Biden's big semiconductor law will ramp up US chip production -- but at a high cost, report finds

President Joe Biden answers questions from reporters as he speaks in the State Dining Room of the White House in Washington, Nov. 9, 2022. (AP Photo/Susan Walsh, File)

WASHINGTON (AP) — A sweeping 2022 law, touted by President Joe Biden as a way to revive U.S. manufacturing of semiconductors and reduce the country’s reliance on foreign-made computer chips, will “sharply increase production’’ of semiconductors in the United States. But it will do so at a high cost and might not deliver the best bang for the buck, concludes a report out Wednesday by an economic think tank in Washington.

Researchers at the Peterson Institute for International Economics calculated that the US$280 billion CHIPS and Science Act will create about 93,000 construction jobs as chip factories go up in the United States and 43,000 permanent jobs once they’re in operation. But the government subsidies behind the expected chip manufacturing boom mean that each job created will cost taxpayers about $185,000 a year – twice the average annual salary of U.S. semiconductor employees, the Peterson report found.

“More production might not provide the best security for the money,’’ wrote researchers Gary Hufbauer and Megan Hogan.

The Peterson report notes that in passing the CHIPS Act Congress “did not consider alternative ways’’ of spending billions of dollars to ensure the U.S. had adequate chip supplies. Other options could have included creating a chip stockpile run by the Federal Emergency Management Agency or providing financial incentives for U.S. chip users and foreign chip producers to keep bigger inventories of semiconductors in the United States.

In response to the report, the Commerce Department pointed to an earlier statement promising to be “vigilant'' about the way it spends taxpayer money and hands out CHIPS Act grants. Commerce vowed to scrutinize companies' investment plans ”with a fine-tooth comb and make sure that companies are not padding their models to ask for outsized incentives.‘’

Biden touted and Congress passed the CHIPS Act after semiconductor supplies ran short following COVID-19 lockdowns. The shortages disrupted production of automobiles and other products. The Biden administration also viewed ramping up made-in-America chip production as a national security issue because it would reduce U.S. reliance on foreign imports of chips, which are used by the military as well as private companies.

A study by the Boston Consulting Group and the Semiconductor Industry Association has found that America’s share of world chip production capacity, measured by volume and not dollar value, fell from 37 per cent in 1990 to just 10 per cent in 2022.

Policymakers are alarmed that U.S. industry depends heavily on chips manufactured in Taiwan, a supply that could be threatened if China launches military strikes intended to force the autonomous island to reunite politically with the Chinese mainland. The giant Taiwan Semiconductor Manufacturing Co., which supplies chips to Apple and Qualcomm, among others, is investing heavily in chip plants in Arizona.

The CHIPS Act also aims to boost the U.S. share of the world’s advanced chips to 20 per cent by 2030 from none today. But the Peterson report argued that such a leap would require additional government subsidies and overcoming shortages of skilled labor and electricity. It also noted that South Korea and Taiwan are offering their own chipmaking giants generous tax credits to protect their lead in the market. Asking whether the U.S. can meet that 20 per cent goal, the Peterson researchers conclude: “Maybe.‘’

It’s unclear whether the incoming Trump administration will scrap or make changes to the CHIPS Act. During the election campaign, President-elect Donald Trump had argued that tariffs on foreign chips – not subsidies to encourage U.S. production – would have done more to bring semiconductor plants to the United States.

But the Peterson researchers noted that in the past European Union tariffs had failed to revive chip production in Europe. “There is no compelling reason why a comparable tariff would prove more successful for the United States,’’ they wrote.

Paul Wiseman, The Associated Press