Overview
On August 9, 2022, President Biden signed the CHIPS and Science Act into law, directing $280 billion toward enhancing US domestic manufacturing and technological leadership. Central to this effort, the CHIPS for America program prioritizes semiconductor manufacturing to boost domestic tech production, stimulate innovation, and mitigate labor shortages, sharpening the US’s competitive edge against East Asia’s tech strength. Almost two years later, the program’s manufacturing efforts have drawn in considerable investments, while the Biden administration recently announced its plans to invest $5 billion in a new National Semiconductor Technology Center (NSTC) to advance US leadership in semiconductor research and development.
Background
The US has long served as a leader in advanced semiconductor design. Yet, according to the President's Council of Advisors on Science and Technology, its global share of semiconductor manufacturing dropped from 37 percent in 1990 to just 12 percent in 2022, revealing supply chain vulnerabilities exacerbated by disinvestment and offshoring, as elaborated by the Brookings Institution. With $52.7 billion earmarked for the CHIPS for America program, the CHIPS Act has sought to revitalize the semiconductor sector through workforce and R&D investments, aiming for enhanced industrial resilience.
The CHIPS for America program’s concerted manufacturing efforts have drawn in an estimated $235 billion in private investment, The New York Times reports. Driven by incentives, including grants and construction cost tax breaks, industry leaders like Micron, TSMC, Intel, and Samsung have made plans to expand domestic semiconductor and electronic manufacturing. These efforts support the US Department of Commerce’s broader goal of securing a 20 percent global share of advanced logic chip production by 2030.
The Commerce Department is leading the charge in expanding US semiconductor capabilities, with plans for state-of-the-art fabrication facilities (“fabs”) and strengthened upstream supply chains. The CHIPS Program Office’s rigorous vetting process ensures that projects align with national interests and amplify domestic semiconductor capabilities. This process underlines a strategic commitment to strengthening the US position in the semiconductor industry while preventing any inadvertent benefits to nations that pose a security risk, as reported by the State Science and Technology Institute.
Why Is This Important?
This US initiative strategically addresses international trade dynamics, particularly with East Asia, where 75 percent of global chip manufacturing is concentrated, according to BCG and the Semiconductor Industry Association. Reuters and The New York Times report that protective measures have been implemented to safeguard tech sovereignty through the expanded foreign direct product rule, which restricts sales to Chinese buyers that currently represent up to a third of American chipmakers’ revenue. Navigating export controls requires multilateral cooperation and strategic alliances, as demonstrated by efforts to engage with key global players such as Japan and the Netherlands.
Efforts to align multilateral strategies reveal the complexities of a deeply interconnected global semiconductor ecosystem and accompanying challenges. At the level of supply chains, these challenges include repairing equipment and addressing production delays due to difficulties in sourcing spare parts, which may impact consumer welfare and market stability. According to Nikkei Asia, the general increased value and higher production cost of US domestic semiconductor manufacturing alone may also result in production cost increases, though larger manufacturers may mitigate trickle-down effects on consumers.
To mitigate these challenges and foster a diversified, resilient semiconductor supply chain, the US is leveraging the International Technology Security and Innovation Fund to promote “friendshoring”—strategic investments in manufacturing within trusted ally nations. This approach targets countries recognized for their infrastructure, labor resources, and favorable policy environments. Politico reports that the US State Department has already selected five countries using these criteria, including Costa Rica, Panama, Vietnam, Indonesia, and the Philippines. These nations were also independently highlighted as top performers in their respective emerging and developing regional economies in this year’s Global Opportunity Index 2024.
Furthermore, a Milken Institute report by David Talbot details how Mexico’s regional cooperative infrastructure and favorable trade policies position it as a viable supply chain alternative. By enhancing back-end semiconductor manufacturing, Mexico can diversify Asia-centric supply chains and potentially emerge as a specialized hub for advanced technology firms. However, fostering coproduction will require significant capital, government incentives, and improved investment conditions to align with US nearshoring and friendshoring objectives.
These dynamics have been accompanied by additional changes that impact innovation. The Biden administration has mandated that by 2026, all federally funded research must be published immediately, moving away from the previous policy that supported up to a year of paywall access, Nature reports. This shift toward transparency is accompanied by an effort by the US to fine-tune its approach to protect against potential security risks without curbing the innovation and competition that open-source technology promotes.
The CHIPS Act fosters widespread collaborations across government, academia, and the private sector, highlighted by initiatives with 50 community colleges to address skilled labor shortages, as the White House details, supported by a $200 million Workforce and Training Fund, which Brookings explains. The Biden administration also recently announced it will invest over $5 billion in semiconductor research and development through the NSTC, which has now been formally established as a public-private consortium. Embodying the administration’s place-based industrial policy, the NSTC aims to reverse deindustrialization trends in parts of the country, paving the way for a new era of regional prosperity, Brookings reports. However, the NSTC is still in its early stages. Its success will depend on its ability to leverage federal funding and cross-sector collaboration, activate a diverse workforce, and navigate the complex regulatory landscape.
In conjunction with these efforts, over $10 billion in grants have been disbursed for the construction and modernization of semiconductor fabs, with a keen focus on commercial viability, environmental stewardship, and workforce diversity, according to the National Institute of Standards and Technology. In addition, the ITSI Fund parcels $500 million to federal agencies to promote secure telecommunications networks and semiconductor supply chain security through new partnerships and initiatives. These endeavors represent crucial steps in fortifying capacity, viability, and critical infrastructure needed to protect the US against emerging technological threats and disruptions.
What Happens Next
The CHIPS Act is a signal of the US’ concerted effort to revitalize its semiconductor industry, targeting both immediate challenges and long-term expansion goals. By amplifying domestic production and activating global partnerships, the act seeks to secure a resilient, high-value industrial base vital for both defense and consumer markets and national security. Its success leans on regional investment and cross-sector cooperation, anticipating a phased impact on awards and manufacturing outputs. Reinforced by a federal dedication to avoid past pitfalls, as Brookings reports, recent industry acceleration fosters a close collaboration with educational institutions and government entities to usher in a renewed era of federal investment in semiconductor innovation and resiliency.