Partisan gridlock in Washington, D.C. may derail the CHIPS Act, a $52 billion bill aimed at helping the U.S. catch up in the global race to secure semiconductor chips.
The US created the semiconductor industry, and yet lagging legislation puts it at risk of falling behind as the world shifts towards localization.
Semiconductors power the digital economy, but a global shortage—caused by factory shutdowns during the pandemic and made worse by supply chain issues and stockpiling—has exposed the dangers of having manufacturers and consumers scattered across continents. A recent report by Deloitte notes that the shortage has led to revenue misses worth more than $500 billion in the past two years. In 2021, lost automobile sales revenue hit $210 billion.
To solve supply issues and meet future demand, investment is needed. Thomas Caulfield, CEO of chipmaker GlobalFoundries, recently appeared on CNBC saying that the industry will need to double capacity in the next eight to 10 years and doing that would require “trillions of dollar investment.”
If finalized, the new piece of US legislation, called the CHIPS Act, could be worth $52 billion in funding to the US semiconductor industry. However, a partisan conflict concerning spending threatens to derail plans to increase manufacturing capacity. Chipmaker Intel has already said the delay would indefinitely postpone plans for a $20 billion production facility in Ohio. Industry peer GlobalFoundries, which has plans for a $1 billion facility in New York, also shares concerns about the bill’s slow progress.
All the while, other regions surge ahead with plans to build added capacity. The European Union is committed to investing $47 billion in chip production. In Asia, China is spending $150 billion on boosting its semiconductor industry, while chipmakers in Taiwan are spending $120 billion to strengthen its industry. In May, South Korea revealed a $450 billion push to build its industry. Japan wants to triple its chip revenue by 2030.
There is a downside to this, however. State investment could lead to overcapacity. A global industry split across borders also risks inefficiency and duplication. In such a scenario, a report by Boston Consulting Group previously said “self-sufficient” local supply chains could result in a 35% to 65% overall increase in semiconductor prices and higher prices for consumers.