WASHINGTON — A comprehensive law enacted in 2022, which President Joe Biden promoted as a means to rejuvenate domestic semiconductor manufacturing and lessen dependence on imported computer chips, is predicted to significantly enhance semiconductor production within the country. However, a recent report from a Washington-based economic think tank suggests that this progress will come with a considerable financial expenditure and may not yield the most efficient outcome for taxpayers.
The Peterson Institute for International Economics has assessed that the $280 billion CHIPS and Science Act is expected to generate approximately 93,000 construction roles as new chip production facilities are built, in addition to creating 43,000 permanent positions once these facilities become operational. Nevertheless, the subsidies supporting this anticipated growth in chip manufacturing will lead to taxpayer costs of around $185,000 annually for each job created. This figure is double the average yearly salary of semiconductor employees in the U.S., as indicated by their report.
The researchers, Gary Hufbauer and Megan Hogan, stated that the increased production may not necessarily provide the greatest security or return on investment for the funds being allocated.
Furthermore, the report highlights that Congress, in its efforts to pass the CHIPS Act, did not thoroughly investigate alternative expenditures that could also ensure a stable supply of semiconductors in the U.S. Possible alternatives may have included the establishment of a chip reserve managed by the Federal Emergency Management Agency (FEMA) or financial incentives for domestic semiconductor users and foreign manufacturers to maintain larger inventories within the country.
The CHIPS Act was championed by Biden and passed by Congress in response to semiconductor shortages that emerged during the COVID-19 pandemic, which interrupted production across various sectors, including the automotive industry. The administration also perceives the expansion of domestic chip manufacturing as a national security imperative, aiming to decrease reliance on foreign-made chips that are vital to both military and commercial sectors.
Data from both the Boston Consulting Group and the Semiconductor Industry Association indicate that the share of global chip production capacity held by the U.S. dropped from 37% in 1990 to a mere 10% in 2022, raising concerns among policymakers about dependencies on chips produced in Taiwan. The potential risk of military action from China aimed at Taiwan, which could jeopardize this essential supply chain, compounds these worries. The Taiwan Semiconductor Manufacturing Company (TSMC), a key supplier to major companies like Apple and Qualcomm, is currently investing significantly in chip manufacturing plants located in Arizona.
One of the objectives of the CHIPS Act is to increase the U.S. contribution of advanced chips globally from zero today to 20% by 2030. However, the Peterson report suggests that achieving this ambitious target would necessitate further government funding and solutions to address skilled labor and power shortages in the sector. It also highlights that countries such as South Korea and Taiwan are presenting substantial tax incentives to their own semiconductor companies to maintain their competitive advantage, leaving the researchers questioning the feasibility of the U.S. reaching the 20% target.
As for the future of the CHIPS Act, uncertainty remains about the stance of the incoming Trump administration regarding its implementation. During his campaign, President-elect Donald Trump argued for the use of tariffs on foreign semiconductor imports rather than subsidies as a more effective strategy to attract manufacturing within the U.S.
The researchers from the Peterson Institute remarked that historical attempts by the European Union to revive its chip industry through tariffs were unsuccessful. They concluded that there is no strong justification for believing a similar tariff strategy would yield more fruitful results for the U.S. semiconductor sector.
