- Kyle Chua
US CHIPS Act: What Is It, What It Means For You
We don’t have to use our imagination to get a sense of what the world would be like if there was a semiconductor shortage because one happened during the pandemic and we’re still sort of reeling from the damage of it.
See, the smart devices of today, from your phone to your car, are all powered by semiconductor chips. And we’re not just talking about the most sophisticated or cutting-edge pieces of tech here. Even the average, say, television set needs a semiconductor to function. So when these integrated circuits go into short supply, like how they did recently, your favourite tech brands are sure to struggle in putting stocks of the products you want or need on store shelves.
The U.S. hopes to mitigate that through the Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) Act as the demand for semiconductors continues to grow at a rapid rate – at least that’s one of the reasons supposedly given by the Biden administration. But as you perhaps already guessed – this being the U.S. – the newly signed law is also meant to keep the country competitive against China in its ongoing arms race for technological supremacy.
China has been asserting its dominance over Taiwan as of late, proposing a “one country, two systems” agreement. Taiwan is a particularly important player in the trade battles between the two superpowers as it’s the largest producer of semiconductors in the world, with a whopping 66% market share. If the country ever falls under China’s rule, the U.S. would likely have to kiss its semiconductor supply goodbye and be forced to manufacture them itself. That’s what it seems to be doing now – ramping up semiconductor production on its own soil.
What is the CHIPS Act?
The CHIPS Act is a bipartisan U.S. government policy signed in early August by President Biden which plans to inject close to US$53 billion into the domestic semiconductor industry. The goal of which is to boost research and production of the valuable resource in a bid to address supply chain vulnerabilities and lessen dependence on Asian partners.
According to the South China Morning Post, the policy stipulates that chipmakers receiving American subsidies are barred from expanding production beyond “legacy semiconductors” in China for at least 10 years. The semiconductors referred to here are the ones manufactured in the 28nm process, which was popularised in 2013. This technicality would effectively discourage chip giants from making investments and upping production output in China.
Apart from the allocated funds, the policy also incentivises the construction of new semiconductor foundries within the U.S. to foster its competitiveness against other countries.
Expectedly, China wasn’t too pleased about the policy’s passing, claiming the U.S. is trying to disrupt international business and stifle competition. The country has been making its own moves in its own semiconductor industry over the last few years, subsidising the efforts of homegrown companies like Huawei. Despite this, the country isn’t entirely self-sufficient yet, continuing to rely on foreign supply for more advanced chips, such as the ones used in newer smartphones, for example. And the CHIPS Act is sure to make it harder for China to reach its goals.
The U.S. has always been relatively strong in the global semiconductor industry, though it only accounts for about 12% of global semiconductor manufacturing capacity. Still, semiconductors remain the fifth largest export of the U.S. and a number of American companies continue to dominate the international market, including the likes of Nvidia, Broadcom, Qualcomm, AMD and Intel, as Forbes reports.
These are among the companies that stand to benefit the most from the policy's passing and they're all critical in growing the manufacturing capacity of the U.S. Recently, Taiwan Semiconductor Manufacturing Co (TSMC), the largest chipmaker in the world, announced it has completed its Fab 21 plant in Phoenix, Arizona, where it plans to produce 5nm chips by 2024. The news is a sign that the U.S. is already making strides in its future vision to position itself as another central hub for semiconductors.
What It Means For You
If you're an average consumer, you might think that this tech war between the U.S. and China likely won't have a direct effect on your life in any way. Well, that's where you might be making a mistake. Semiconductors today are said to be as essential as oil, which suggests life could very much be different if there was ever a wide-scale shortage.
Perhaps the most immediate effect you'll notice, as mentioned earlier, is how goods that use semiconductors can go into short supply, from smartphones to game consoles to laptops and computer components. Sure, it's not every day you might need to go out and buy any of these, but shortages can be lengthy. The production cycle already takes a fair amount of time, and if there are any disruptions in between, you can expect months, if not years, of delays. And when there aren't enough supplies to meet demand, prices soar, which obviously is bad news for consumers.
Plus, if you look around, a lot of our daily companions probably need semiconductors to function. This just means life could be very different if we suddenly lose the ability to buy any of them.
In the long-term, supply chain issues can slow down, if not entirely halt, innovation, considering how reliant future technology is on semiconductor chips. The very devices that'll power the metaverse and automated vehicles, to name a few examples, can't be produced, so it could push these innovations back by years.
Of course, as consumers, we hope that we never have to deal with any of these problems. The pandemic already gave us a taste of what a global semiconductor shortage would be like, and that seemed tame compared to what experts are predicting could happen if tensions escalated between U.S. and China.
The CHIPS Act is a bipartisan U.S. government policy signed in early August by President Biden which plans to inject close to US$53 billion into the domestic semiconductor industry.
The goal of which is to boost research and production of the valuable resource in a bid to address supply chain vulnerabilities and lessen dependence on Asian partners.
Expectedly, China wasn’t too pleased about the policy’s passing, claiming the U.S. is trying to disrupt international business and stifle competition.
Semiconductors today are said to be as essential as oil, which suggests life could very much be different if there was ever a wide-scale shortage.