The United States has passed a bill that will provide billions of dollars in subsidies to encourage chip makers to build more semiconductor manufacturing capacity in the country.

It comes after the global chip shortage over the past few years during the Covid-19 pandemic, that saw both the United States and Europe acting to avoid a global shortage of chips in the future.

It was back in May 2021 when US Senate Democratic Leader Chuck Schumer first unveiled the revised bipartisan legislation then known as the US Chip Act, which set aside $52 billion to significantly boost American semiconductor production and research over five years.

Chips and Science Act

The legislation spend the best part of a year locked in internal US politics, before the US Senate in March approved it.

Since then the Chips and Science Act has been awaiting approval by the US House of Representatives, which on Thursday passed the legislation, with bipartisan support (in a 243-187 vote).

Twenty-four Republicans joined 218 Democrats in backing the measure.

Passing the Act is something of a victory for US democrats, and the legislation only now awaits the signature of President Joe Biden (which is expected to happen next week).

The ‘Chips and Science’ act is a rare major foray into US industrial policy by America politicians, and the bill provides about $52 billion in government subsidies for US production of semiconductors.

It also includes an investment tax credit for chip plants estimated to be worth $24 billion.

The legislation will also authorise $200 billion over 10 years to boost US scientific research to better compete with China.

However the US Congress would still need to pass separate appropriations legislation to fund those investments.

It should be remembered that chip companies typically require substantial cash incentives or tax breaks, in return for building an expensive chip factory in a particular location.

Strategic move

Richard Barnett, chief marketing officer at Supplyframe, an electronics supply chain specialist, noted that semiconductors have become so strategic to the future of the US – and the world – that people across the political divide have come together to try to reinvigorate US chip-making.

“This is yet another sign of the growing recognition that we need to transition from being very reactive to supply chain challenges to tackling them with more long-term strategies,” said Barnett.

“There are no quick fixes here,” said Barnett. “The CHIPS Act is unlikely to move the needle in chip availability, at least for the next few years – since it will take significant time to ramp up complex chip fab operations, and chip companies will focus new fabs only on the highest margin products.”

“So, there will still be constraints, especially for products that are not as sexy in the automotive, industrial automation and medical arenas,” said Barnett.

“Meanwhile, semiconductor demand from the automotive industry, data centres and other areas remains extremely healthy and is leaving companies in many downstream industries scrambling to find the electronic components they need to move forward and positioning to grab as much supply as early as possible,” Barnett concluded.

European move

As Supplyframe’s Barnett noted, the United States is not alone in seeking to build up its domestic chip production capabilities.

The European Commission in February unveiled its multi-billion euro Chips Act in order to bolster the continent’s competitiveness in the sector.

That came after the European Union under its 2030 Digital Compass plan announced it wanted to produce at least 20 percent of the world’s cutting-edge semiconductors by the end of the decade.

Intel CEO Pat Gelsinger earlier this year spoke about the strategic importance of semiconductor fabrication plants (fabs).

He pointed out that chips will play a central role in international relations in the decades ahead, and are now as strategically important as oil reserves.