity at an affordable price, or directly subsidizing worker care costs. Raimondo has said childcare will draw more people into the workforce, as many companies are struggling in a tight job market.

Applicants will also need to detail their commitment to unions, schools and workforce training programs, giving preference to projects that benefit communities and workers.

Other provisions will encourage companies, universities and other sectors to offer more training to workers, both in advanced sciences and in trades such as welding. The department said it will give preference to projects for which state and local governments offer incentives with “indirect” benefits for communities, such as workforce training, investment in education or infrastructure construction.

This measure is part of the “worker-focused” economic policy of the Biden government, which seeks to use the power of the federal government for the benefit of workers. But some critics say it could jeopardize the program’s goal of building the most advanced semiconductor factories by adding excessive costs to new projects.

Ana Swanson is seconded to the Washington Correspondent and covers international trade and economics for The Times. She previously worked at The Washington Post, where she wrote about trade, the Federal Reserve and the economy. @AnaSwanson