Fishing for CHIPS

Congress passed the 1,000-page bill, known as the CHIPS and Science Act of 2022, with bipartisan support at the end of July. Lawmakers have been working on semiconductor measures since the early months of the coronavirus pandemic, when outbreaks and lockdowns wreaked havoc on global supply chains and created shortages of the chips across North America.

Semiconductors are key components in a ballooning number of products in the digital age, including cars and cellphones. As a result of shortages, many manufacturers were forced to shutter their doors and lay off scores of employees at a time when people were stuck at home and demand for electronics such as laptops and video game consoles was booming.

The chips are also crucial to U.S. defense and intelligence operations, which increasingly rely on advanced weaponry and other technologies requiring semiconductors. With adversaries such as China and other Asian countries far away in the global supply chain occupying a growing portion of the semiconductor industry, U.S. lawmakers argued it was essential to shore up domestic output.

“I first began sounding the alarm about the need to reduce our reliance on other nations and safeguard our national security by bringing semiconductor production back to the U.S. more than two years ago,” Sen. Mark Warner (D-VA), chairman of the Senate Intelligence Committee, said in a recent statement. “Since then, we’ve seen the consequences of semiconductor shortages all the way up the supply chain and down to consumers, who have faced rising costs on a variety of goods both large and small.

“This bipartisan bill will lower costs for families, strengthen our national security, and create good-paying manufacturing jobs here in the United States,” Warner added. “I am glad that after years of unnecessary delay, it is finally being sent to the President’s desk.”

Once a dominant force in the semiconductor industry, the U.S. has seen its influence wane over the past three decades. The Congressional Research Service, which offers nonpartisan analysis of legislation, said earlier this year that the U.S. is still a leader in “many parts of the semiconductor supply chain, such as chip design.” There are 20 semiconductor fabrication facilities, known as “fabs,” operated by six companies across the U.S., the CRS wrote in January.

“However, with the movement of many U.S. firms toward a fabless model (companies that design, but do not manufacture, semiconductors), the U.S. share of semiconductor fabrication capacity was 12% in 2020, down from 13.8% in 2015, continuing a long-term decline from around 40% in 1990,” the CRS said. “The U.S. share is expected to fall further as planned new fabs open globally in the next few years, particularly in East Asia.”

In 2019, nearly 80% of semiconductor fabrication capacity was in Asia, with South Korea and Taiwan taking the lead at 28% and 22%, respectively, the CRS said. Both have also made billion-dollar public investments in the industry, and while China sat at 12% that year, it is spending an estimated $150 billion in the years ahead to grow its capacity.

“Regrettably, at this moment, we are not in the driver’s seat on a range of important technologies,” Sen. Roger Wicker (R-MS), the ranking member on the Senate Commerce Committee, said on the day of the vote. “China and other nations are increasingly dominant in tech innovation, posing a massive threat to not only our economy but to our national security. But with today’s vote, Congress has a chance to move us back in the right direction and put America back into a place to win the game.”

Wicker, who was one of 17 GOP senators to join Democrats in supporting the bill, noted it isn’t all about semiconductors. “This legislation goes much further, advancing American innovation in quantum computing, advanced robotics biotechnology, advanced materials, and artificial intelligence — the full suite of technologies that we need to out-compete China,” Wicker said. “And instead of limiting those investments to a small handful of institutions in five wealthy states, this bill casts a wide net, enlisting the talent and expertise of STEM researchers nationwide.”

The legislation includes $36 billion above baseline figures for the National Science Foundation, as well as an extra $30.5 billion for the Department of Energy, among other funding for government agencies.

“Aside from dramatically increasing research funding, the Act would build new technology hubs across the country, increasing the participation of underrepresented populations and geographies in innovation, and combat the illicit foreign absorption or theft of U.S. research products,” the Senate Commerce Committee said. “These represent critical steps to regaining U.S. strength and reducing long-term supply chain vulnerabilities in critical areas such as advanced manufacturing, next-generation communications, computer hardware, and pharmaceuticals.”

The bill is “quite well crafted” in that it tries to address the whole environment surrounding semiconductor design and production instead of focusing on one “silver bullet,” according to Sujai Shivakumar, a senior fellow at the Center for Strategic and International Studies and the director of its Renewing American Innovation Project.

“You can’t just sort of plunk a fab in the middle of Ohio or Texas or Arizona,” Shivakumar told the Washington Examiner. “You also need to support the infrastructure, the ecosystem that enables these fabs to function well. So the bill also pays attention to the issues of workforce training, the issues of R&D facilities that help to keep these fabrication facilities at the cutting edge of production, as well as the cutting edge of design.”

But not everyone is a fan of the bill, which is pegged to add $79 billion to the country’s deficit. In an editorial, Bloomberg said the legislation could “make things worse” if Congress doesn’t address other challenges in the domestic semiconductor industry — especially the workforce shortage.

“The U.S. simply does not have the workforce to sustain this new capacity,” the editorial board wrote. “About 40% of high skilled semiconductor workers in the U.S. were born abroad. Since 1990, the number of foreign-born students in relevant graduate programs has nearly tripled. Yet current immigration policy makes it exceedingly difficult to retain this talent, while the U.S. education system isn’t producing enough domestic graduates with appropriate skills.”

“Prudent immigration reform is the only answer to this quandary,” it added. “In particular, Congress should increase visas for skilled workers and prioritize applicants with in-demand STEM skills, while exempting international graduates of U.S. schools with advanced science degrees from the cap on green-card allotments.”

Conservatives and some liberals have sharply criticized the legislation as well.

“The Chinese Communist Party represents a threat to American values, interests, and freedoms unlike any other we have faced in our history,” Heritage Foundation President Kevin Roberts said in a statement. “Unfortunately, the CHIPS Act does little to counter those threats and protect our way of life.

“The answer to the CCP’s malevolent ambitions is not spending billions of dollars to help Fortune 500 companies, with no guarantee those dollars won’t end up supporting these companies’ business operations in China,” Roberts added. “Additionally, the act’s $250 billion price tag will contribute to record inflation and increase the already historic cost of living for working and middle-class Americans.”

Roberts’s concerns about corporate welfare were echoed by Sen. Bernie Sanders (I-VT), who caucuses with the Democrats but voted against the bill.

“There is no debate that the microchip and semiconductor shortage is a dire threat to our nation,” Sanders said in mid-July.

“The microchip industry helped cause this crisis by, over the last 20 years, shutting down 780 plants here and eliminating 150,000 good-paying jobs. The question before us now is whether these extremely profitable companies will work with the U.S. government on a solution to rebuild the U.S. microchip industry which is fair to the taxpayers of this country or whether they will continue to demand a $53 billion bribe to stay here,” Sanders said.

“The five biggest semiconductor companies that will likely receive the lion’s share of this taxpayer handout, Intel, Texas Instruments, Micron Technology, GlobalFoundries, and Samsung, made $70 billion in profits last year,” Sanders added. “Does it sound like these companies really need corporate welfare?”

But Shivakumar said countries across the world are now competing to land fabrication facilities on their soil because of the employment and supply chain benefits they bring. For the U.S., which experienced a devastating loss of well-paying manufacturing jobs in recent decades, the semiconductor industry, which is forecast to become a trillion-dollar industry by the next decade, represents a compelling economic opportunity.

“Ultimately, it’s a matter of pragmatism — what do we need to do to make sure that we reinvest in manufacturing, that we reinvest in new emerging technologies, especially given that semiconductors are now at the core of all our working, the ways in which we communicate, the way in which we transact,” Shivakumar said.

“It’s so central to our 21st century existence that we just cannot ignore and let market forces upend this industry.”