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U.S. Seeks Semiconductor Supremacy with New Funding Initiatives

As it accelerates its green transition, the U.S. is looking to become a major player in the international semiconductor market, to become more competitive with Asia, the world's biggest producer and consumer. The 2022 bipartisan CHIPS and Science Act introduced a high level of public funding for research and manufacturing into semiconductors in the U.S. This supports the overarching aims of establishing the country as a major manufacturing hub and strengthening the supply chains that aid the green transition. Now, some government representatives are suggesting the need for a CHIPS Act 2.0 to spur investment further and solidify the position of the U.S. in the global semiconductor market. 

The 2022 CHIPS and Science Act provides around $280 billion in funding for research and development into semiconductor technology and manufacturing operations. The funding includes $39 billion in subsidies for U.S.-based chip manufacturing, further supported by tax credits for operational equipment. It also contributes significant funds to the science and technology sector. The Act aims to revitalise domestic manufacturing, create well-paid jobs, strengthen domestic supply chains, and accelerate the industries of the future.

Currently, China is the biggest semiconductor market, purchasing more than 50 percent of the global supplyevery year. China continues to be highly dependent on semiconductor imports, sourcing many of its chips from the Dutch giant Advanced Semiconductor Materials Lithography (ASML) and the Taiwan Semiconductor Manufacturing Company (TSMC). TSMC produces around 80 to 90 percent of the world's advanced semiconductors. China also hopes to develop its manufacturing capabilities. In 2023, Chinese companies bought U.S. chipmaking equipment to make advanced semiconductors, despite U.S. policies aimed at restricting China's import of semiconductor-related technology, to slow its progress in chip production. 

The U.S. is attempting to counter China's dominance in the global semiconductor market by rapidly developing its production capabilities and striving for technological advancements. While the CHIPS Act has gone a long way in establishing the U.S. role in the global semiconductor market, some industry experts believe more is still needed. The United States Secretary of Commerce Gina Raimondo recently emphasised the need for federal subsidies in the industry to enhance the position of the U.S. in the international microchips market. She believes this can best be done through the launch of a second CHIPS Act to spur more funding. 

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Raimondo said, "I suspect there will have to be - whether you call it CHIPS Two or something else - continued investment if we want to lead the world." She added, "We fell pretty far. We took our eye off the ball." The development of a second CHIPS Act could support the construction of new chip foundries and the financing of semiconductor startups. It could also help the U.S. develop its technological capabilities in the field of specialised and advanced chip manufacturing. 

However, billions in funding have still yet to be allocated from the first CHIPS Act, with the White House only recently announcing a $5 billion investment in a new chip research initiative (NSTC). In February, the U.S. government awarded $1.5 billion to New York-based chipmaker GlobalFoundries, which was its third and largest grant in the field of semiconductors under the CHIPS Act.

Nevertheless, some industry experts believe that federal funding, alongside private investments in the sector, will help the U.S. achieve chip manufacturing independence within the next two decades. The ambitious policy has also encouraged other world powers to develop similar investment schemes. In 2023, the EU introduced the $46.53-billion European Chips Act to boost competitiveness in the international semiconductor market. 

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Raimondo was quick to say that she doesn't expect all semiconductor manufacturing to be situated in the U.S., but she believes the country's role in the chip industry can expand substantially. "To be clear, we can't and do not want to make everything in America. We don't want to make every chip in America. That isn't a reasonable goal," Raimondo added. "But we do need to diversify our semiconductor supply chains and have much more manufacturing in the United States, particularly leading-edge chips, which will be essential for AI," she explained.

Raimondo is not the only one who thinks the government's investment in the semiconductor industry is too low to ensure meaningful change. The cost of developing chip manufacturing facilities in the U.S. is far higher than in many other parts of the world, such as Taiwan. Meanwhile, TSMC, the world's largest and most advanced semiconductor manufacturer, spends almost $40 on equipment and research and development every year to advance its capabilities. Therefore, for the U.S. to catch up with TSMC and other major producers, it will likely need to invest significantly more in the sector in the form of grants and financial incentives to encourage higher levels of private investment. 

By Felicity Bradstock for Oilprice.com 

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Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK. More