The 2022 CHIPS Act, an acronym for Creating Helpful Initiatives to Produce Semiconductors, provides federal incentives for companies that will assist in the domestic creation of high-quality microchips. During the Covid pandemic, the United States was stuck with significant shortages of these microchips, many of which were imported from China – a geopolitical rival. As the prices of electronics and automobiles soared, citizens wanted government action to prevent supply shortages from spiking the prices of these important goods.
Currently, the CHIPS Act is helping American production of microchips by providing subsidies and tax credits for firms that will increase domestic manufacturing. Recently, the Taiwan Semiconductor Manufacturing Company received $6.6 billion in such subsidies to build a third manufacturing plant in Arizona. Although the producer was international, the microchip production would be domestic, providing good local jobs in Arizona. The domestically-produced chips would also be accessible to American companies in the event that imported chips were cut off, either due to future pandemics or military conflicts.
Austin is Ideal Location for New Chip Plants
Another round of CHIPS funding will go to fellow semiconductor producer Samsung, which is expanding its operations in the Austin, Texas, area. This area is already a tech hub, which means nearby microchip manufacturing is an excellent complement that could reduce prices on many Texas-produced tech products. A major new tech producer in the Austin area, Tesla Motors, will undoubtedly be looking for high-quality microchips.
The $6.5 billion in subsidies to Samsung will create some 17,000 construction jobs in the short term and up to 5,000 chip manufacturing jobs in the long term. Supporters of the CHIPS funding have pointed to the previous success of Sematech in the early 1990s in creating advanced microchips due to government subsidies to a combined effort of private companies and universities. Although Sematech faded by 1993, CHIPS Act investment is much larger and would help chip producers achieve a “critical mass” of production that would achieve long-term profitability.
Samsung U.S.-Made Chips Would Assist in National Security
As with the Taiwan Semiconductor chips in Arizona, the Samsung chips in Texas would be an invaluable resource in the event of a disruption to imported microchips. With military conflict possible in the Pacific region against China, a major chip exporter, in the next decade, it makes good fiscal sense to have a robust domestic supply of comparable microchips. Some analysts feel that any conflict with China could disrupt trade for several years, meaning shortages of imports from China would be severe.
While nobody wants trade-disrupting conflict, it is important for the United States to invest in a degree of self-sufficiency of vital goods and resources. China has a significant advantage due to its early investment in microchip manufacturing, meaning the U.S. government has to catch up. Subsidies by the CHIPS Act to microchip producers with manufacturing operations in the United States will ensure that we can continue manufacturing the chips in the event of trade disruption.
