U.S to Subsidize Chip Production

The U.S. Senate voted to spend about $52 billion on chip production subsidies, part of a broader effort to make the country more competitive with China. Granted, it’s also just a preliminary vote on a slimmed-down bill: the U.S. House of Representatives was pushing a bigger $350 billion version of the legislation that both sides couldn’t agree on.

“If the U.S. lost access to advanced semiconductors (none made in the U.S.) in the first year, GDP [gross domestic product] could shrink by 3.2 percent and we could lose 2.4 million jobs,” Texas senator John Cornyn tweeted, in defense of the bill. “The GDP loss would 3X larger ($718 billion) than the estimated $240 billion of U.S. GDP lost in 2021 due to the ongoing chip shortage.”

He then added, “over 3 years, more than $2 trillion of U.S. GDP could be lost, with over 5 million people losing their jobs—a cumulative GDP loss of over 9 percent and employment loss of 3.5 percent over that period.”

The bill basically provides incentives for chipmakers to manufacture their products in the United States instead of China. The goal is to increase the number of planned chip fabrication plants in the U.S. from about four to over ten.

The bill also includes an additional $2 billion allocation so that the U.S. Department of Defense can create a network of semiconductor prototyping and development facilities at U.S. universities to ensure that next-generation chips can be manufactured at scale. And it could grow to include tax credits for research and development to increase competitiveness over the long term.

The Biden administration says it will continue to work on the other parts of the bill.

“Chips funding is the only part of this bill that we have to pass right now to avoid facing devastating consequences,” Commerce Secretary Gina Raimondo said. “There are several parts of the broader legislation that are important, and I am committed to doing whatever it takes to get them over the finish line in this Congress.”