To address the global chip shortage, the U.S. CHIPS Act seeks to offer $52 billion in subsidies.
U.S. President Joe Biden signed the landmark $280 billion bipartisan bill earlier this week to boost domestic semiconductor production and to make the world’s largest economy more competitive with China.
“Only 12% of chips are currently manufactured domestically, compared to 37% in the 1990s, and many foreign competitors, including China, are investing heavily to dominate the industry. The United States also lacks capabilities to produce the most advanced chips at volume,” according to a summary of the CHIPS Act of 2022. “The CHIPS Act of 2022 would provide appropriations needed to implement the currently authorized programs from the bipartisan CHIPS for America Act.”
“To ensure the Congressional goal of promoting domestic competitiveness, the Act also includes safeguards to ensure that recipients of Federal funds from these programs cannot build advanced semiconductor production facilities in countries that present a national security concern,” it added.
It is no secret that the two global superpowers compete for power. Biden pointed out that China actively pressured U.S. companies against the semiconductor bill, which was one side of the argument. China, on the other hand, “firmly condemned” Washington’s action, claiming that it was reminiscent of a “Cold War mentality,” and that it threatened trade and was an attack on Chinese businesses.
To address the global chip shortage, the U.S. CHIPS Act, which stands for Creating Helpful Incentives to Produce Semiconductors, seeks to offer $52 billion in subsidies for semiconductor research and manufacture. Along with incentives like an investment tax credit for chip facilities, Biden’s “once-in-a-generation commitment” also includes an authorization of a whopping $200 billion for more than 10 years to improve scientific research in the nation to better compete with China.
Why are the two superpowers concerned about a little, flat piece of metal? It’s because a chip, also known as a semiconductor, is an essential part that fuels a wide range of electronic devices, such as cellphones, cars, washing machines, etc. The chip scarcity is hurting most countries in the world, not only the United States and China.
Lockdowns brought on by Covid-19 prompted the closure of production facilities and hampered international trade. Due to the transition to offline work and study, there was a parallel increase in demand for gadgets, particularly phones, laptops, and tablets, which led to scarcity.
The global disruption of the supply chain affected the revenues of many businesses, including tech giants like Apple. While smartphone and laptop makers are surviving due to stockpiling, the automobile sector is the worst victim of semiconductor scarcity, which resulted in a decline in its sales and later a rise in the prices of vehicles.
The shortage also affected consumers as high demand resulted in rising prices of electronics. Despite high demand, it is difficult to ramp up production as setting up chip fabrication plants is expensive to set up, involves a lot of risks, and takes years to build. India is also planning to set up chip manufacturing units but amid the government’s lack of long-term vision, attractive incentives, and poor planning, it doesn’t seem to materialize anytime soon.
