Last week, the US Congress passed the CHIPS and scientific law, a US$280 billion investment package that will boost science and technology research and domestic manufacturing of semiconductor chips. Of this amount, $52 billion will help build manufacturing plants and fund research and development technologies, and $24 billion will go to incentive tax credits.
The global semiconductor market is expected to exceed $600 billion in 2022, a tenfold increase in three decades. This legislation is a major initiative, with implications for supply chains, American manufacturing and national security.
Semiconductors are essential to our daily routines. Without them, the modern world would be paralyzed. Yet few of us know much about them, where they are made, or how they affect our lives. The COVID-19 pandemic has exposed our dependence on semiconductors and the fragility of the supply chains that depend on them.
The device you are using to read this uses semiconductors. The network your device connects to uses semiconductors. Your TV, audio system, and video game console all use semiconductors. Your washing machine, microwave and blender too. Your car uses them. Planes, trains and buses too. Trucks, the backbone of the economy, wouldn’t budge without them. Your work relies on semiconductors, whether you know it or not.
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When the pandemic hit, chip manufacturing was turned upside down. Lockdowns have disrupted operations and shifted production away from transportation and industrial applications to meet consumer electronics demand. Chips are not one size fits all. They are designed and built to exacting standards for specific purposes. This meant that as countries emerged from enforced hibernation, chip shortages contributed to production and delivery delays, leading to cascading chaos in global supply chains.
Scarcity of inventory has been met with pent-up demand, from both intermediate and end users, contributing to soaring inflation and shortages of goods in all categories, from automobiles to refrigerators, power tools to printers. Spiral container shipments exacerbated the problem as freight costs soared. All of these additional costs have passed on downstream to consumers’ hip pockets.
Russia’s war in Ukraine has also highlighted possible risks to the economy and national security. Semiconductor components can cross more than 70 international borders en route to the end customer. While the United States still leads in upstream research and development, design and intellectual property, China and East Asia – particularly Japan, Taiwan and South Korea – dominate manufacturing, assembly, testing and packaging. Between them, they manufacture 75% of the world’s semiconductors.
Taiwan represents a particular vulnerability, with 92% of the most advanced chips made there, while South Korea produces the rest. As Europe discovered after Putin’s attack on Ukraine, an overreliance on single sources of critical inputs can lead to trouble in a flash.
This concern is a key factor behind another Biden administration initiative, the Chip 4 alliance.
First launched in March, the plan aims to bring the United States, Japan, Taiwan and South Korea together behind an integrated semiconductor framework, both to mitigate future risks and ensure business continuity. ‘supply.
Rising tensions over Taiwan’s future add to this momentum.
Putin’s war also revealed the potential downsides of doing business with autocratic regimes.
When China was welcomed into the World Trade Organization in 2001, it was seen as a step towards normalizing future relations and de-escalating the risk of conflict with a rising power.
Proponents believed that deeper integration into the global economy would accelerate China’s development, raise its standard of living, and gradually move the country away from authoritarian rule toward a more open and pluralistic society. Increased economic interdependence would encourage cooperation rather than confrontation. It didn’t work that way.
Instead, China’s rapid rise has been accompanied by a rise in outspoken nationalism and a crackdown on internal dissent. Rampant encroachments and feuds with neighboring nations heightened fears of what might befall us. As Australia discovered in recent trade disputes with China, friendly relations can deteriorate quickly if China decides to express its displeasure on other issues.
This example illustrates the larger context behind a growing push to decouple essential industries — especially those with national security implications — from reliance on China. It also overlaps with increased reshoring, both to strengthen supply chains with production closer to market and to create domestic jobs for American workers.
Russia’s shock impact on global commodity flows and prices has rattled world leaders out of their complacency. Russia is a trading minnow compared to China, especially in high-tech goods. Rebalancing trade exposure with China has been one of the few bipartisan issues in recent years.
Despite this consensus, 187 House Republicans and 33 Senate Republicans voted against the package. It was an improvement on their opposition to the original bill in February, when 210 people voted no. Rep. Adam Kinzinger was then the only Republican in the House to support him. It seems that even as they disparage China as a broken record and insist on supporting new jobs for American workers, most Republican politicians remain committed to partying on the country. Anything to prevent the Democrats from securing a victory.
The additional $200 billion authorized for scientific research includes $81 billion for the National Science Foundation for applied research and commercialization, $50 billion for the Department of Energy’s Office of Science, and $11 billion to create 20 regional technology hubs. These investments will target artificial intelligence, robotics, materials science, biotechnology and quantum computing, among other sectors.
Our reliance on semiconductors remains invisible to most people, but this major piece of legislation makes visible the delicate supply chain and national security issues at stake.
This article was first published by Crikey.