Is the US CHIPS Act Flawed? It May Not Protect Supply Chains After All

While many US-based semiconductor foundries celebrate the passing of the US CHIPS act, some doubt whether its introduction will do any good and if it can even protect supply chains. What was the purpose of the CHIPS act, why it may fail to protect supply chains, and what needs to be done?

What was the purpose of the CHIPS act?

By far, the most important news story in the electronics industry this year has been the CHIPS act in the United States. The COVID pandemic of 2020 saw countries worldwide go to extreme measures to control the spread of the virus (which was effectively a nasty flu), including country-wide lockdowns, mass testing, and closure of borders. These actions shook global industries right to the core, with millions of businesses worldwide closing down, supply chains collapsing, and hundreds of millions left without jobs. 

But when industries tried to restart operations, it was discovered that the semiconductor industry faced severe supply chain issues. Worse, it was also realised that countries that cannot access the latest technologies can quickly fall behind, and most advanced semiconductors were manufactured in just a handful of locations (all of which sit next to China). 

Long story short, governments worldwide have now recognised the importance of semiconductors and are scrambling to try and set up their own foundries. As such, the CHIPS act was passed in the US to do just this; provide tax credits to US foundries and offer grants to those looking to establish new foundries on US soil. 

Why may the CHIPS act fail to protect supply chains?

The US government hopes that the incentives offered by the CHIPS act will move foundries away from foreign nations and establish more robust supply chains inside the US that are immune to foreign interference. While this may be partly true, there exist a potential flaw in the CHIPS act that may fail to protect semiconductor supply chains; raw materials. 

The CHIPS act goes out of its way to help businesses open up new foundries and run research projects but appears to do little for the raw materials needed to manufacture semiconductors. Having the world’s most high-tech foundry is entirely pointless if it cannot access the materials needed to manufacture semiconductors.

Furthermore, the raw materials needed to produce semiconductors are often scarce and mined in a handful of places around the world. In fact, many of these raw materials are sourced from the very countries that the US wants to cut ties with; Russia and China. Sure, the biggest component by weight in a semiconductor is silicon which exists everywhere with sand, but silicon alone cannot make a semiconductor. Numerous elements, including lanthanum (57), cerium (58), neodymium (60), samarium (62), europium (63), terbium (65), and dysprosium (66) can often be required, and this doesn’t even include complex and dangerous chemical compounds needed to treat, strip, etch, pattern, and clean wafers. In fact, the Russo-Ukraine war has seen shortages of semiconductor-grade neon gas, which is sourced mainly from Ukraine, something which cannot be easily sourced elsewhere. 

Another factor to consider is that semiconductor development is often a global effort with multiple countries involved in research, manufacturing, and distribution. For example, silicon wafers may be manufactured by one country, which gets shipped to another for development and then shipped to a third for packaging. At the same time, a fourth country might be involved with designing the equipment used to manufacture parts, while a fifth country is involved with the design layout of the chip.

By only encouraging foundries, only the immediate supply chain around the foundry is protected, but the CHIPS act does very little to protect the overall supply chain.

What should the CHIPS act do?

What the CHIPS act hopes to do is noble; protect the nation’s semiconductor supply chain against foreign powers. However, like any government-run institution or project, it has serious flaws that will likely do more harm than good while wasting taxpayers’ money.

If governments worldwide are serious about securing semiconductor supply chains, then they should look at the bigger picture. In the case of the US, it should see itself as a player in a much larger game against Russia and China and team up with its allies, including the UK, EU, and Australia. From there, vulnerable aspects of semiconductor supply chains (which also consider raw materials) should be identified and organised across the various countries. 

Establishing a foundry in the UK or EU would be just as advantageous to the US as having it on home soil (and vice versa). At the same time, all members should identify what raw materials they can access and what they lack. As all allies have a common goal, shared values, and long-term cooperation, it should be easy to work together on securing the semiconductor supply chain. 

Of course, this assumes that the US does indeed trust its allies to the degree to which they protest...