New semiconductor factories are rising in US, but billions in Chips Act money has yet to flow
- Chip makers are awaiting US$52 billion in federal incentives to help American companies ‘win the race for the 21st century’ against China
- Industry experts disagree on whether the pace of funding is frustratingly slow or just typical of officials being careful with a massive new programme
The White House said the legislation, which offers US$52 billion in federal incentives to support the immediate need to onshore advanced chip manufacturing, will help American companies “win the race for the 21st century” against China, which has significantly closed the gap in military and tech capabilities.
But more than a year after the bill’s passage, no money has been distributed for domestic chip production and research incentives. China, in the meantime, has demonstrated the ability to get around the Biden administration’s restrictions on the export of semiconductor technology from the US and its allies.
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“I think there was a pretty good, pretty realistic expectation that the implementation would not be easy, and it has proven to be probably worse than it had been expected,” said Daniel Newman, CEO of the Futurum Group, a tech research and advisory firm based in Austin, Texas. He attributed the waiting time to “red tape” and “the slow-moving government”.
According to Bill Drexel of the Centre for a New American Security, a think tank in Washington, the US is working on a “very uncertain timeline” since it remains an “open question” as to how long it will take China to catch up on advanced chips.
“Given that uncertainty, there’s no question that the sooner we get moving on chips the better. Leaving China time to act only opens more options for Beijing in the chip war, some of which could prove detrimental to American interests,” he said.
Dennis Cheng of the United States Institute of Peace, a Washington-based think tank, described the US-China tech war as a “long competition”.
“China, under Made in China 2025, is interested in becoming self-sufficient in chips. And that isn’t going to change, you know, with the next generation or next two generations of chips,” he said, adding that government programmes take time.
The US Commerce Department, which is overseeing the distribution of incentives, has received 530 statements of intent to receive funds for chips proposals, involving 42 US states. About 120 applications are moving forward in the process, which involves a multi-step federal review.
“We are ready to keep moving fast and look forward to making announcements in the coming months that will have a tremendous impact on the United States,” the agency said on Friday, when asked about criticism of the pace of funding.
To determine the applicants’ qualifications and their proposals’ commercial viability, Commerce Secretary Gina Raimondo drew a team of 140 experts from the worlds of finance, trade, investment, science and technology, and environment.
Newman of the Futurum Group said that “the delay in funding is problematic for every company that’s involved” and can “slow down the progress of innovation” in an industry where the development of new technology is particularly time-consuming.
“You have companies like Intel that have made multibillion-dollar investment commitments; you have companies like Micron as well. And then you have smaller companies, and universities and research – which as we know takes a lot of time”, he said.
But according to Chris Miller, the author of Chip War: The Fight for the World’s Most Critical Technology and a professor at Tufts University’s Fletcher School of Law and Diplomacy, “delay” is merely one way to describe it; another would be “to say that the government is being careful”.
“Once they begin handing out incentive grants, their leverage declines. And so the government is looking to boost the industry, but also to achieve some specific economic and national security goals,” Miller said.
The exposed economic and security vulnerability was compounded by Washington’s increasingly strained ties with Beijing.
But even before the US government distributes a penny in funding, investments worth more than US$230 billion have already been pledged by the private sector, according to the Commerce Department.
Since the Chips and Science Act became law, companies in the semiconductor ecosystem have announced dozens of projects to increase manufacturing capacity in the US, with some begun “in anticipation of Chips Act funding and relying on policymakers’ commitment to follow through on such funding”, according to the Semiconductor Industry Association, a trade group.
The projects announced between May 2020 and September 2o23 include the construction of 23 semiconductor fabrication facilities and the expansion of nine production sites involving giants like TSMC, Intel, Micron and Texas Instruments. This year, five companies announced expansion of their material facilities to produce wafers, specialty gases, high-purity graphite and protective coatings.
During a congressional hearing last month on the implementation of the Chips and Science Act, Raimondo told lawmakers that she was pushing the team to go fast, but it was “even more important to get it right”. She added that the department was hopeful of announcing some awards by the end of this year.
Some Republican lawmakers have objected to the Biden administration’s attention to social issues like the environment, labour rights and diversity as a barrier to countering China – the stated goal of the law.
Citing shortages of skilled labour to build and work at new semiconductor fabrication plants in the US, Senator JD Vance, a Republican from Ohio, raised questions at a congressional hearing last month about administrative directives requiring applicants to provide workforce diversity plans.
“It seems to be counterproductive to the goal of bringing this industry back to the United States in the first place,” he said, noting that creating diversity mandates within a company required additional costs of hiring consultants and human resources personnel.
Another requirement is a National Environment Policy Act (NEPA) review, which could take over two years and cost firms billions of dollars.
Although Raimondo has defended workforce and climate change requirements as “good business” and “not a social policy”, she has voiced concerns about NEPA.
“We do not have years. These are national security imperative projects,” she told the Senate Commerce, Science and Transportation Committee in October, urging lawmakers to “pass something” to expedite the process.
Miller said companies were concerned about the red tape involving a waiver of some of the NEPA requirements, describing it as “a question for Congress as much as it is for the executive branch”.
He also noted that the tax credits under the law expire in 2026, calling on lawmakers to extend the provision.
But who deserves bigger shares of the pie remains a major question for the Biden administration. According to Intel chief Pat Gelsinger, TSMC and Samsung “should get some dollars” but his “American company” should “get more dollars because we have submitted four projects for consideration, and we do manufacturing and R&D here”.
Newman of the Futurum Group agreed, describing it as “all about the United States building more self-reliance”.
“Given the geographic and geopolitical considerations, it would be irresponsible to not make sure that large parts of the dollars are put towards strengthening US-based companies, and advancing the initiatives of the US to build more resiliency, manufacture more chips and deliver more innovation here in the United States,” he said.
Miller said the government would demand strong assurances that “in case of a crisis elsewhere, or in case of a disruption elsewhere, that new facilities based in the US will keep functioning”, stressing that it would be unrealistic to expect foreign companies to bring most of their R&D to the US.
