Voting for the CHIPS for America Act has been delayed by a day owing to lousy weather blocking senators’ return to Washington. The bill’s importance was encapsulated by a recent comment from U.S. commerce secretary Gina Raimondo.
Last week, the commerce secretary asserted that the country’s reliance on chips from Taiwan had put the U.S. in a precarious position. Chips, the small semiconductors with integrated circuits, are used in products ranging from microwave ovens to airplanes, missiles, and defense equipment.
Presently, 90% of the silicon demand in the U.S. is fulfilled by Taiwanese companies. Taiwan-based foundries are responsible for approximately 64%Opens a new window of the global semiconductor revenue in 2021 and are estimated to contribute 66% in 2022. Raimondo said that this is despite many of these chips being designed in the U.S. by companies like Intel.
“If you allow yourself to think about a scenario where the United States no longer had access to the chips currently being made in Taiwan, it’s a scary scenario,†Raimondo said on CNBC Closing Bell. Taiwanese fabrication plants also produce Apple, AMD, Qualcomm, and NVIDIA-designed chips on contract.
“It’s a deep and immediate recession. It’s an inability to protect ourselves by making military equipment. We need to make this in America. We need a manufacturing base that produces these chips, at least enough of these chips, here on our shores because otherwise we’ll just be too dependent on other countries.â€
Raimondo’s subtextual warning points to an ever-increasing threat to Taiwanese sovereignty from China. Any Chinese aggression could open up a new theater of conflict in the self-governing island nation which China considers its territory.
The ongoing conflict in Ukraine has shot up inflation in the U.S. up to 9%. For context, inflation in the country never crossed the 4% markOpens a new window in the 30 years between 1991-2021, a period that saw the dot-com bubble burst and the 2008 Great Recession.
So yet another conflict, especially in a place that supplies something that forms the bedrock of nearly all electronic devices and equipment, could not only derail the technology sector but also hurt industries that rely on it.
The COVID-19-necessitated lockdowns, which caused supply-chain bottlenecks and a global semiconductor shortage, wiped out 1% of the U.S. GDP in 2021. “We are 100% vulnerable to foreign supply chains on those advanced semiconductors,†the director of Biden’s National Economic Council, Brian Deese, told the press in April 2022.
See More: Ukraine-Russia Conflict: Will It Worsen the Global Semiconductor Shortage?
“The best estimates are that the lack of available semiconductors probably took a full percentage point off of GDP in 2021.†If that is any indication, a whiff of conflict in Taiwan can hit the U.S. and the rest of the world hard.Â
The CHIPS Act is created to assuage these concerns and shed this overwhelming reliance on Taiwanese fabricators. The primary intention is to make the U.S. more competitive vis-Ã -vis China and Taiwan and create a multi-billion subsidy plan fueling domestic semiconductor production.
The $52 billion incentive, which also entails $20 billion in tax credits for those enabling the expansion of U.S. chip-manufacturing capacity, was approved in January 2021 and has been in a legislative jam since. A trimmed-down version of the CHIPS Act is up for a vote in the Senate tomorrow and will possibly take years to implement.
Those involved in semiconductor manufacturing (Intel, Texas Instruments, etc.) should be eager for the bill to pass without delay. However, Reuters reported last week, citing sources familiar with the matter, that chip designers that aren’t directly engaged in manufacturing (AMD, Qualcomm, NVIDIA) are concerned that the CHIPS Act favors only manufacturers.
As such, more semiconductor companies want the FABS Act, which incentivizes designers and manufacturers both. The Semiconductor Industry Association said in July, “We’re encouraged that the legislation is progressing, and we continue to support enactment of $52 billion in CHIPS Act investments and a FABS Act investment tax credit for both manufacturing and design.â€
One person working at one of the companies opposing the CHIPS Act told ReutersOpens a new window , “You have Intel that might get $20 billion with the CHIPS Act plus $5 billion or $10 billion under the FABS Act. So $30 billion goes to your direct competitor, and you don’t get a penny? That’s going to cause problems in the market.â€
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