In 2022, we wrote about some of the developments that shook up the semiconductor industry. Now, let’s look at an overview on the updates of four top stories of the year, including lessons learned. Here are our key takeaways:
U.S. Bill on Semiconductor Restrictions from China Signed by President
Just before the end of 2022, U.S. President Joe Biden signed two bills that passed in the final days of the last Congress. The bills contain several provisions with implications for sanctions, export controls, and supply chain restrictions. One of the bills includes several provisions relating to U.S. export controls, sanctions, including prohibitions on the use of Chinese semiconductors by U.S. government agencies.
In the interest of national security, the Fiscal Year 2023 National Defense Authorization Act ("NDAA") precludes the acquisition of products or services that include certain semiconductors originating in China and other “foreign countries of concern.” The bill prohibits procuring, obtaining, extending, or renewing a contract to procure or obtain, any electronic parts or products, or services that include covered semiconductor products or services, or entering into a contract “with an entity to procure or obtain electronic parts or products that use any electronic parts or products that include covered semiconductor products or services.”
According to Market Screener, “Although the prohibitions have five years to take effect, contractors (and their subcontractors and suppliers) must start now to thoroughly analyze their supply chains and identify any products sold to the federal government that contain covered semiconductor products or services. Contractors will then need to take steps to source Section 5949-compliant semiconductor products and services.”
It adds that “the Biden administration has shown it is determined to delink the Chinese semiconductor industry from the global supply zone. The trade war in the chip industry is set to intensify because chips are central to China’s security and industrial growth plans.”
China attempts to fight back against U.S. ban on its chip industry
On December 16, 2022, VOA News reported that “China was trying to fight back U.S. ban on its chip industry,” but within a few days, U.S. President Joe Biden had signed the ban into law.
Prior to the bill’s signing, China had spent $143 billion to combat U.S. moves to cut off its supply of semiconductor technology and protect the semiconductor companies that support its vast electronics, automotive, and military hardware industries. The funds were used to provide financial subsidies and incentives to help China's chipmakers develop and acquire semiconductor technology to withstand the U.S. move. The strong pushback is not surprising, considering the goal of the bill’s new restrictions: suppressing China’s economic rise.
Some experts think the “sweeping and long-term ban invites retaliation, including further escalation of tensions over Taiwan, a cutoff of rare earth minerals (81% of which come from China), or a push by China to develop its own domestic capabilities.”
Without U.S. expertise, companies in China will not be able to manufacture the smallest and most advanced chips. Some analysts note that China could still rely on non-American suppliers for many of its microchip needs. However, under President Xi Jinping’s Made in China 2025 plan, “the country aims to be semiconductor self-sufficient by mid-decade, with domestic suppliers meeting 70% of its needs.”
CHIPS for America Act passed to strengthen U.S. semiconductor industry
In June 2020, the Semiconductor Industry Association reported that new legislation had been introduced by several Senators aimed at countering competing nations’ massive government incentives and strengthen U.S. economy and national security.
The CHIPS for America Act gained bipartisan support, and in July of 2022, Congress passed the CHIPS Act of 2022. The goals of CHIPS are to strengthen domestic semiconductor manufacturing, design and research, fortify the economy and national security, and reinforce America’s chip supply chains.
The need for the government to act was acute, because the share of modern U.S. semiconductor manufacturing capacity has eroded from 37% in 1990 to 12%. This occurred primarily because other countries’ governments have invested ambitiously in chip manufacturing incentives and the U.S. government has not. Further, federal investments in chip research fell flat as a share of GDP, while other countries significantly ramped up their research investments.
The CHIPS Act of 2022 includes semiconductor manufacturing grants, research investments, and an investment tax credit for chip manufacturing. SIA also supports enactment of an investment tax credit for semiconductor design. Already, investments and plans are being made to bring new semiconductor capacity in the manufacturing plants across the country.
$500M for new tech hubs program included in federal spending bill
A new law created to promote domestic semiconductor production through a regional development program was approved in early 2022, but was not funded. On December 20, 2022, U.S. Congressional budget negotiators added an initial $500 million to a proposed government funding package for the initiative.
While Congress would still have to provide the majority of funding in the future for the program, the initial $500 million is a “milestone” and “sufficient to begin program design and initial activities,” Mark Muro, a senior fellow at Brookings Metro told Route Fifty.
The overall budget includes $1.7 trillion designed to fund new research and industrial development around semiconductors and related technology across the U.S., specifically in regional “technology and innovation hubs” that haven’t seen their tech sectors boom. According to Route Fifty, “It marks a significant step that could eventually help reshape communities that lacked the roaring tech sectors places like Seattle and California’s Bay Area have had in recent years.”
For more updates on these unfolding stories, make sure you’re subscribed to the Talent 101 Semiconductor blog.
