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Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
The writer is the author of “Chip War”
Thanks to recent multi-billion dollar subsidies to Intel, TSMC, Samsung and Micron, the US government has now spent more than half of its $39 billion on Chips Act incentives. In doing so, this caused an unexpected investment boom. Chipmakers and supply chain partners have announced investments totaling $327 billion over the next 10 years, according to calculations by the Semiconductor Industry Association. U.S. statistics show a 15-fold increase in the construction of computer and electronic device manufacturing facilities. The debate over the Chips Act has focused on manufacturing delays and difficulties, but the vast volume of investment tells a different story.
Pandemic-era shortages have shown how small deficits in even lower-tech fundamental chips can cause hundreds of billions of dollars in economic damage. The subsequent Chips Act aims to encourage the construction of new chip manufacturing facilities (fabs) in the United States. This will reduce reliance on a small number of East Asian suppliers – today, almost all cutting-edge processors are made in Taiwan.
The resulting increase in investment reduces these vulnerabilities. Samsung, TSMC and Intel – the world’s leading chipmakers – are currently building major new factories in the United States. Intel will manufacture its most advanced chips there, while TSMC will demonstrate its cutting-edge 2-nanometer process in Arizona about two years after it came online in Taiwan. Commerce Secretary Gina Raimondo notes that by 2030, the United States will likely produce about 20 percent of the world’s most advanced chips, up from zero today.
This won’t mean total self-sufficiency, however, given that the United States consumes more than a quarter of the world’s chips. Production of smartphones and consumer electronics would be disrupted in the event of a crisis in East Asia, an ever-present fear. But this production would be roughly sufficient for the needs of critical infrastructures such as data centers and telecommunications. Of course, chips are not perfectly fungible and not every factory can easily produce all types, but the United States will have much more leeway to handle shocks.
As pandemic-era shortages have shown, it’s not just advanced chips that are economically critical. Manufacturers of automobiles, missiles or medical devices also need large quantities of fundamental chips. Here too, the law on chips creates an important new offer. Ford and GM announced major long-term supply deals with U.S. chipmaker GlobalFoundries, which is boosting production with $1.5 billion in Chips Act funds. Microchip, a widely used microcontroller chip maker in Arizona, also received a grant to expand. Texas Instruments is building a series of new foundational chip manufacturing plants in Texas and Utah, catalyzed by generous investment tax credits. Few if any of these investments would have occurred without the Chips Act.
Production in allied countries also contributes. Japan and Europe are investing in core chip capabilities. Microchip and Analog Devices, another U.S. chipmaker, have both announced plans to shift some of their production from TSMC in Taiwan to the company’s new factory in Japan, providing increased resilience to Chinese risks.
Critics worry that all these incentives will create a race for subsidies — but that started long before the Chips Act. A 2019 OECD study found that between 2014 and 2018, at least two U.S. companies received more money from a foreign government than from the United States. This is part of the reason why chip manufacturing has migrated to heavily subsidized locations. Today, the Chips Act and similar incentives in Japan and Europe are attracting investment again.
Will all these promised factories be built? Many of them already are. The scale of factory construction in the United States is now testing entrepreneurs’ ability to find workers with specialized skills. TSMC plans high-volume chip production at its first factory in Arizona early next year. If the chip market slows, some factories could be postponed, but subsidy payments are tied to progress in bringing factories online.
There is always a risk that taxpayers will purchase excess capacity if these new facilities do not find customers. However, many tech executives, like OpenAI’s Sam Altman, are more concerned about the shortage of AI chips than the glut. TSMC notes that its Arizona factory will work with Apple, Nvidia, Qualcomm and AMD, four of its biggest customers. Intel recently announced a deal to make AI processors for Microsoft.
Stock investors will debate whether these new investments can generate an adequate financial return. Policymakers who view the Chips Act as an insurance policy against geopolitical shocks say it is already bearing fruit.
