U.S to Subsidize Chip Production

Posted on July 20, 2022 by Paul Thurrott in Hardware, Mobile with 18 Comments

Photo credit: Paul Thurrott

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.”

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Comments (18)

18 responses to “U.S to Subsidize Chip Production”

  1. red.radar

    US subsidizes a whole range of industries from Aerospace, Agriculture to Energy. Seeing the effects of the recent semi-conductor shortages and the general global instability. I am not surprised at this effort.

  2. Pbike908

    Not surprising, but sad. Intel has shelled out more than $40 billion for stock buy backs in the past 5 years.

    Intel Stock Buybacks (Quarterly) (ycharts.com)

    • 02nz

      And yet their stock price is still pretty much where it was 5 years ago.

  3. wshwe

    There should be clear restrictions on the total compensation amounts that subsidized companies can give to their top executives. I don't want to see executive given huge salaries and enormous bonuses!

  4. WaltC

    The original bill rewarded Intel, but not nVidia and AMD to the same degree. I think the amounts should be the same, absolutely. I'm actually not in favor of this at all, as I don't think it's necessary. Intel is already starting to blackmail the government by threatening to go the EU if it doesn't like what the US decides to give it. I'd feel much better if all of this was low-interest loans to all three companies.

    • lvthunder

      I'd like it best if it was just reducing taxes and regulation on the industry and not something the company applies for.

      • bluvg

        That approach will hardlyput them (and the US) on par with their Taiwanese and Chinese peers with the subsidies those countries have poured into those industries. This whole thing is messy and doesn't fit neatly within US ideological principals, but those principals need to align to reality if the US doesn't want the chip manufacturing to be dominated by those countries.

        It happened with other industries and then the US tried--at great expense and in vain--to bring some of them back. Better and much cheaper to act now rather than after the damage is done.

    • bluvg

      It's messy, but nVidia and AMD don't have fabs, and this is about the manufacturing, not design. Rewarding nVidia and AMD likewise would mean rewarding TSMC.

      Ultimately, this is about leveling the manufacturing playing field and the continued economic and national security benefits to the US as Cornyn points out. Low-interest loans are not a globally competitive answer. I hear you on what seems like blackmail, but you could also see it as the reality just being spelled out in crystal-clear terms.

      • chrisrut

        Read it again. Ideologs only see the parts they're attuned to. Or here's a better idea: study Greenland geopolitics prior to the us entry into WW2. Germany took Denmark, which owned Greenland - but the world's only "cryolite" mine was in Greenland. And cryolite was necessary for the manufacture of something called "aluminum." No cryolite, no aluminum. Which circa 1940 was as big a deal as chips are today. The NATION could not let that happen. Obviously. Oh, and if Germany had taken Greenland they also could have placed bomber bases within 6 hours of NYC. Etc. Now, silicon chips could break the nation's back. There is no time to wait for Taxes and a free market to figure things out. Ridiculous.

    • ezzy

      The point here is chip manufacture. Neither AMD nor Nvidia manufacture chips. There is no issue with the US being the world leader in chip design.

  5. emanon2121

    $52billion is not enough.nBybthe time the fans come on line they will already be outdated. Chip fabs are too important of a national security threat for us not to throw much more at the problem.

    • alissa914

      As opposed to just giving up and never starting where we’re even further behind. If we don’t do this, then republicans in Congress will just dump more money in the military that it doesn’t need or even request.

  6. ebraiter

    Hmmm. This probably won't amount too much in terms of production and probably will take at least a few years before anything out of this ends up in stores [as part of something else].

    The good thing is that the US exports the most silica sand [component makes silicon chips]. So that will be kept in the US and may even make chips [slightly] cheaper.

    • bluvg

      The planned Ohio fab is massive and will offer a great deal of production. But yes of course, it takes quite a long time between breaking ground and output.

  7. chump2010

    So all the free market evangelists who hate socialism, all of a sudden are picking the losers and winners and which ones get bailouts and subsidies? Lovely.

    Meanwhile, using taxpayers money to pay for veterans healthcare in America is a case of we can't find the money.

    Can I say on a less political point, given the market value of Intel is just under 200BN, surely they could make a deal to own say 10% of intel , but do nothing with that ownership. That would be paying over 5 times the amount its worth (if say they gave them 50BN), the US taxpayer would get the dividends each year, and Intel would get a lot of money to invest in the US.

  8. alissa914

    Good lord. It’s about time. If there was any takeaway from the pandemic taking out Asian production, it should be that we can’t be reliant on one point of failure. As long as we aren’t throwing away money like the FoxConn deal in WI (?) , this is long overdue. Stop spending most of the money on the military and excess of equipment that sits in fields never being used , etc.