Policy Director, Chamber Technology Engagement Center (C_TEC), U.S. Chamber of Commerce
August 28, 2023
Last August, President Biden signed into law the CHIPS and Science Act of 2022—landmark bipartisan legislation that invests $53 billion in America’s semiconductor industry, strengthens supply chains, enhances domestic research and development (R&D) capabilities, and bolsters national security. While these actions are not only crucial to bolstering America's global competitiveness, they also reinforce the importance of American ingenuity and innovation.
As we mark the one-year anniversary of this historic legislation, we must analyze the progress that's been made toward achieving the law's stated goals, understand how its key provisions fit together, and outline what additional actions are necessary to achieve its full potential.
Breakdown of the CHIPS and Science Act Provisions
Semiconductor ecosystem investments
Semiconductors are essential in a host of innovative technologies, such as artificial intelligence and advanced communications, which, in turn, are vital to U.S. national security. Other sectors that also rely on semiconductors include the electronics, automotive, aerospace, and defense industries.
While the U.S. previously led the world in semiconductor production, our share of global semiconductor manufacturing capacity dropped from 37 percent in 1990, to just 12 percent today, stemming in part from significant cost differences between the U.S. and other countries.
The CHIPS and Science Act seeks to alleviate this challenge by supplementing private sector investments to strengthen the America's semiconductor ecosystem through a mix of grants, loans, tax credits, and research and development partnerships. These tools will help reduce the cost differential between the U.S. and other countries and bolster the long-term resiliency of our semiconductor supply chain.
Boosting investments in R&D
The CHIPS and Science Act alsoseeks to boost public investments in R&D through increased funding authorizations for the National Science Foundation (NSF) and National Institute of Standards and Technology (NIST).
Federal investments in R&D serve as a foundational building block for the private sector to invent, develop, and improve new products and services. Innovations such as mRNA vaccines and GPS technology stemmed from basic research activities. However, today, federal R&D expenditures as a percentage of the federal budget rests at 2.8 percent, a 60-year low, at a time when the U.S. is locked in a globally competitive environment.
Facilitating U.S. competitiveness
In addition to facilitating domestic semiconductor investment and increasing funding authorizations for R&D, the Act also pursued a host of actions to enable U.S. competitiveness, including:
- Developing a new $10 billion program for Regional Technology Hubs or 'Tech Hubs' to help facilitate the development of 20 new R&D and economic hubs to drive technology and innovation investments in diverse geographical locations across the U.S.
- Allocating $20 billion for the NSF’s Directorate for Technology, Innovation, and Partnerships (TIP) for 'use-inspired research' to accelerate critical technologies such as AI, 6G communications, biotech, and advanced manufacturing.
- Requiring the Office of Science and Technology Policy (OSTP) to develop a quadrennial national science and technology strategy, which is crucial to identifying and outlining science and technology priorities.
Progress Report: A Look at the CHIPS and Science Act Milestones to Date
The private sector and the implementing federal agencies have made significant strides post-enactment.
The Department of Commerce is the focal point for CHIPS and Science Act implementation and is responsible for carrying out key programs including semiconductor financial incentives, the National Advanced Packaging Manufacturing Program, microelectronics research, and Manufacturing USA Institutes. However, other agencies, including the National Science Foundation, and Departments of Energy, State, Treasury, and Defense, play leading roles as well.
Private sector commitments by the numbers
- The private sector announced more than $166 billion in semiconductor-related investments post-CHIPS enactment.
- 460 statements of interest were filed by the private sector spanning across 42 states for the CHIPS and Science Act semiconductor incentives program.
Timeline of key administration actions on semiconductors
- August 2022: President Biden signed an Executive Order identifying implementation priorities and creating an interagency coordinating council.
- September 2022: The White House unveiled the Strategy for the CHIPS for America Fund, which consists of the four core Department of Commerce CHIPS investment and R&D programs.
- September 2022: The Department of Commerce announced the first members of the Industrial Advisory Committee to guide CHIPS implementation with a follow-on nomination announcement in May 2023.
- February 2023: The Department of Commerce launched the first funding opportunity (e.g., NOFO) setting up the rules for commercial fabrication facilities to receive CHIPS funding. In June 2023, Commerce expanded the scope of the NOFO to include applications for semiconductor equipment and materials applicants.
- March 2023: The Treasury Department issued a proposed rulemaking to implement the Advanced Manufacturing Tax Credit and proposed additional rules regarding elective payments of the 48D credit in June 2023.
- March 2023: The Department of Commerce issued a proposed rulemaking to develop national security guardrails for CHIPS funding recipients.
- April 2023: The National Institute of Standards and Technology (NIST), after public comment, outlined its vision and mission for the National Semiconductor Technology Center (NTSC).
- July 2023: The Department of Commerce launched a Teaming Partner List to facilitate partnerships between CHIPS applicants and non-profit and private sector stakeholders.
Initial R&D and competitiveness investments
Unlike the investments made in semiconductors, the science and competitiveness investments were only authorized—not appropriated—and therefore require additional action.
However, in last year’s Omnibus, Congress included $1.8 billion in new capital to begin fully funding the CHIPS and Science Act, which included:
- $9.5 billion for the NSF—an increase of $700 million—but still several billion shorts from authorized levels.
- $1.6 billion for NIST, a $400 million increase.
- $500 million to fund the new Department of Commerce “Tech Hubs” program to better enable geographical diversity of technology and innovation investments.
In addition to Congress, the Administration has also taken other key steps to strengthen science and competitiveness.
- In March 2022, NSF stood up the Directorate for Technology, Innovation, and Partnerships to focus on use-inspired research and put out for public comment a Request for Information for a roadmap for the Directorate.
- In May 2023, the Commerce Department launched the “Tech Hubs” program with applications due in August 2023.
Looking Ahead: What Needs to be Addressed
While enacting the CHIPS and Science Act is a critical step forward, it is only a first step. The Administration must continue to finalize and formally initiate core aspects of the law, and Congress must fully fund its other provisions.
Effectively implement the semiconductor incentives program
The semiconductor incentives program is the largest and core element in the CHIPS and Science Act. As such, the Department of Commerce is currently accepting applications for leading and legacy fabrication facilities and will start accepting large supply chain project applications in September 2023. As Commerce continues to advance the program, they should move expeditiously and efficiently to provide certainty for program applicants and ensure the entire semiconductor ecosystem—including suppliers, equipment manufacturers, and leading and legacy fabs—benefit from the program.
Additionally, Commerce should focus on the statutory goals and congressional intent of the law—strengthening national security and economic competitiveness—and deprioritize ancillary policy requirements and preferences, including extra-statutory stock buyback restrictions, the childcare requirement, and preferences for union labor and project labor agreements. Commerce should also partner with the private sector on addressing any unforeseen challenges to CHIPS applicants, such as childcare.
Finalize and launch other key semiconductor initiatives
While much of the focus has been on the $39 billion semiconductor incentive program, the CHIPS and Science Act contains several other complementary and crucial programs that should be prioritized.
- The Treasury Department should finalize the rules for the Advanced Manufacturing Tax Credit, given the credit’s complementary role in facilitating investment across the whole semiconductor ecosystem. Moreover, Treasury and Commerce Departments should coordinate to ensure harmonization between the tax credit and Commerce rules on national security guardrails.
- Finalize the establishment of the National Semiconductor Technology Center, which is in process, and is crucial to America’s long-term semiconductor leadership.
Strengthen the semiconductor workforce
The need for a highly skilled, experienced, and talented workforce is critical for the semiconductor industry and even more critical amid recent multi-billion-dollar investments in semiconductor fabs. A recent study from the Semiconductor Industry Association recently found that 67,000, or 58 percent, of projected new jobs, may remain unfulfilled at the current trajectory.
While the Act made advancements to address workforce concerns, the federal government, in partnership with private sector, must help establish a semiconductor talent pipeline through continued focus on and investment in K-12 education, as well as graduate and undergraduate programs at colleges and universities, including community colleges. Immigration reform is also necessary to meet current and future talent needs for the semiconductor industry. The Administration should work with Congress to expand avenues for companies to obtain the top-tier talent they need to address this workforce gap.
Pursue permitting reform for CHIPS projects
Permitting requirements, particularly the National Environmental Policy Act (NEPA) presents a significant barrier to the growth of America’s semiconductor ecosystem. The Department of Commerce should work with the Environmental Protection Agency, and other relevant agencies to accelerate the NEPA review process for CHIPS applicants. Concurrently, Congress should enact the Building Chips in America Act, which would streamline federal permitting requirements for semiconductor projects.
Collaborate with U.S. allies and partners
Strong international cooperation with U.S. allies and partners is essential to maintaining a stable, reliable supply chain for semiconductors. Other countries are making significant semiconductor investments including Japan, South Korea, the European Union, and the United Kingdom. The U.S. should work with its allies and partners to maximize the impact of their respective semiconductor ecosystem investments.
Fully fund research & development programs
While Congress fully funded the semiconductor investments, they did not fully fund the increases in the science and R&D authorizations. Funding in last year’s Omnibus was $2.7 billion short of authorized levels, the Administration’s Fiscal Year 2024 budget request creates a $5.1 billion gap. While current fiscal constraints will present challenges, policymakers should prioritize funding the “science half” of the CHIPS and Science Act.
Finalize other key science and competitiveness policy deliverables
In addition to appropriations, the Administration should focus on implementing other key aspects of the Act’s science and competitiveness provisions, most of which should be done in a collaboration with the private sector. Specifically, the focus should be on:
- Continuing implementation of the Regional Technology Hubs program.
- Advancing the quadrennial science and technology review led by OSTP.
- Finalizing the roadmap for NSF’s Technology, Innovation, and Partnerships Directorate.
It should be noted, however, that full implementation of the CHIPS and Science Act will not address all challenges with semiconductor competitiveness and R&D leadership and merits additional action by federal policymakers.