Where are the funds from the CHIPS and Science Act being invested?

The Fascinating Past and Ambiguous Future of the Historic CHIPS Act 

There was a definitive period during the latter half of last year—as we were moving through the final stretch of summer and into the fall—when a sense of impatience, even gathering unease, was starting to encircle the CHIPS and Science Act. A year earlier, on August 9, 2022, President Biden was surrounded by an exuberant crowd of corporate executives, union leaders, and high-profile politicians from both parties as he signed the bill, participating in one of the splashiest and most celebratory events of his presidency. 

The Creating Helpful Incentives to Produce Semiconductors and Science Act was framed as a bold, necessarily aggressive, admirably ambitious piece of legislation. The Biden administration immediately touted the bill—which earmarked nearly $53 billion for semiconductor manufacturer construction projects on American shores—as a bipartisan triumph aimed at galvanizing the domestic semiconductor supply chain, creating tens of thousands of well-paying manufacturing jobs, and thwarting China’s own designs on the lucrative and strategically critical semiconductor market. 

A sluggish first year after the CHIPS and Science Act’s passing

Following the pomp and circumstance and fervent media coverage of the bill’s passage, though, months went by and no grants were awarded. At the one year anniversary of the CHIPS Act, the Department of Commerce had yet to award a single beneficiary any incentives from the act’s sizable subsidies. While plenty of federal officials and industry insiders were preaching patience, frustration and criticism were mounting—where was this transformative injection of public investment? Would the promising industrial gambit and legislative showpiece succumb to bureaucratic inertia, excessive federal oversight, and the wearying drain of endless negotiations? 

The pace begins to pick up: 10 grants in five months

Then, this past December, the first grant was announced: defense contractor BAE Systems would receive $35 million from the bill’s coffers. In the four months since, the Department of Commerce has continued to move at a decidedly more dynamic pace, finalizing agreements with four more beneficiaries and funding a total of 10 semiconductor manufacturing projects across eight U.S. states. After well over a year of eager and occasionally exasperated anticipation, the CHIPS Act is finally paying out, with over $18 billion in subsidies reaching preliminary agreements—and more to come as the year progresses, according to recent reports on the Department of Commerce’s timeline for the allocations. 

But before delving into the individual grants, the specific projects they’re funding, and the windfall’s myriad implications for the global supply chain, geopolitical strategy, and transnational competition, it’s worth looking back at the context and circumstances that gave rise to this historic—if slow-footed—federal statute. 

The Fraught, Layered, and Little-Known Prehistory of the CHIPS Act

By the late 2010s, U.S. leaders were becoming aware of an increasingly unavoidable reality. America was falling behind other nations—especially those in East Asia—in the vitally important semiconductor industry. In 1990, the U.S. was responsible for 36% of global chip manufacturing. That number had been slipping for decades, though, and by 2020 had fallen to a meager tenth of the worldwide capacity. Perhaps equally crucial, none of the world’s most advanced semiconductors—the current threshold for that designation is generally understood to be chips with node sizes of 10 nanometers or less—were being made in American fabs. While the nation still played a substantial role in other segments of the semiconductor supply chain, most notably chip design, its diminishing presence among the world’s top foundries was a legitimate cause for concern. 

A sluggish U.S. sees China’s semiconductor star on the rise

As the U.S.’s leadership and overall engagement in semiconductor manufacturing waned, the involvement of its preeminent geopolitical rival, China, was on a dramatically different trajectory. While China’s share of global semiconductor production remained relatively small compared with industry heavyweights like Taiwan, Japan, and South Korea, the government was developing a sweeping and multifaceted state-led strategy to ramp up its presence in the sector and wrest away market share from its worldwide competitors. This strategy included acquisitions of U.S. semiconductor firms by Chinese companies; the hiring, or “poaching,” of industry talent from other countries; large-scale efforts to purchase high-end manufacturing equipment and software; and even clandestine attempts at intellectual property theft. 

Most importantly, though, the Chinese Communist Party (CCP) was not leading through rhetoric and nationalist appeals alone. It was fueling this strategic initiative with tens of billions of dollars in government funding, with the overarching objective of becoming a dominant player in global semiconductor design and production by 2030. As a 2023 public policy paper prepared for Congress explained, “State-led efforts by the government of the People’s Republic of China…to develop a native, vertically-integrated semiconductor industry are unprecedented in scope and scale.” The paper went on to share policymakers’ views. Such efforts, they felt, “could significantly shift global semiconductor production and related design and research capabilities to China, undermining U.S. and other foreign firms’ leading positions.” 

The growing appetite for AI-enabled military weapons

More unnerving still was that the implications of China’s rapid advancement in the semiconductor industry went beyond the economic sphere. A great deal of reporting, research, and government intelligence have suggested that the CCP’s aggressive initiatives to invigorate its domestic semiconductor industry are connected to a larger aspiration of developing a world-class military by 2050—one that, theoretically, could challenge the U.S., China appears determined to further its militaristic capabilities by utilizing leading-edge technologies, including AI-enabled weapons. In order to realize that vision, however, it needs the most powerful, sophisticated chips in the world.

As American leaders were growing more and more cognizant of the complex threat China’s foray into the semiconductor market was posing, the COVID-19 pandemic swept over the globe. Roiling international supply chains and causing wild fluctuations in existing demand dynamics, the coronavirus triggered a devastating semiconductor shortage that cost U.S. companies billions. The fallout laid out for America’s top manufacturers, in stark, pitiless terms, just how dependent they’d become on semiconductor fabs in East Asia. They paid a steep price for their overreliance on chokepoints in Taiwan, Japan, and South Korea, and in the aftermath there was a surging sense of determination to achieve some measure of supply chain autonomy. As American industry stabilized and the U.S. population started to emerge from the pandemic, the seemingly reactive impulse to embrace supply chain “onshoring” and “nearshoring” efforts crystallized into something more serious and enduring: a strategic imperative. 

America’s attempt to reinvigorate its domestic semiconductor capabilities

This was the complicated, multifaceted economic and geopolitical backdrop Congress and the Biden administration were operating against when they pieced together the individual legislative fragments that would eventually cohere in the CHIPS Act. For justifiable reason, perhaps, the bill has been framed as a kind of kill-four-birds-with-one-stone political coup. As the grants are awarded and firms like Intel, TSMC, and GlobalFoundries continue to progress on their construction and modernization projects on U.S. soil, the government’s hope is that the subsidies will release a kind of positive cascade, stimulating the domestic semiconductor industry, winning back the coveted supply chain independence America has lost in recent decades, and creating high-paying jobs through a manufacturing renaissance for our hyper-digitized, smart-everything age. Finally, the bill is intended to act as a potent foil to the lofty ambitions of China, supercharging America’s position in the chip industry and widening the technological and economic gap between the U.S. and its chief strategic adversary. 

The Semiconductor Manufacturing Beneficiaries Thus Far 

On December 11 of last year, the U.S. Department of Commerce announced that BAE Systems, a military contractor, would receive around $35 million in federal incentives from the CHIPS Act. In the months since, several more companies have been awarded significant grants. 

Company: BAE Systems

Grant: $35 million 

Date Awarded: December 11

Project: Modernization/Capacity Expansion 

Somewhat surprisingly, the first grant to be awarded out of the CHIPS Act did not go to a semiconductor manufacturing giant, or even a more modestly-profiled, well-known industry player. Instead, the Department of Commerce chose to provide its first grant to BAE Systems, Inc., the U.S. subsidiary of a British aerospace and defense company. 

BAE Systems is an established defense contractor. Its New Hampshire-based fabrication facility, known as the Microelectronics Center, manufactures advanced chips for military applications, including in the production of F-15 and F-35 fighter jets. The project the subsidies are supporting is expected to quadruple the company’s production of these chips while also modernizing the center’s equipment and infrastructure. 

The decision to dole out the first funds from the CHIPS Act to a relatively niche defense contractor, rather than a large-scale commercial enterprise, was a deliberate choice intended to highlight the bill’s national security focus. “In order to defend our great country,” Raimondo said during an event at BAE Systems facilities in Nashua, N.H., “we need to make the chips that go into military equipment in the United States of America, by Americans.” 

Company: Microchip Technology 

Grant: $162 million 

Date Awarded: January 4

Project: Modernization/Expansion

Less than a month after making BAE Systems the bill’s first beneficiary, the Biden administration announced that the Department of Commerce would be awarding a total of $162 million in incentives to Microchip Technology, an Arizona-based semiconductor manufacturer. The funding is intended to significantly bolster the company’s U.S. production of microcontrollers (MCUs) and other semiconductor devices critical to a broad swath of domestic industries and military technologies. 

The grant will be split between two separate projects. $90 million will go to modernizing and expanding production capacity at Microchip Technology’s Colorado fab. The remaining $72 million, meanwhile, will be put toward expanding the firm’s facilities in Oregon. Though the semiconductor firm is not known for manufacturing the most advanced chips, they serve as a crucial domestic foundry for the U.S. Department of Defense, and proved indispensable to American corporations during the pandemic-induced semiconductor shortage. As the Department of Commerce put it, the choice’s intent is to contribute to the larger administrative project of “further securing a reliable, domestic supply of these chips.”

Company: GlobalFoundries 

Grant: $1.5 billion in grants and $1.6 billion in loans 

Date Awarded: February 19

Project: Fab Construction/Modernization 

Following two relatively small-scale disbursements of funds from the CHIPS Act, in February the Department of Commerce reached an agreement with GlobalFoundries to provide the domestic chipmaker with the substantial sum of $1.5 billion for two major projects in the Northeastern U.S. 

The first grant will supply GlobalFoundries with $1.375 billion—plus another $1.6 billion in loans—for what is almost certainly among the most expensive types of construction projects in history: the building of a new semiconductor fab. The total cost of the new fab, which will be built on the company’s Malta, New York campus, is projected to exceed $11 billion. The second project, for which the CHIPS Act will contribute $125 million, is the modernization of the firm’s longstanding fab in Vermont.

GlobalFoundries is the largest pure-play foundry based in the U.S., and the decision to award it the bill’s first major grant represents a clear-cut effort to onshore America’s semiconductor supply chain and revitalize domestic chip manufacturing. In addition to these broader policy objectives, the Biden administration also wants to ensure that the semiconductor firm is able to continue serving as a primary chip supplier for automaker GM, with whom it entered into a long-term contract in 2023. 

Company: Intel

Grant: $8.5 billion in grants and $11 billion in loans 

Date Awarded: March 20 

Project: Fab Construction/Modernization/Expansion

In what may end up being the single-largest grant awarded under the CHIPS Act, in March the Biden administration agreed to provide Intel with $8.5 billion to carry out an array of major projects throughout the U.S. (The agreement also includes $11 billion in loans.) 

The sweeping plans include the construction of two fabs on Intel’s Arizona-based campus; major expansions and modernizations at sites in Oregon and New Mexico; and the creation of a completely new semiconductor manufacturing hub in Ohio. The various projects are expected to create a total of 30,000 new American jobs—20,000 tied to the construction projects themselves, and another 10,000 permanent manufacturing jobs at the completed facilities.

The reasoning behind the Department of Commerce’s decision to allocate such a significant proportion of the incentives on Intel is likely twofold. One, as one of the largest semiconductor firms headquartered in the U.S., the California-based manufacturer was all but guaranteed to figure prominently in the administration’s domestic revitalization initiative. Two, much of the subsidies will be spent on the construction and modernization of fabs producing leading-edge chips. Invigorating this pivotal dimension of the industry is a clear priority for the Biden administration and the bill’s chief administrators. As Secretary Raimondo has made clear in a series of statements surrounding the CHIPS Act and grant announcements, advanced chips will be the engine for the impending AI surge and other emerging technologies, and the U.S. currently has zero fabs manufacturing them. 

Company: TSMC

Grant: $6.6 billion in grants and $5 billion in loans

Date Awarded: April 8

Project: Fab Construction

In 2020, TSMC announced that it had chosen Arizona as the site for a new fabrication facility. Two years later, in 2022, the world’s leading foundry furthered its efforts to establish a manufacturing node in the U.S. by committing to a second fab in the state. The CHIPS funding, which was officially awarded to TSMC in early April, will support the construction of these two previously announced fabs, as well as a third plant in the same Arizona manufacturing cluster. 

While some may have bristled at the notion of infusing a foreign company with billions of dollars from a strategic initiative aimed at domestic revitalization, there is a clear underlying logic to the decision. When they start production in a few years, these new foundries—which have a staggering total price tag of around $65 billion—will all manufacture leading-edge chips, including those at the critical two nanometer node size. This will bolster the American supply chain of devices vital to the future of various national industries, fortifying those sectors against global disruptions or the downstream effects of geopolitical conflict in East Asia. 

Underscoring the importance of the U.S. capturing a greater share of cutting-edge fabrication, the Department of Commerce explained how advanced chips like those manufactured by TSMC “will underpin the future economy, powering the AI boom and other fast-growing industries like consumer electronics, automotive, Internet of Things, and high-performance computing.”

A Constellation of Challenges and Uncertainties for U.S. Semiconductor Manufacturing 

The past couple of years have been a potent and propulsive period for chip manufacturing in the U.S. To go along with the succession of generous subsidies, roughly $200 billion worth of private investments have been announced for semiconductor projects in the country. The Biden administration has been quick to extoll the dynamic effects of its landmark legislation, citing this seemingly explosive growth and the dazzling potential for jobs creation once these projects are completed. There are still a number of obstacles standing between the U.S. and the administration’s vision of a revitalized manufacturing landscape, however, longstanding, potentially intractable structural concerns that could hamstring the venerable goals of an exultant, wealth-creating fab renaissance. 

Two challenges to onshoring America’s semiconductor industry

The first adversity is simple and largely unavoidable: time. Many of these projects have multi-year timelines—especially new fab constructions—and it can be difficult to gauge where such a swift, fluid industry will be in 2027 or 2028, when production is expected to begin at many of the facilities currently being built. It’s possible that the most advanced, leading-edge technologies will have progressed further over the next few years. Such a development could leave the forthcoming American fabs a step behind, perpetuating the status quo of the U.S. producing little to none of the world’s cutting-edge chips. 

The more dire obstacle, however, is the matter of domestic talent. Fabrication facilities require highly specialized engineers and technicians with very specific sets of skills. But American colleges and universities are not currently turning out nearly enough of the students needed to fill the surging labor requirements for these incipient manufacturing hubs. This imminent labor shortage could be disastrous for firms like Intel and TSMC that are making enormous bets on their new American foundries. Struggling to staff their facilities in a timely fashion synchronized to production start dates could cost firms millions and sabotage projections for recouping the massive initial investments. And if such talent shortages become a pervasive feature of the expanding U.S. manufacturing landscape in the coming years, it could tar the bill’s reputation and serve as a caution to chipmakers against any overzealous growth on American soil in the future. 

The CHIPS and Science Act a success? Time will tell. 

Ultimately, it probably won’t be until the back half of the decade before we can determine—in any objective, definitive way—whether the CHIPS Act was a success. If President Biden, Secretary Raimondo, and the rest of the legislation’s most vigorous advocates are to be believed, the bill is already serving as the catalyst for a transformative shift in the global supply chain and a rousing renewal in domestic manufacturing. But there’s also a possibility that its legacy will grow into something more equivocal and nuanced—that of an astoundingly expensive experiment, one whose viability was undercut by a quagmire of systemic problems that kept the bill’s loftiest objectives irremediably out of reach.