COMMERCE DEPARTMENT RELEASES DETAILS OF THE BIDEN’S ADMINISTRATION’S $50 BILLION PLAN TO BOOST NATION’S SEMICONDUCTOR INDUSTRY

September 12-18, 2022

By The Daily Record Staff

The U.S. Department of Commerce has unveiled the Biden administration’s much-ballyhooed multibillion-dollar bill to boost the nation’s computer chipmakers and semiconductor manufacturing industry to ward off a growing national security threat.

On Sept. 6, the Commerce Department released its strategy outlining how the agency will implement $50 billion from the bipartisan CHIPS Act of 2022, signed by President Biden last month. The “CHIPS for America” program, housed within the Department’s National Institute of Standards and Technology (NIST), will revitalize the domestic semiconductor industry and spur innovation while creating good-paying jobs in communities across the country, officials said.

“Rebuilding America’s leadership in the semiconductor industry is a down payment on our future as a global leader,” said U.S. Secretary of Commerce Gina Raimondo. “CHIPS for America, will ensure continued U.S. leadership in the industries that underpin our national security and economic competitiveness. Under President Biden’s leadership, we are once again making things in America, revitalizing our manufacturing industry after decades of disinvestment and making the investments we need to lead the world in technology and innovation.”

The strategic plan, Commerce Department officials said, outlines the initiatives, strategic goals and guardrails guiding the “CHIPS for America” program. Today, the U.S. produces “zero percent” of the world’s supply of computer chips, officials said. 

The Commerce Department said it intends by February to begin seeking applications for $39 billion in government semiconductor chips subsidies to build new facilities and expand existing U.S. production. In early August, lawmakers approved $52.7 billion for semiconductor manufacturing and research and a 25% investment tax credit for chip plants, estimated to be worth $24 billion. That credit applies to projects that start construction after Jan. 1.

During debate in Congress over the CHIPS Act, several supporters of the legislation argued that increasing semiconductor production in the U.S. is a national security risk because the industry has driven major recent advances in communications, computing, health care, military systems, transportation, clean energy and countless other applications. 

A recent report by the Boston Consulting Group (BCG), sponsored by the Semiconductor Industry Association, also said the U.S. computer chipmakers are critical to the nation’s economic competitiveness and national security in the current era of digital transformation, artificial intelligence and 5G communications.

“The U.S. semiconductor industry has long been the global semiconductor leader, consistently accounting for 45% to 50% of global revenues. But the U.S. share of semiconductor manufacturing capacity, which was 37% back in 1990, has dropped to 12%,” stated the highly cited BCG report. “Moreover, only 6% of the new global capacity in development will be located in the U.S. In contrast, it is projected that during the next decade China will add about 40% of the new capacity and become the largest semiconductor manufacturing location in the world.”

In addition to those concerns, a global computer shortage during the early months of the COVID-19 pandemic impacted the U.S. supply chain and several key industries. For example, sales of U.S. cars and trucks in August 2021 declined by 13.7% compared to August 2020, and were down 25.3% vs. pre-pandemic August 2019, according to data from J.D. Power and LMC Automotive. Because of the nation’s shortage of automotive-grade computer chips, the auto industry lost over $210 billion globally in 2021. 

For consumers, the high demand for new and used vehicles when automakers struggled to increase production due to the computer chip shortage led to a huge spike in auto prices. According to the U.S. Bureau of Labor Statistics’ July Consumer Price Index report, new and used car prices have spiked 10.4% and 6% over the past year. 

The Commerce Department’s program’s four primary goals are to establish and expand domestic production of leading-edge semiconductors in the U.S.; build a sufficient and stable supply of mature node semiconductors; invest in research and development (R&D) to ensure the next generation semiconductor technology is developed and produced in the U.S.; and create tens of thousands of good-paying manufacturing jobs and more than a hundred thousand construction jobs. 

This effort will ensure the pipeline for these jobs expands to include people who have historically not had a chance to participate in this industry, including women, people of color, veterans and people who live in rural areas, Commerce Department officials said.

Under the recently signed legislation, the Commerce Department-led program supports three distinct initiatives:

• Large scale investments in leading-edge manufacturing: The CHIPS incentives program will target approximately three quarters of the incentives funding, around $28 billion, to establish domestic production of leading-edge logic and memory chips that require the most sophisticated manufacturing processes available today. Those amounts may be available for grants or cooperative agreements, or to subsidize loans or loan guarantees. The Commerce Department is still assessing the impact of the newly enacted advanced manufacturing facility investment tax credit on capital expenditures, which will generate significant additional project investment from participants and will reduce the required share of CHIPS incentives funding allocated for leading edge projects. The agency will seek proposals for the construction or expansion of manufacturing facilities to fabricate, package, assemble and evaluate these critical components, particularly focusing on projects that involve multiple high-cost production lines and associated supplier ecosystems.

• New manufacturing capacity for mature and current-generation chips, new and specialty technologies, and for semiconductor industry suppliers: The CHIPS incentives program will increase domestic production of semiconductors across a range of nodes including chips used in defense and in critical commercial sectors such as automobiles, information and communications technology, and medical devices. This broad and flexible initiative encourages industry participants to craft creative proposals. For this initiative, the Department expects dozens of awards with the total value expected to be at least a quarter of the available CHIPS incentives funding, or approximately $10 billion. Those amounts may be available for grants or cooperative agreements, or to subsidize loans or loan guarantees.

• Initiatives to strengthen U.S. leadership in R&D: The CHIPS R&D program will invest $11 billion in a National Semiconductor Technology Center, a National Advanced Packaging Manufacturing Program, up to three new Manufacturing USA Institutes, and NIST metrology research and development programs. This constellation of programs is intended to create a dynamic new network of innovation for the semiconductor ecosystem in the United States. Executing this vision will require collaboration with academia, industry and allied countries, and will require sustained investment over many years.

The Commerce Department’s strategic plan also provides clear recommendations for potential applicants, reinforcing the agency’s commitment to advancing long-term strategic goals and identifying criteria against which applications will be evaluated. The criteria include increasing scale and attracting private capital, leveraging industry partnerships to build out semiconductor ecosystems, and securing additional financial incentives and support to build regional and local industry clusters that strengthen communities.

The plan also recommends establishing a secure and resilient semiconductor supply chain, expanding the nation’s workforce pipeline to increase U.S. computer chip production, and prioritizing projects that small businesses, minority-owned, veteran-owned and women-owned businesses, along with businesses in rural areas, benefit from opportunities generated by the CHIPS programs.

Applicants for Commerce Department funding will be required to provide detailed project-specific and company-level financial data to ensure that incentive funds are meeting the program’s economic and national security goals while protecting taxpayer dollars.

Funding documents, which will provide specific application guidance for the “CHIPS for America” program, will be released by early February 2023. Awards and loans will be made on a rolling basis as soon as applications can be responsibly processed, evaluated and negotiated.

The program’s strategy paper and guiding principles can be viewed on the Commerce Department’s recently launched CHIPS.gov website.  

Photo Caption:

The U.S. Department of Commerce has moved forward with a strategic plan to address the nation’s computer chip shortage that the Biden administration is calling a natural security threat. Commerce Department officials are implementing the $50 billion plan after Congress approved the bipartisan CHIPS Act of 2022 last month, which President Biden signed on Aug. 25.