Semiconductors and the CHIPS Act: TheGlobal Context, CRS, Sep. 28, 2023.

Karen M. Sutter, Specialist in Asian Trade and Finance
John F. Sargent Jr., Specialist in Science and Technology Policy
Manpreet Singh, Analyst in Industrial Organization and Business

SUMMARY
Semiconductors and the CHIPS Act: The Global Context In 2021, Congress enacted legislation in response to its concerns that the United States lacked
critical domestic semiconductor production capabilities and, more broadly, was losing its competitive edge in the global semiconductor industry. Through the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America program, Title XCIX of P.L. 116-283, the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (2021
NDAA), Congress authorized an incentive program for building and equipping semiconductor fabrication facilities in the United States. It also authorized research and development activities to support U.S. leadership in semiconductor manufacturing technology.

Subsequently, in appropriating funding for P.L. 116-283’s CHIPS for America provisions, Congress combined provisions from a number of previously introduced bills into a single bill. These proposals sought to increase U.S.-based semiconductor fabrication and to address concerns about the adequacy of U.S. investment in research and development (R&D) and the development of the U.S. science and engineering workforce. After resolution of differences between the House and Senate versions of these bills, the bill became known as (though not officially named) the CHIPS and Science Act. In July 2022, Congress enacted the CHIPS and Science Act (P.L. 117-167), which President Joe Biden signed into law in August 2022. P.L. 117-167 (Division A) provides funding for the CHIPS for America provisions
enacted in the 2021 NDAA. The act appropriates $52.7 billion to increase semiconductor manufacturing capacity in the United States by providing financial incentives for building, expanding, and equipping domestic fabrication facilities and companies in the semiconductor supply chain. In addition, the act includes provisions that fund federal semiconductor R&D
activities at the National Institute of Standards and Technology, a National Semiconductor Technology Center (in partnership with U.S. industry), a National Advanced Packaging Manufacturing Program, and the establishment of up to three Manufacturing USA institutes. P.L. 117-167 also created and funded three additional funds that seek to bolster U.S.
semiconductor capabilities for national defense, workforce development, and international cooperation.

Some other countries have long-standing support programs for their semiconductor industries. East Asia—in particular, South Korea, Taiwan, Japan, Malaysia, and Singapore—is home to globally competitive semiconductor firms and industries. The semiconductor industry in East Asia has relied on various forms of government support to develop and sustain its
globally competitive position. Governments in East Asia, among others, have announced new investments and support measures, in part as a response to the CHIPS Act of 2022, to bolster their position in global semiconductor supply chains. U.S. semiconductor firms are heavily invested in these markets, either through a direct corporate presence or the use of contracted services. The United States relies primarily on Taiwan for the fabrication of leading-edge logic chips (microprocessors and microcontrollers that function as the “brains” of computing devices) and South Korea for leading-edge
memory (data storage) chips, while relying on Taiwan, South Korea, and increasingly China to meet demand for mature-node chips.

China is catching up to leading nations in both semiconductor production capacity and capabilities, in large part due to government capital outlays that subsidize domestic firms, fund the purchase of imported equipment and software, and finance China’s acquisition of foreign semiconductor firms. U.S. officials have expressed concerns about the ways in which China’s state-led semiconductor policies are pressuring or encouraging U.S. and other foreign semiconductor companies to transfer key technology, intellectual property, talent, and R&D to China, thereby boosting China’s competitiveness in the industry. India—a global leader in information technology (IT) software services—is investing heavily in IT hardware and seeking to boost investment in semiconductors and microelectronics. European-headquartered semiconductor firms account for about 10% of global semiconductor sales and specialize in niche markets (e.g., automotive, energy, and industrial automation).

This report examines U.S. actions in a broader context by highlighting recent actions by other governments to boost their semiconductor industries. U.S. policy efforts to promote and protect U.S. semiconductor capabilities will shape and be influenced by these broader dynamics. Consideration of the global context may raise additional considerations for Congress, particularly with regard to how the United States might consider cooperation and collaboration among allies and close partners while potentially seeking to restrict the development of semiconductor capabilities of strategic competitors such as China. Among U.S. allies and close partners, other considerations involve how to maximize the role of markets and achieve
the appropriate balance of government and market roles, and how to avoid overcapacity and other potential market distortions.

https://sgp.fas.org/crs/row/R47558.pdf