If all goes as planned, Congress will finally start voting on funding the CHIPS Act on Tuesday.
On Monday, U.S. Senate Majority Leader Chuck Schumer (D–N.Y.) said the Senate would vote on $52 billion in government subsidies for domestic semiconductor or chip manufacturing as its own separate bill on Tuesday. The funding was originally part of a larger competition and innovation bill, which was held up in congressional negotiations.
“We need to move quickly,” Schumer said. “Without these incentives from Congress, the capital investment required for expanding production is not economically viable in the United States.”
After the Senate vote, the House of Representatives will still need to approve the CHIPS Act funding before submitting it to the White House for signing. Congressional leaders are operating on a tight schedule, hoping to get funding passed before Congress goes on recess on Aug. 8.
Passing CHIPS Act funding into law will be a victory for chipmakers like Intel Corporation, Taiwan Semiconductor Manufacturing Corporation, and GlobalWafers, which claim their planned U.S. projects depend on getting government money. Intel CEO Pat Gelsinger has been particularly vocal in pressuring Congress. The company delayed the groundbreaking ceremony on its $20 billion project in Ohio to protest the slow passage of the CHIPS Act. In late June, Gelsinger said that without CHIPS Act money, the chipmaker was likely to shift production to Europe, which offers its own government subsidies.
Despite chipmakers advocating for the bill’s passage, semiconductor manufacturers aren’t happy with everything that may end up in the final legislation.
The biggest point of contention relates to China—specifically, the restrictions on investing in China that will apply to companies that receive CHIPS Act money.
The CHIPS Act funding comes with so-called guardrails meant to ensure that U.S. subsidies are spent on building factories in the U.S. and not put toward some other purpose. One provision prevents recipients of CHIPS Act funding from expanding production of advanced chips in China, which would further escalate U.S. efforts to prevent China from producing the components that power nearly all of today’s digital devices, from phones and tablets to cars and servers.
Lawmakers worry that recipients of CHIPS Act funding could undermine U.S. security by expanding production in rival countries like China and thus want to impose conditions on chipmakers that get public money.
Chipmakers like Intel are lobbying to loosen those guardrails, reports Politico. One draft of the legislation barred funding recipients from producing semiconductors smaller than 28 nanometers in China. While chips of that size are still used in some consumer electronics, the most advanced chips used in smartphones and tablets are much smaller, meaning the proposal would prohibit chipmakers from churning out their most innovative technology on Chinese soil.
Instead of a blanket prohibition on chip production in China, Intel and other chipmakers want to give the Secretary of Commerce the authority to determine what size semiconductors are off-limits. One unnamed chipmaker told the Financial Times that chip manufacturing is developing so rapidly that the 28 nanometer threshold would be meaningless after a few generations of new chips.
An Intel spokesperson told Fortune that “Intel and many companies in our industry have come together with our trade association to provide input to policymakers in order to ensure that we have the best legislation possible and don’t inadvertently undermine the global competitiveness of companies that receive CHIPS funds.”
Guardrails were part of the CHIPS Act conversation as early as May 2021. Commerce Secretary Gina Raimondo said in December that the final legislation needed provisions “to protect ourselves from China” and that “long-term national security interests matter more than short-term profits.”
On Monday, White House press secretary Karine Jean-Pierre said that the Biden administration continues “to support strong guardrails” in the CHIPS Act. The proposed funding is meant to “generate more semiconductor investment here in the U.S., not in China, and guardrails help slow the growth of investment in China,” Jean-Pierre said.
The U.S. bans exports of high-end semiconductors and chip manufacturing equipment to China and is reportedly considering more export restrictions of chipmaking tools to Chinese companies. The Biden administration is also pressuring non-U.S. manufacturers, like ASML Holding, from exporting chip manufacturing equipment to China. Beijing has criticized the moves as “classic technological terrorism.”
U.S. efforts to constrain China’s chip industry have encouraged Beijing to invest in chip self-sufficiency. The government has poured money into domestic chip manufacturers like Semiconductor Manufacturing International Corporation and Tsinghua Unigroup. Chinese companies like Huawei Technologies, Alibaba Group Holding, and ByteDance are also investing in chip design.
Update, July 20, 2022: This article has been updated with a comment from Intel.
