After the CHIPS Act: The Limits of Reshoring and Next Steps for U.S. Semiconductor Policy
Source: Getty As America’s conscious foray into industrial policy, the CHIPS Act is an important political breakthrough and a potentially transformative piece of legislation. Print Page Introduction The U.S. Congress’s recent success in passing the CHIPS and Science Act (informally the CHIPS Act) shows that legislators are united on one point: the United States needs to manufacture more semiconductors at home. This idea gained traction during the worst days of the coronavirus pandemic, when global shortages of semiconductors halted the manufacturing of automobiles, traditional consumer electronics, and other products that use semiconductors, such as household appliances. 1 As demand for these products soared during the pandemic, the world experienced painful price inflation, which amplified the acute geopolitical tensions between the United States and China. 2 U.S. policymakers, already worried that dependence on Taiwan for the most sophisticated semiconductors could imperil national security and economic security, saw an urgent need to act. 3 And together, rising prices and geopolitical competition underscored the need to invest in domestic economic revitalization. The CHIPS Act’s $52.7 billion investment in domestic semiconductor manufacturing (see table 1) aims to fulfill three main objectives: 1) reduce the likelihood that shocks abroad might disrupt the supply of chips, 2) boost American international economic competitiveness and create domestic jobs, and 3) protect semiconductors from being sabotaged in the manufacturing process. This paper argues that the CHIPS Act, by itself, will not fully accomplish any of these goals. The act is a major step forward, but it leaves multiple gaps that require additional government action. In particular: Policymakers must ensure that the $39 billion in CHIPS Act subsidies are usefully divided between fabrication and assembly, testing, and packaging (ATP). Government and industry must work together to improve awareness of potential bottlenecks in the supply chain, particularly those arising from opaque supply chain management activities led by the private sector. The White House and Commerce Department should convene leading scholars to explore how complementary economic policies and initiatives can create opportunity for struggling parts of the domestic labor force. The Commerce Department’s CHIPS Program Office must ensure that funding for R&D is supporting initiatives that prepare U.S. companies for paradigm changes in semiconductor technology. The Commerce Department, Department of Defense, and Office of the Director of National Intelligence should ensure that their efforts to develop criteria for secure and trusted microelectronics incorporate measures to guard the manufacturing process against remote and insider threats. The National Institute of Standards and Technology should facilitate a process to develop open semiconductor security standards with major international producers and consumers of semiconductors. Table 1: Appropriations in the CHIPS and Science Act Program Appropriation CHIPS for America Fund Manufacturing Incentives $39 billion R&D $11 billion Other $2.7 billion Total $52.7 billion Public Wireless Supply Chain Innovation Fund $1.5 billion Beyond the specific steps needed to compensate for the limitations of the CHIPS Act, however, U.S. semiconductor policy needs a stronger foundation that: is informed by more data, aims to achieve measurable targets, and incorporates scenario and crisis planning. Each of these three pillars is critical, and success with one reinforces the others. To make effective semiconductor policy, the U.S. government must have an accurate understanding of the global semiconductor supply chain, which first requires gathering and analyzing data. The U.S. government should assess the supply chain using a standardized, repeatable method—enabling comparisons over time and robust supply chain monitoring. These activities would help inform concurrent efforts to set targets and plan for crises. The U.S. government should set clear targets for the semiconductor industry to benchmark its policy efforts. Rather than setting indeterminate goals, the U.S. government should specify its objectives and provide targets. For example, instead of aiming to “reshore semiconductor fabrication to ensure domestic supply,” the U.S. government could aim to ensure that production of a specific share (X percent) of military end-use electronics would not be disrupted by a supply shock in East Asia. Setting specific targets for the semiconductor industry will help policymakers measure progress toward their objectives and plan for crises. In the short term, targets would help the CHIPS Program Office determine how much money should be allocated to fabrication and ATP, respectively. The U.S. government should designate a planning body for semiconductor crises. Based on data gathered about the supply chain and quantitative targets, this organization would run crisis simulations and provide recommendations for further policy action. Lastly, as the U.S. government constructs these pillars of effective policymaking, it must also navigate a series of three strategic dilemmas. […]
