Will the CHIPS Act reshore semiconductor jobs back to the US?
In an Interview with Third Bridge Forum, the specialist said the CHIPS Act has been enacted to reverse the long-term trend of the US’ declining semiconductor market share. Whilst US manufacturing of chips has dropped from 37% in 1990 to 12% today, the specialist told us China’s market share has risen from 0% to 25% over the same period.
The Act has also been passed to ensure the US’ semiconductor supply chains remain resilient, the specialist said, with the Biden administration aiming to avert another semiconductor crisis. The US’ need to diversify has been exacerbated by the ongoing threat of military action in the Taiwan Strait, we heard. “Taiwan is to semiconductors as Saudi Arabia is to OPEC and oil”, the specialist told us, with the US heavily reliant on the country’s “sophisticated chips” for use in its military hardware.
The threat of Chinese military activity against Taiwan is a concern, the specialist said. However, they believe Russia’s drawn out invasion of Ukraine, as well as domestic economic and COVID-19 challenges may have “pushed back the timeline” for any stronger action.
Although the specialist does not expect US-China tensions to escalate, they are pessimistic that there will be a warming of relations over the next 12-24 months. The US’ economic and commercial relationship with China has reached a “third rail”, according to the specialist, and they expect tit-for-tat measures from each side to continue – without upsetting the “status quo”.
Despite being passed, the specialist is sceptical as to whether the CHIPS Act can effectively exclude China from the semiconductor industry. They told us any action the US takes against the country would likely harm its own semiconductor sector and noted that the US’ own track record of constraining Chinese semiconductor manufacturers is patchy. They pointed to approximately USD 100bn worth of export licences being awarded to Chinese companies over the past two years, despite the construction of an entity list aimed at prohibiting such action.
On the CHIPS Act’s objective of reshoring jobs back to the US, the specialist said this could also be fraught with challenges. They told us the US lacks construction workers – workers that are needed to build semiconductor plants – as well as a shortage of skilled H1B workers. Some of these issues are being addressed by the Act, the specialist told us, with USD 13.2bn earmarked to stop the US “brain drain” and develop a new semiconductor workforce alongside regional research hubs and an AI and quantum directorate.
Funding was also highlighted by the specialist as another potential obstacle. Although USD 52bn has been set aside, this may not be enough given it costs nearly USD 20bn to build a semiconductor plant, we were told.
Whether the CHIPS Act succeeds could hinge on financial and political “momentum”, according to the specialist. However, they said at some point, labour challenges and the costs involved in domestic chip manufacturing could lead to a realisation from legislators of “why we have globalisation and outsourcing in the first palace”.
Click here to access all the human insights in Third Bridge Forum’s “US Government Semiconductor Strategic Policy – Stimulus & Foreign Policy – CHIPS Act Implications & Beyond” Interview.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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