US Senate Okays Chip Act Granting $54 Bln Subsidies, $24 Bln Tax Credit to Chipmakers Competing With China

In a landmark move, the US Senate voted on Tuesday to move forward with the CHIPS Act that will provide a $54 billion boost to the country's semiconductor industry. The long-delayed Senate vote fulfills the chip industry's demand for subsidies that will enable it to compete with China.

The Senate voted 64 to 34 as it passed a crucial procedural measure, leading to the potential passing of the crucial piece of legislation in the Senate and House of Representatives by the next week.

Main Provisions

Chief among the provisions in the bill are $54 billion in subsidies for America semiconductor companies and a four-year 25 percent tax credit, which is worth about $24 billion.

Neon and other Noble gases
Neon and other Noble gases Wikimedia Commons

"Today's vote is really about whether we're going to stop shipping jobs overseas, and instead invest in American R&D. If we invest in American R&D, then we will see the plant being talked about in Ohio get built instead of being immediately built in Europe," Senator Maria Cantwell, the Democratic chairperson of the Senate Commerce Committee, said ahead of the vote, according to Reuters.

Chipmakers Frustrated

The US Commerce Secretary had repeatedly warned earlier that chipmakers will leave the country and set up manufacturing bases overseas unless the key bill authorising spending for the industry was passed soon.

Gina Raimondo said at Davos in May that the semiconductor giants are frustrated by the slow legislative process over a bill that seeks spending of over $50 billion on semiconductor manufacturing.

US Senate
US Senate

The Commerce Secretary drew attention to the global chip shortage and how that is impacting a key segment of industries, adding that the economic damage caused by the semiconductor shortage will become 'permanent' unless Congress passed the bill.

While China remained the main threat, countries like Singapore, Germany and Spain have also been trying to lure US companies.

Challenge to US Dominance

The US has had clear dominance in the semiconductor industry in the last several decades, maintaining more than 50 percent of the market share in revenue terms at one point. The country was also home to more than half of the 15 largest semiconductor companies in the world. But that dominance is being chipped away, with China and Taiwan expanding their footprint in the industry.

Though the US Senate passed a bipartisan $250 billion bill aimed at boosting the spending in the technology sector, including semiconductor sector, the legislation did not progress as the House Democrats proposed a new bill without the support of the Congressional Republicans.

Semiconductor Wikimedia Commons

There has been pressure from the domestic semiconductor industry to expedite the government support even as Chinese and Taiwanese governments boosted their domestic enterprises in the recent years.

Raimondo had warned that China was pressing ahead with more investment in the semiconductor industry. "China's plowing ahead [and] investing $150 billion into domestic production of chips. So, we're going to miss out if we don't move," she said.

China Investment

It was reported in March last year that the Chinese state investment fund was boosting the firepower of its all-important chipmaker SMIC amid a high-stakes 'chip war' with the United States. China's Semiconductor Manufacturing International Corp said it will build a $2.35 billion plant with funding from the provincial government of Shenzhen.

"The message is not subtle: If companies do not think it is profitable to make chips here in America, they are going to go somewhere else," Senate's Democratic majority leader Chuck Schumer said on Tuesday.