On Tuesday, August 9, President Biden signed the CHIPS and Science Act of 2022 (H.R. 4346) (“the CHIPS Act”). The Act’s goal is to “strengthen American manufacturing, supply chains, and national security, and invest in research and development, science and technology, and the workforce of the future” for “the industries of tomorrow, including nanotechnology, clean energy, quantum computing, and artificial intelligence.”1
The CHIPS Act was originally part of the Senate’s United States Innovation and Competition Act (“USICA”) and the House’s America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 (“COMPETES Act”), which we discussed in more detail in our earlier newsletters.2 The Senate and House have been in a months-long process to reconcile the USICA and COMPETES Act, but earlier this summer, a bipartisan effort began to create a CHIPS Act that was separate from the House and Senate’s broader proposed legislation addressing China competition.
What is in the CHIPS Act?
Key provisions of the CHIPS Act include the following:
- $52.7 billion over five years to fund grants, loans, loan guarantees, and other programs related to incentive US semiconductor manufacturing. This includes $39 billion in manufacturing incentives through a “Financial Assistance Program” for the semiconductor industry, $11 billion for workforce and research and development programs administered by the Department of Commerce, $2 billion to establish a national network for microelectronics research and development, $500 million for international information communications technology security and semiconductor supply chain activities, and $200 million to grow the US semiconductor workforce.
- A 25% investment tax credit for capital expenses for the manufacturing of semiconductors and tools to create semiconductors in the US. The credit will be available for facilities for which construction begins on or before December 31, 2026.
- A prohibition on recipients of CHIPS Act funding and the investment tax credit from expanding semiconductor manufacturing in China and other countries of concern for ten years, with an exception for manufacturing legacy chips. The Secretary of Commerce, in coordination with the Secretary of Defense and the Director of National Intelligence, will be required to regularly reconsider, with industry input, which technologies are subject to the expansion prohibition. Recipients of CHIPS funding are required to notify the Department of Commerce of relevant transactions in China, which will undergo agency review and possibly mitigation, similar to the CFIUS process.
- An authorization of nearly $170 billion for US Government research and development initiatives over five years, an increase of over $80 billion in the federal government’s baseline authorization. These new initiatives include “establish[ing] a technology, innovation, and partnerships directorate at the National Science Foundation (NSF) to focus on fields like semiconductors and advanced computing, advanced communications technology, advanced energy technologies, quantum information technologies, and biotechnology.”3 The Directorate will be authorized to make financial awards to private entities and other institutions for research and technology development within key focus areas.
While the America COMPETES Act and USICA more broadly addressed competition with China, the CHIPS Act focuses on the semiconductor manufacturing aspect of that competition, which enjoys broad bipartisan support in the Congress. Other key provisions that have been left out from the broader package include:
- The reinstatement of Section 301 China duty exclusions;
- The requirement that the U.S. Trade Representative accept new Section 301 exclusion requests;
- A renewal of the Generalized System of Preferences (GSP) Program and Miscellaneous Tariff Bill (MTB);
- A prohibition of “de minimis” tariff treatment for China-origin goods; and
The National Critical Capabilities Defense Act, which would have allowed the federal government to screen US outbound investments to countries of concern, including China, in certain sectors flagged as critical to U.S. national security.
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For a more detailed overview of the CHIPS Act, please see the Section-by-Section Summary published by the U.S. Senate.
2 See America COMPETES Act Passed in the US House, Mayer Brown US-China Trade Monthly Newsletter (Feb. 2022), https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2022/02/us-china-trade-monthly-february-2022.pdf.
3 The White House, Fact Sheet: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China (Aug. 9, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/.