Microchips are tiny chips of silicon with thousands of tiny electronic circuits. They are a core part of how many of our electronic devices function. Due to this, Microchips have become vital to our modern society.
Due to the constantly evolving nature of technology, governments have implemented policies to govern its use and Distribution. Recently, the Biden Administration has signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act into Law. This piece of legislation has allocated $52.7 billion to manufacturers for over 5 years to boost the US’s position in the semiconductor industry. The law emerged after a chip shortage highlighted how much US industries and the US military now rely on processors made overseas. US processor manufacturing has dropped from 37% of global output to just 12% today.
To make sure that the funds given through the CHIPS act are used for its intended purpose, the act has specific Guardrails and guidelines to make sure it’s used appropriately. These guidelines stipulate that CHIPS funds must be invested in the US, and the recipients are barred from investing the money in most other semiconductor manufacturing countries (primarily China and Russia). Companies that violate the guidelines would be subject to a claw-back provision, which would force them to return the money they had received from the CHIPS Act.
This act will have significant effects on the tech industry. We are already able to see some of the effects chip designer Qualcomm has already spent $4.2 billion with chipmaker GlobalFoundries to build processors in New York. And Micron will invest $40 billion in memory chip manufacturing capacity, which will elevate the US share of the memory chip market from 2% to 10%.
The CHIPS Act will have a profound impact on the global microchip market, especially within China's domestic chip industry. On October 7, 2022, the administration imposed a set of export controls that included measures to cut China off from certain semiconductor chips and chip-making equipment. This move requires US companies to cease supplying Chinese chipmakers with equipment that can produce relatively advanced chips unless they first obtain a license. This is likely to significantly hinder China’s domestic chip industry as Washington’s export rules could affect other parts of the supply chain that use American technology, highlighting the wide-ranging nature of these restrictions.
Looking ahead, it’s clearer than ever that microchip manufacturing will be a critical area of focus for tech policy. Especially due to how we move further into the digital age, microchips will play an increasingly important role in everything from consumer electronics to military hardware.
The CHIPS Act represents a significant investment by the Biden administration in this crucial sector, providing substantial financial incentives for domestic production and imposing restrictions on overseas investments. This legislation will most likely bolster the US semiconductor industry and reduce reliance on foreign manufacturers.
It's still too early to predict exactly how these new microchip rules will impact the tech industry. However, one thing is clear, they represent a significant shift in tech policy. As these policies continue to unfold, they will undoubtedly shape the future landscape of the global tech industry and the US’s place in the tech industry.
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