America's billion-dollar bet on US chipmaking

The long US presidential election campaign is well underway, and Joe Biden can use all the good economic news he can get. The economy, or at least voters' perception of it, will have a lot to do with his chances for reelection. 

In March, employers created more than 300,000 jobs and unemployment stood at 3.8%. At the same time, March's inflation rate rose a bit over February and it's anyone's guess when interest rates will come down.  

One thing the president is convinced of is the importance of semiconductor chips — and making those chips in the US. In 2022, the government passed the CHIPS and Science Act and is now squeezing out every dollar it can to attract manufacturers, and that's adding up to be a lot of dollars.

Is Taiwan's weakness America's advantage?

Today, semiconductors power much of our modern life, from smartphones, vehicles and satellites to military equipment, data centers and generative artificial intelligence. 

Though semiconductor chips were invented in America, manufacturing has mostly moved elsewhere. Currently, most high-end semiconductor chips are made in Taiwan. Only about 10% of chips are made in the US, and none of the most advanced ones. Even superchips designed in the US by the likes of Nvidia, are made elsewhere.

One problem with this system is the vulnerability of global supply chains. Natural disasters, pandemics and human factors like embargoes and armed conflicts have had an impact on supply chains, said Alan Rae, director of the NYS Centers of Excellence and Advanced Technology at the University at Buffalo in New York.

The reliance on Taiwan is especially fraught. Nearby China claims the island and many fear a possible military strike or invasion that would substantially disrupt the world's economy. Plus, the island recently suffered from its strongest earthquake in 25 years.

Rae, an expert on semiconductor manufacturing with decades of experience, is a keen industry watcher. "Taiwan has done a superb job building a complete ecosystem for leading-edge chip production," he told DW. "Duplicating this will take significant money and effort but is achievable."

America responds with CHIPS and Science Act

To diversify away from Taiwan and Southeast Asia, a number of countries like Germany are trying to attract chipmakers. But the US is more determined to onshore advanced chipmaking than most. The Biden administration sees this as a way to build up domestic jobs and overcome national security vulnerabilities.

The CHIPS and Science Act is its main tool. Here, "chips" stands for "Creating Helpful Incentives to Produce Semiconductors." One provision of the law gives $39 billion (€36.6 billion) in federal grants to the Commerce Department to lure companies to build or expand US-based semiconductor manufacturing. It allocates another $75 billion for loans, among other measures.

At a podium discussion in February, Commerce Secretary Gina Raimondo said semiconductors are the "most important piece of hardware in the 21st century" and that the US must cement its leadership role in this crucial industry.

To help make this happen, her department is using money from the CHIPS Act to make "targeted investments in relentless pursuit of achieving our national security objectives," she said.

Importantly, they are focusing on research and manufacturing clusters and projects that will be operational by 2030 to "maximize our impact in this decade."

Billions in grants are being handed out

Now the money is starting to flow, with the first grants going to GlobalFoundries, Microchip Technology and BAE Systems.

In March, Biden announced a $8.5 billion grant for Silicon Valley-based Intel to help it build up chip production across four states. It was the biggest grant so far and comes with an additional $11 billion in loans.

In early April, another $6.6 billion in direct funding and $5 billion in loans was announced for Taiwan-based TSMC to build in Phoenix, Arizona. The company plans to invest more than $65 billion in three manufacturing facilities. The first site should be online 2025.

A week later, the US government announced $6.4 billion for South Korea's Samsung to expand an existing facility plus build two new ones in Texas. The company, which has been manufacturing in America since 1996, also promised to set up a research and development operation in the state. In total, the company is expected to invest more than $40 billion.

Building up an industry in an election year

Next in line is Micron Technology, the biggest maker of memory chips in the US. Micron is set to receive up to $6.1 billion in grants from the US government to help build semiconductor plants in New York and Idaho, the White House said Thursday.

That will bring total federal grants to more than $33 billion and leave just over $6 billion to splash out on the industry. In addition to these direct grants and loans are billions in promised tax credits to cover a large part of building costs.

Construction and manufacturing should create tens of thousands of well-paid jobs. But big investments are only one side of the equation; workforce development is also important, and so is access to a supportive supplier ecosystem, said Rae.

Creating jobs and bringing manufacturing back to the United States are a big part of Biden's economic policy. But investing billions in a single industry — no matter how important — may not woo enough voters.

Moreover, voters' memories are short, said John Mark Hansen, a professor of political science at the University of Chicago in Illinois. Still, evidence shows that "a strong economy benefits the party of the incumbent president and a poor economy hurts it."

And looking at the economy, "the best predictor of election outcomes is the growth in real disposable income per capita," Hansen told DW. In other words how much money people take home after inflation and taxes. There are still a few months before the election in November, "but it doesn't look as bad for Biden as everybody seems to think."

Edited by: Uwe Hessler