A massive $280 billion federal proposal aimed at bolstering the once-dominant U.S. microchip industry drew bipartisan support in both the House and Senate and is virtually assured of earning the signature of President Joe Biden, who championed the effort from the outset.
While the idea to provide U.S. chip makers a powerful, government-funded boost has been bouncing around for more than a year, what gives the microchip industry its current global significance may have been a little hard to parse if you haven’t been paying close attention to the industry.
Why chips matter
For something so tiny and mostly unseen by consumers, the terms used to describe the importance of the microchip might seem entirely out of proportion.
They are the foundation of modern life. The engines that drive innovation. The technology responsible for connecting the world. And they may be the key to the future of world security.
And, to be sure, you can find a microchip, also sometimes referred to as a chip, computer chip or integrated circuit, in virtually every device that requires power to operate and quite a few that don’t.
There’s one embedded in your cash card as well as your passport. The cellphone wouldn’t exist without them, nor would your computer, your television or, increasingly, any of your home appliances. Vehicles with gas engines have hundreds of them and next-generation electric cars have thousands. They’re the actual brains behind every “smart”, “connected” or “virtual” product out there and research is well under way to integrate these tiny electronic engines directly into our own brains.
Microchips are getting smaller, more powerful and are in such growing demand that manufacturers can’t build the pricey and complex facilities that make them fast enough to keep pace.
While the U.S. is the birthplace of the technology that led to the microchip, and the country where almost 40% of the chips were once manufactured, that leadership position has declined dramatically over the past few decades. That diminished role was defined in the harsh light of pandemic-fueled supply chain disruptions where the lack of robust, domestic microchip supply upended the manufacturing processes for a slew of American-made goods that rely on them.
And while some relief has come as COVID-19 restrictions have lifted and global manufacturing volumes have returned to near pre-pandemic levels, industry experts predict shortages could remain an issue into 2024.
That economic lesson helped rally bipartisan support for the pricey legislative package and backers hope the funding will help push the U.S. back into a command position when it comes to developing and manufacturing microchips.
From humble beginnings come great things
Sand is the second most abundant element on earth and, once smelted into silicon, becomes the base on which most microchips are built. Cylindrical silicon ingots are sliced into wafers which become the platform on which hundreds or even thousands of individual chips are constructed through a type of printing process that layers on electronic circuitry in microscopically thin layers.
The premier characteristic of silicon, when it comes to making chips, is its semiconducting properties. By adding chemical coatings, chip designers can make some areas conduct electricity and keep other areas non-conductive. Coatings and circuitry printing adds layers measured in nanometers, one-billionth of a meter, which allows a lot of functional capacity to be built in a very, very tiny space. A chip smaller than a dime can contain billions of transistors.
The process is highly technical, difficult and slow. It can take months to progress from a raw silicon slice to a wafer covered with built-out microchips. And the technology required to build those impossibly small, and getting smaller, components comes with an exorbitant price tag.
A typical microchip fabrication facility can cost tens of billions and takes years to complete. Intel is poised to begin building a pair of microchip facilities, commonly referred to as “fabs”, in Ohio that the company says will cost $20 billion to complete. The first chips from the factories aren’t likely to be ready for distribution to product makers until 2026. Samsung is currently constructing a fab outside of Austin, Texas, that the company says will cost $17 billion and won’t be ready to begin operations until late 2024.
Who’s making the most chips right now?
The short answer is Asia, which controls more than 80% of global microchip market share. But parsed by country of origin, Taiwan is the undisputed world leader when it comes to chips, accounting for some 63% of the market, with South Korea at 18% and China about 6%. While U.S.-based manufacturers had 37% of the microchip market in 1990, it’s now down to 12%.
At a China-focused summit hosted by World Trade Center Utah and Utah Valley University in June, experts noted the country has made no secret about its commitment to building up its own microchip infrastructure and is investing billions of dollars in incentives and giveaways to rapidly grow its slice of the global market.
During a summit discussion, Sarah Kemp, vice president for international government affairs at Intel, noted domestic microchip manufacturing capacity has evolved into a significant geopolitical issue.
“At this particular moment in time, economic security is national security and, around the world, people have realized that means chips,” Kemp said. “This tiny little thing the size of a postage stamp and as thin as one strand of hair, that has over 30 billion components to it, drives everything you do.”
While the Asian microchip powerhouses have built their market positions with significant government-backed support, Kemp noted a new wave of nations is looking to emulate that success. Now, a growing number of national governments are engaging programs to support their own expansions in chip manufacturing capacity.
“What steel and railroads were in the 1900s, chips … are right now,” Kemp said. “It’s the next big leap in economic vitality. And every country in the world wants to get in on that game.”
Where the chips fell on the CHIPS bill
Concerns about global competitiveness and national security figure largely in the arguments in support of the $280 billion CHIPS — Creating Helpful Incentives to Produce Semiconductors — bill Congress passed this week.
The legislation provides more than $52 billion in grants and other incentives for the semiconductor industry as well as a 25% tax credit for those companies that invest in chip plants in the U.S. It also calls for increased spending on various research programs that would total about $200 billion over 10 years, according to the Congressional Budget Office.
The proposal found almost universal support among Senate and House Democrats and gathered enough GOP votes to move it to Biden’s desk. The president, looking for a much needed domestic policy win ahead of the November midterm elections, lauded the proposal’s passage, saying the investment would lead to more jobs and lower prices on U.S. consumer goods.
“Today, the House passed a bill that will make cars cheaper, appliances cheaper and computers cheaper,” Biden said. “It will lower the costs of everyday goods. And it will create high-paying manufacturing jobs across the country and strengthen U.S. leadership in the industries of the future at the same time.”
While the bill earned the votes of 17 GOP Senators and 24 Republican House members last week, House leadership had advised against that support before the proposal came up for a floor vote.
Republicans argued the government should not spend billions to subsidize the semiconductor industry and GOP leadership in the House recommended a vote against the bill, telling members the plan would provide enormous subsidies and tax credits “to a specific industry that does not need additional government handouts.”
That stance also reflected the sentiment of Utah Sen. Mike Lee who, unlike his GOP colleague Sen. Mitt Romney, voted against the CHIPS bill. Romney lauded the legislation as a means for the U.S. to remain competitive with China.
In a statement shared on Twitter, Lee said the CHIPS funding amounted to providing industry-specific “corporate welfare” and would result in leaving the U.S. microchip industry and American consumers “poorer and less competitive.”
“Instead of focusing on the supply chain crisis broadly, Congress has opted to play favorites with big industry and powerful lobbyists,” Lee wrote in his tweet. “Spending $75 billion in corporate welfare while Americans are suffering under historic inflation is as irresponsible as it is offensive.
“Time will show that entrenching powerful legacy corporations with billions of dollars will only make the American chip industry and the American people poorer and less competitive.”
In a fiery exhortation from the House floor ahead of the vote, Ohio Democratic Congressman Tim Ryan challenged his Republican colleagues to lay aside partisan politics and support the CHIPS legislation.
“This is the first step towards an industrial policy in the United States of America,” Ryan said. “It is time for us to quit the politics, stop trying to score political points, stop putting party over country (and) lay down our arms. Rebuilding the manufacturing base, good paying jobs, union construction, outcompeting China, national security? C’mon, let’s do this. Let’s do it together,” he said.
A boost for Utah
Last fall, electronics giant Texas Instruments closed on its $1.5 billion deal to purchase Micron’s massive, 2 million square-foot microchip plant in Lehi. The fabrication facility has been in operation since the 1990s, specializing in building memory chips.
In a statement, Texas Instruments spokeswoman Ellen Fishpaw said passage of the CHIPS legislation would provide a boost for U.S. chip makers as they vie for market share with powerful global competitors.
“We applaud Congress for passing the CHIPS Act,” Fishpaw said. “This is an important piece of legislation that will boost domestic chip production and improve the U.S. semiconductor industry’s ability to remain competitive.
“Texas Instruments has an exciting manufacturing roadmap, which includes investments in Lehi, and these provisions will be very meaningful to the development of wafer fabs to support semiconductor demand for decades to come.”
Following a statement of support for passage of the CHIPS bill by the National Governors Association, Utah Gov. Spencer Cox, the organization’s vice chairman, said that endorsement tracked back to concerns over the role microchip manufacturing capacity plays in national security issues.
“Our support stems from our concerns about national security,” Cox, a Republican, said in a statement shared with the Deseret News. “As we continue to see weakness in supply chains, we need to make sure we have the talent and the know-how to manufacture the technology we need here at home.”
Contributing: Associated Press