Technology

The US Chips Act has not only been a success - it’s sparked a multibillion-dollar investment boom

More than halfway through its incentives spending, the US will have far greater scope to manage geopolitical shocks

US statistics show a stunning fifteenfold increase in construction of manufacturing facilities for computing and electronics devices. Photograph: Getty Images

Chris Miller
Thu May 2 2024 - 05:00

With recent multibillion-dollar grants to Intel, TSMC, Samsung and Micron, the US government has now spent more than half its $39 billion (€36.4 billion) in Chips Act incentives. In so doing it has driven an unexpected investment boom. Chip companies and supply chain partners have announced investments totalling $327 billion over the next 10 years, according to Semiconductor Industry Association calculations.

US statistics show a stunning fifteenfold increase in construction of manufacturing facilities for computing and electronics devices. Debate about the Chips Act has focused on delays and manufacturing difficulties, but the vast volume of investment tells a different story.

Pandemic-era shortages showed how small deficits of even lower-tech foundational chips could cause hundreds of billions of dollars of economic damage. The ensuing Chips Act aims to encourage construction of new computer chip fabrication facilities (fabs) in the US. This will reduce reliance on a small number of East Asian suppliers – today nearly all cutting-edge processors are made in Taiwan.

The investment surge this has driven is reducing these vulnerabilities. Samsung, TSMC and Intel – the world’s leading chipmakers – are now building large new plants in the US.

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Intel will manufacture its most advanced chips there, while TSMC will introduce its cutting-edge two-nanometre process in Arizona around two years after bringing it online in Taiwan. US secretary of commerce Gina Raimondo notes that, by 2030, the US will probably produce about 20 per cent of the world’s most advanced chips, up from zero today.

This still won’t mean complete self-sufficiency, given that the US consumes more than a quarter of the world’s chips. Production of smartphones and consumer electronics would be disrupted in the event of a crisis in East Asia, an ever-looming fear.

But this production would be roughly enough for the needs of critical infrastructure such as data centres and telecoms. Chips aren’t perfectly fungible, of course, and not every plant can easily produce every type, but the US will have much more scope to manage shocks.

As the pandemic-era shortages showed, it is not only advanced chips that are economically critical. Manufacturers of cars, missiles and medical devices require large volumes of foundational chips as well. Here, too, the Chips Act is providing significant new supply.

Ford and GM have announced big, long-term supply deals with US chipmaker GlobalFoundries, which is expanding production with $1.5 billion in Chips Act funds. Microchip, a widely used Arizona manufacturer of microcontroller chips, also received a grant to expand. Texas Instruments is building a string of new foundational chip fabs across Texas and Utah, catalysed by generous investment tax credits.

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Few if any of these investments would have happened without the Chips Act.

Production in allied countries is helping, too. Japan and Europe are investing in foundational chip capacity. Microchip and Analog Devices, another US chipmaker, have both announced plans to shift some production from TSMC in Taiwan to the company’s new plant in Japan, providing increased resilience against China risks.

Critics worry all these incentives create a subsidy race – but this began well before the Chips Act. A 2019 OECD study found that between 2014 and 2018 at least two US companies received more money from a foreign government than from the US. That’s partly why chipmaking migrated to high-subsidy locations.

Now the Chips Act and similar incentives in Japan and Europe are attracting investment back.

Will all these promised plants get built? Many of them already are. The scale of fab construction in the US is now stretching contractors’ ability to find workers with speciality skills.

TSMC plans high-volume chip production in its first Arizona plant early next year. If the chip market softens, some plants could get postponed, but the disbursement of grants is tied to progress in bringing fabs online.

There’s still a risk that American taxpayers are buying excess capacity if these new facilities can’t find customers. However, many tech executives like OpenAI’s Sam Altman are more worried about AI chip shortages than a glut.

TSMC notes that its Arizona plant will work with Apple, Nvidia, Qualcomm and AMD – four of its largest customers. Intel recently announced a deal to manufacture AI processors for Microsoft.

Equity investors will debate whether these new investments can deliver an adequate financial return. Policymakers who see the Chips Act as an insurance policy against geopolitical shocks believe it is already paying dividends.

Chris Miller is the author of Chip War: The Fight for the World’s Most Critical Technology

– Copyright The Financial Times Limited 2024

IntelAnalog DevicesMicrosoftAppleSamsungTSMCMicron BiomedicalFordGeneral MotorsNvidiaSam AltmanOpen AI