What is in the CHIPS law aimed at expanding child care and national security?

The Biden administration on Tuesday unveiled new rules for its Chips for America program to build up semiconductor research and manufacturing in the United States, ushering in a new rush for federal funds in the sector.

The Commerce Department has $50 billion to distribute in direct financing, federal loans, and loan guarantees. It represents one of the largest government investments in a single industry in decades and underscores growing concerns in Washington over America’s reliance on foreign chips.

Given the huge cost of building state-of-the-art semiconductor facilities, funding could be quick, and competition for the money has been intense.

Here’s a look at the CHIPS and Science Act, what its purpose is, and how it will work.

Financing of chip production and research

Most of the money — $39 billion — will be used to fund construction of new and expanded manufacturing facilities. An additional $11 billion will be distributed later this year to support research into new chip technologies.

Most of the production money will likely go to some of the companies that make the world’s most advanced semiconductors — including Taiwan Semiconductor Manufacturing Company, Samsung Electronics, Micron Technology, and maybe in the future Intel — to help them build US facilities.

Some go to makers of older chips that are still essential in cars, appliances and weapons, as well as suppliers of raw materials to industry and companies that package the chips into their end products.

While some critics question the wisdom of providing grants to a profitable industry, semiconductor executives argue they have little incentive to invest in the United States given the higher cost of labor and running a factory.

The administration doesn’t plan to fund entire projects: Biden officials say they plan to offer grants ranging from 5 percent to 15 percent of a company’s capital expenditure on a project, with funding not expected to exceed 35 percent of the cost. Businesses can also apply for a tax credit that reimburses them 25 percent of project construction.

Limitation of foreign dependency

Trade Secretary Gina Raimondo describes the program primarily as a national security initiative.

While the United States is still at the forefront of chip development, most manufacturing has been offshored. Today, more than 90 percent of the most technologically advanced chips critical to the US military and economy are made in Taiwan. Given China’s aggression towards Taiwan and the possibility of a military invasion of the island, this has raised concerns about supply vulnerabilities.

At the same time, China has increased its market share in less advanced chips, which are still crucial for cars, electronics and other products. The United States makes 12 percent of the chips, despite not being among the most advanced in the world.

Chip shortages during the pandemic forced factories to halt work, highlighting the supply chain’s vulnerability to disruption. Workers at Ford plants in Michigan and Indiana only worked a full week three times last year because of a shortage of chips, Ms. Raimondo said in a speech at Georgetown University last week. This helped fuel a car shortage and drove up car prices, fueling inflation.

The Commerce Department says the program will also provide the US Department of Defense and the national security community with a domestic source of the world’s most advanced chips.

Building chip hubs

According to Ms. Raimondo, the goal is to build at least two US manufacturing clusters to produce the most advanced types of logic chips, as well as facilities for other types of chips and complex supply networks to support them.

Commerce officials have declined to speculate where those facilities might be located, saying they need to review applications. But chipmakers have already announced plans for billions of dollars in new investments in the United States.

TSMC, which makes most of the world’s top chips, has been busy expanding in Arizona while No. 2 Samsung is growing in Texas. Micron, a maker of advanced memory chips, has announced major expansion plans in New York. And Intel, a US tech giant investing heavily to maintain a technological edge, has laid the groundwork for a “mega-site” in Ohio.

Ms. Raimondo said the vision is to bring the United States back to a leadership position in semiconductor technology, to the point where every major global chip company wants both research and manufacturing facilities in the United States.

Still, there is skepticism about how much the program can accomplish. For example, a 2020 study found that investing $50 billion in the industry would only increase U.S. market share to 14 percent.

protect taxpayers’ money

Much is at stake for the Biden administration to prove that this foray into industrial policy can work. Critics have argued that the federal government may not be best at judging winners and losers. If the administration gets it wrong, the Biden administration could face a public backlash, and the United States could give up its leadership on key technologies forever.

The Commerce Department said it will scrutinize companies that apply for funding to make sure they aren’t receiving more taxpayer money than they need.

In a decision that could anger some companies, the ministry said projects that receive grants must share a portion of any windfall profits with the federal government.

It also said it would allocate funding over time as companies reach project milestones, favoring those who commit to refrain from share buybacks, which tend to enrich shareholders and company directors by increasing a company’s share price increase company.

Companies will also be banned from making new high-tech investments in China or other “countries of concern” for at least a decade to ensure taxpayers’ money is not used to fund new operations in China.

However, analysts said it remains to be seen how difficult it will be to enforce these provisions. Corporate finances can be opaque, and if a company saves a dollar in the United States, it may choose to invest it elsewhere.

Help workers by putting on big threads

The program also includes some ambitious and unusual requirements aimed at benefiting the employees who will staff semiconductor facilities.

For one, the department is asking companies looking for grants of $150 million or more to provide affordable, quality childcare for workers building or operating a facility. This could include building corporate childcare centers near construction sites or new factories, paying local childcare providers to expand capacity at an affordable cost, or directly subsidizing workers’ childcare costs.

Applicants must also demonstrate their collaboration with unions, schools and worker training programs, giving preference to projects that benefit communities and workers.

Other provisions will encourage companies, universities and other parties to provide more training for workers, both in advanced science and in skills like welding. The ministry said it would prioritize projects for which state and local governments provide incentives with “spillover” benefits to communities, such as: B. the training of workers, educational investments or the construction of infrastructure.

This is part of the Biden administration’s “labour-centric” approach to economic policy, which aims to use federal power to benefit workers. But some critics say it could jeopardize the program’s goal of building the most advanced semiconductor fabs if it incurs excessive costs for new projects.