WASHINGTON — Armed with $52 billion, a team of experts drawn from the worlds of finance, science and technology, national security, economic policy, trade and the environment have assembled at the Commerce Department to attempt to reverse a decades-long decline in U.S. semiconductor manufacturing.<\/p>\n
The experts at the CHIPS program office are charged with enticing the world\u2019s largest chipmakers to the U.S. to fashion cutting-edge semiconductors used in weapons and supercomputers, as well as in more ordinary devices like thermostats. The goal is to break the dependence that many American manufacturers of missiles, spy satellites, telecom gear and medical devices have on suppliers primarily based in Taiwan and South Korea.<\/p>\n
In the event of a war or a blockade by China, the worry is that U.S. companies may not get the needed chips.<\/p>\n
Congress appropriated funding for the effort last year, setting aside about $39 billion for grants and subsidies for chip makers and their suppliers, plus another $11 billion to set up research centers on chip design. To handle the task, the Commerce Department last year launched the new CHIPS office, which also would provide loan guarantees for as much as $75 billion.<\/p>\n
Morgan Dwyer, the chief strategy officer at the CHIPS office and a former Pentagon official with degrees from Yale, Stanford and the Massachusetts Institute of Technology, sees the complexity of the challenge in the ubiquity of semiconductors in modern life.<\/p>\n
\u201cThe unique nature of the CHIPS program and semiconductors themselves is that they are inherently dual use, and some chips are not only used for military systems, but they also power our economy,\u201d Dwyer said in an interview. \u201cWe really have to focus on sort of the two core objectives of how we\u2019re going to judge our success in 10 years, and that is, did we strengthen national security? And did we also get a good deal for the American taxpayer?\u201d<\/p>\n
The CHIPS program \u201cis unlike really any other program that the federal government is undertaking right now,\u201d Peggy Gustafson, the Commerce Department\u2019s inspector general, told lawmakers in March.<\/p>\n
Deploying taxpayer funds and the federal government\u2019s power puts the department and the CHIPS office in a unique position of executing a novel industrial policy: one focused on both national security as well as economic well-being, and one that is expected to back manufacturing plants as well research and development efforts.<\/p>\n
A study of U.S. industrial policy interventions since the 1970s by the Peterson Institute for International Economics found that the most successful ones were cases in which the government funded high-risk, high-reward research and development efforts.<\/p>\n
\u201cOur research showed that the real strength of the United States is in R&D as an industrial policy tool,\u201d said Gary Clyde Hufbauer, one of the authors of the November 2021 report. In contrast to broad funding, efforts involving trade measures and subsidies to specific firms had failed to produce the desired results, the study found.<\/p>\n
Two key lawmakers already have urged the department to make sure recipients of federal dollars are chosen carefully and the result is not a \u201cbailout\u201d for the semiconductor industry.<\/p>\n
Sens. Mark Warner<\/a>, D-Va., and John Cornyn<\/a>, R-Texas, the Senate authors of the law to revitalize U.S. semiconductor manufacturing, urged Commerce Secretary Gina M. Raimondo in May to make sure that applications for grants and subsidies that are \u201cmost worthy based on national security concerns\u201d get funded.<\/p>\n \u201cWe want to make sure that this is done with national security foremost in everybody\u2019s mind,\u201d Cornyn said in an interview. \u201cThis is not an economic proposition. \u2026 It\u2019s obviously important from an economic standpoint, but national security is the main reason why Sen. Warner and I undertook the legislation.\u201d<\/p>\n Warner said he was also concerned that if most of the federal funds went only to large semiconductor fabricators, or \u201cfabs,\u201d it wouldn\u2019t spark a resilient domestic industry.<\/p>\n \u201cWe have got to make sure that the whole supply chain\u201d is supported, Warner said in an interview. \u201cIt\u2019s not enough to simply have a fab without the right tool maker or the advanced packaging supplier. \u2026 That\u2019s not going to meet our national security objectives.\u201d<\/p>\n The Commerce Department has said it will take applications for grants from key suppliers to chipmakers in addition to operators of fabs.<\/p>\n The CHIPS office already has received more than 400 statements of interest from semiconductor manufacturers keen to get a share of the federal dollars. Preliminary applications for grants and subsidies will be accepted beginning in September, with final applications starting Oct. 23, according to the department.<\/p>\n The world\u2019s top chipmakers, including Intel, Micron, IBM, Samsung, Taiwan Semiconductor Manufacturing Co. and others, have indicated they may invest as much as $400 billion in the U.S. provided they get some support from the government.<\/p>\n Six teams, separately focused on national security, economic security, workforce, environmental issues, international relations and policy, will pore through the applications to decide who gets how much, Dwyer said.<\/p>\n As outlined in a department notice, applications will be evaluated on how well they meet national security and economic security goals in combination with commercial viability and financial strength, Dwyer said. The department\u2019s notice says meeting national and economic security objectives would receive \u201cthe greatest weight\u201d in evaluations, with the five other categories receiving equal weight thereafter.<\/p>\n The CHIPS office\u2019s national security experts will evaluate applications based on two broad criteria, said Benjamin Schwartz, director of the office\u2019s national security team.<\/p>\n \u201cThe first is straightforward in a way, and that is to ensure that the companies that we will give funding to are protected from security threats,\u201d he said in an interview. The evaluation will include their cybersecurity efforts, physical protection, protection from malign foreign influence as well as efforts to prevent counterfeiting or cloning of the products, Schwartz said.<\/p>\n \u201cThe second bucket is about the resiliency of supply chains for critical semiconductor applications and end uses,\u201d he said. \u201cThis is about how do you build a supply chain that can withstand any sort of disruptions in parts of the world where there could be a disruption.\u201d<\/p>\n The office also has to figure out how to ensure that chip manufacturers that \u201cprovide unique capabilities for things like the defense industrial base maintain a business\u201d when the volume of demand for such specialized chips could be low, Schwartz said. \u201cAnd how do you sustain these critical businesses, when maybe they would get a higher margin just serving purely commercial end users.\u201d<\/p>\n National security needs are not confined to the Pentagon\u2019s requirements but also include what\u2019s needed by intelligence agencies, as well as elements of the Energy and Commerce departments, he said.<\/p>\n The effectiveness of the policy to draw more chipmakers to the country has become complicated by global events, said Rob Atkinson, president of the Information Technology and Innovation Foundation, a think tank that has supported the subsidy program.<\/p>\n As Congress worked to pass legislation last year, other countries, including Japan, Canada and the European Union, created their own incentives to attract chip makers, \u201cmaking it harder for the U.S. to compete for fab and related investment,\u201d Atkinson said.<\/p>\n Congress debated the legislation during a severe shortage driven by the COVID-19 pandemic. Since then, \u201cwe went from chip shortage to worries of industry sales slowdown\u201d because of a glut, Atkinson said. \u201cBut we deal with the hand we are dealt, and hopefully the multinationals will make large capital investments here in the U.S.\u201d<\/p>\n ___<\/p>\nStrong manufacturing interest<\/h3>\n