Last month, President Biden signed the $280 billion industrial policy bill known as the Chips Act. It has long been discussed as a response to computer chip shortages that have devastated the supply chain in the wake of the pandemic. The expansive legislation is also seen as an effort to compete with China’s growing influence in the global economy. Let’s break it down.
To start, the policy includes:
· $52.7 billion in subsidies for computer chip manufacturers.
· A 25% investment tax credit for chip plants.
· $10 billion for the Department of Commerce to create 20 regional technology centers.
· $200 billion for new research and manufacturing initiatives in areas such as AI, robotics, quantum computing and more.
The Act could have a broad impact on US manufacturers. With much to understand, here are some key points.
It is about addressing our vulnerabilities with China, and it is necessary.
If we think a supply chain break related to the Russia-Ukraine war was bad, consider the possible fallout from a geopolitical showdown with China, which has 24% of the semiconductor market by revenue and has been investing aggressively with the goal of being the world leader by 2030. Proponents of the Chip Act also point towards the nightmare scenario in which China gains control of Taiwan’s semiconductor industry, accounting for another 21% of the market and giving China more price influence. The United States currently has 12% of the market, down from 37% in 1990.
Semiconductors are at the root of almost every piece of advanced technology, from smartphones to airplanes to weapons to the power grid, which means that shortages threaten not only our economy but also our national security. To be sure, it will take a while for the Chip Act efforts to materialize in the form of increased US production, but the US cannot afford to wait any longer to take action.
As a country, we have invested heavily to strengthen our defenses and deter war. However, we have become vulnerable to attacks on our supply chain that can have a significant impact on our security and way of life. It’s time to invest in manufacturing to guard against this shortcoming.
This is also about building resilience.
In my opinion, globalism is not a four-letter word. But there is a point where outsourcing becomes not only risky but also dangerous, and as the pandemic exposed, we have fallen off that cliff.
During any supply chain disruption, you need a manufacturing ecosystem capable of ramping up production to make up the shortfall. If that capability doesn’t exist, it can create a massive problem. During the pandemic, we saw manufacturers trying to reinvent themselves to meet local needs for semiconductors, a costly and time-consuming process fraught with uncertainty. Sometimes it worked. Others failed miserably. And in any case, it was barely enough to make a dent in the shortage.
It is time to rebalance the scales. In an ideal future, not only have we brought more state-side mission-critical manufacturing home during normal economic times, but we also have a mix of small and large chipmakers that can use their existing manufacturing spaces, with all the efficiency. and built-on the surge capacity that Industry 4.0 technologies, such as collaborative robots and machine monitoring, can provide to double or triple production and fill gaps in times of crisis, when we are cut off from foreign suppliers.
Technology will play a crucial role as the US manufacturing ecosystem evolves.
In addition to creating 20 regional technology centers, the New York Times reported that the legislation “will direct billions to the Department of Energy and the National Science Foundation to promote both basic research and research and development in advanced semiconductor manufacturing, as well as workforce development programs, in an effort for building a source of labor for a lot of emerging industries.”
This is a very good thing. Technology will continue to be the key factor in building a US manufacturing ecosystem that can withstand the ups and downs of the market. We already face a major shortage of advanced manufacturing talent, and as our capabilities expand, it is vital that we seize opportunities to train a manufacturing workforce that is ready to build a new future.
It will also be critical that, as much as we invest in research, we are able to take the learnings from academia and apply them in practice to create a more prosperous local supply chain.
It’s not up to the government alone to create a more competitive American manufacturing landscape.
No matter what segment of the industry they operate in, all manufacturers should make investments to create a more durable future for supply chain disruption.
Token Law will help, but it’s only one step. And while we are hopeful that manufacturers will continue to receive assistance in competing with a Chinese government-backed ecosystem, manufacturers small, medium and large can start taking steps today to build excess capacity. One way to do this is through incremental investments in technology; Small acts like implementing real-time data monitoring can snowball, helping manufacturers create high-tech operations that increase capacity and reduce the need to outsource.
Make no mistake, the road we are on is a long one. We will not make up the ground we have lost to China overnight. But with the federal government prioritizing resiliency on the state side and American manufacturers committed to creating a high-tech, thriving ecosystem, we can find our way back to a balance between domestic and foreign production, and protect our value chain. of supply against catastrophic interruptions in the future.