Early Impact of the CHIPS Act

The Creating Helpful Incentives to Protect Semiconductors Act (the CHIPS Act or the Act) was signed into law in August 2022, providing for a total of $52.7 billion in appropriations from 2023 through 2027. This article describes certain key developments in the period from passage of the CHIPS Act through the present day, including a summary of commitments by semiconductor companies to increase capital investment in the United States (possibly reflecting incentives created by the legislation). We also provide a brief survey of key grantmaking and investment activity by U.S. government agencies since passage of the Act. Finally, we discuss the Act’s likely future, as well as analogous policy developments in critical East Asian manufacturing centers.

The CHIPS Act was driven in part by concerns among U.S. policymakers that the U.S. semiconductor industry had fallen behind other modern manufacturing hubs, primarily in East Asia (e.g., South Korea, Taiwan, and, to some extent, China). See, id. at 2. In light of these concerns and others, the Act was structured in large part to provide incentives and financial resources to companies who wished to expand or develop semiconductor manufacturing operations in the United States. See, id. at 6 – 10. To this end, the Act earmarked up to $38.22 billion to provide financial incentives to build, expand, and equip U.S.-based semiconductor fabrication plants, as well as other manufacturing facilities, necessary for the overall supply and value chain (e.g., packaging). See, id. at 14, 16.

The executive branch began implementing the Act soon after its passage by setting up a structure for companies to apply for financial support. In September 2022, the Department of Commerce formed the Industrial Advisory Committee (led by executives from Applied Materials and Analog Devices), whose mandate was to provide the Department with general strategic advice on the domestic semiconductor industry. By February 2023, the Department had published the first Notice of Funding Opportunity, providing concrete guidance to industry partners on how to apply for funding. See, id.

By the end of 2023, the Department had received over 500 statements of interest and over 100 “pre‑applications” for funding from industry partners. On Dec. 11, 2023, the White House announced it had reached a $35 million preliminary funding deal with BAE Systems Electronic Systems. See, id. This funding was specifically allocated to modernize and further develop BAE’s mature-node fab in Nashua, New Hampshire. It was notable that the funding was focused on upgrading a mature fab. Part of the original rationale for the CHIPS Act was that the U.S. defense industry often relies on trailing-edge legacy chips rather than requiring cutting-edge implementations. As the press release announcing the BAE deal prominently noted, “[t]he project will replace aging tools and quadruple the production of chips necessary for critical defense programs including the F-35 fighter jet program [emphasis added].”

Less than a month later, the White House followed up the BAE announcement with an even larger deal — this time announcing a preliminary deal with Microchip Technology Inc. containing some $162 million in funding. This time, the funding was primarily allocated to support and incentivize Microchip to further onshore its supply chain, including modernization and expansion of its existing facilities in Colorado and Oregon. See, id. Once again, the press release focused on the fact that Microchip fabricates large quantities of mature-node chips (noting that these are “critical components” in the “defense-industrial base”). See, id. Secretary of Commerce Gina Raimondo focused on the critical importance of these legacy chips for diverse applications, calling the deal with Microchip “a meaningful step in our efforts to bolster the supply chain for legacy semiconductors that are in everything from cars, to washing machines, to missiles.” Id.

Keeping up with the rapid pace of award-making, in February 2024, the administration announced its largest deal yet — this time, a $1.5 billion preliminary deal with GlobalFoundries focused on both spinning up an entirely new fab in New York and expanding existing fab capacity in New York and Vermont. Though this announcement once again alluded to the “defense” implications of the increased manufacturing capacity, it notably also referred to “bolster[ing] U.S. competitiveness in current-generation and mature-node (C&M) semiconductor production [emphasis added].” Id. The administration focused heavily on the fact that the New York fab would be capable of manufacturing chips that were “not currently available in the U.S.” Id.

The rapid clip of grant activity has not eased up. On March 20, the administration announced an $8.5 billion preliminary deal with Intel to support new development and expansion of Intel’s existing fab capacity across Arizona, Ohio, New Mexico, and Oregon. With the Intel announcement, CHIPS Act funding had truly reached the leading edge — the press release announcing the deal prominently noted that the fabs in Arizona and Ohio would be “leading-edge logic fabs,” providing a huge boost to U.S. capacity in that area. See, id. Just as notably, the Intel deal also specifically earmarked funding for the development of two advanced packaging facilities in New Mexico, clearly marking the importance of funding other facilities critical to the semiconductor value chain. See, id.

In April 2024, the White House announced two more deals: a $6.6 billion preliminary deal with TSMC to support TSMC’s existing fab investment in Arizona and a $6.4 billion preliminary deal with Samsung to expand Samsung’s fab capacity in central Texas. Critically, the TSMC investment will be used to expand capacity at the two-nanometer node (or potentially even more advanced nodes), presenting a significant expansion of truly leading-edge domestic manufacturing capacity. The press release announcing the TSMC deal contained the usual nods to national security concerns. However, it also noted how the investment would also be used to produce chips that would be “foundational to” AI computing and AI datacenters, noting that bolstering the domestic supply of leading-edge chips is critical to “powering the AI boom.” Id.

This, perhaps even more than the previous CHIPS Act deals, indicates that the Act may start to benefit nascent U.S. industries in ways that might not, or could not, have been foreseen at the time of passage. As the AI industry continues to grow, its appetite for chips and datacenters will grow alongside it. The CHIPS Act could easily prove a fruitful source of funding to satiate that appetite — and as AI competition heats up on the global stage, the U.S. government might see reason to expand the overall funding pool over time.

The remainder of 2024 looks bright for the Act. In February, the White House announced the new investment of over $5 billion in the National Semiconductor Technology Center (the NSTC) — a public‑private partnership focused on improving semiconductor R&D and expanding the semiconductor workforce in the United States. The impact the NSTC will have on the overall industry remains to be seen, and some of the benefits of training and scaling a skilled manufacturing workforce may take years or decades to be fully realized. However, its formation, budget, and mandate are yet more signs that the government views the industry as critical to the country’s long-term success.

The United States is not the only country to think this way. Most in the industry, and in the policymaking community, are aware that China has long been pursuing domestic independence in semiconductors as part of its “Made in China 2025” strategy. However, other key East Asian nations such as South Korea and Japan have also recently ramped up domestic investment in the industry. In March 2023, the Korean National Assembly enacted the “K-Chips Act.” The K-Chips Act is smaller in scope than the CHIPS Act, and focuses primarily on creating tax incentives for investments in “national strategic technologies” like semiconductors. See, id. However, it is indicative of the priority that foreign governments place on the industry (a priority that was in part, perhaps, renewed by the CHIPS Act). Similarly, in autumn 2023, it became public that the Japanese government was seeking to enact its own semiconductor subsidy program, containing up to $13 billion in subsidies to expand domestic capacity. The Japanese government has acted rapidly on this front, providing $4.8 billion to TSMC for a cutting-edge fab in February 2024 and $3.9 billion in additional subsidies to Rapidus Corporation in April 2024.

This year and beyond look to be a critical period for the semiconductor industry, both in the United States and worldwide. Public and private investment in the sector is poised to continue at a breakneck pace, with companies currently planning to invest up to $1 trillion in fab capacity worldwide through 2030. New technologies like AI and the continued modernization of developing countries are likely to continue to expand the world’s appetite for new, better, and faster chips. It remains to be seen how much of a model the CHIPS Act will prove for the rest of the world and what changes we might see to the CHIPS Act’s own model in the United States. However, it seems abundantly clear that public investment in the sector (particularly given high capital requirements and an increasingly critical importance to national security) is here to stay.