A Technology Development Grant Programme Unheard of in the United States

In June 2021, after the first 100 days of the Biden Administration, the semiconductor supply chain review report was published, identifying the US industry’s many strengths but also its shortcomings (manufacturing, manufacturing equipment [lithography], materials, and assembly and test capabilities). It raised hopes in the US microelectronics sector for a massive aid programme, a rara avis in a country of politicians reluctant to subsidise any industry. Historically, Democratic lawmakers denounce such initiatives as instruments that promote a 'corporate welfare state', while Republicans reject them as distorting the free market.

Against tradition, Congress and the Senate, with the passage of the CHIPS Act in August 2022, accepted the recommendations of the White House report, creating a fund of more than $50 billion in investments to advance domestic manufacturing capabilities of critical semiconductors and promote semiconductor R&D. The now certain expectation of an investment aid programme has encouraged the industry to announce projects worth more than $200 billion since August to date. 

The Department of Commerce is accelerating implementation of the Act through the 'CHIPS for America' programme, for which it has set up a strong multi-disciplinary management office with government and industry expertise. In the short span of eight months, the first call for proposals has also been published, aimed at the development and expansion of chip manufacturing facilities. Projects under this first round of grants may be financed with up to 35% of the CAPEX through a combination of grants, loans, and loan guarantees, with a limit of $3 billion per application, which may be raised in the future by Congress for reasons of global competitiveness or national security.

An Initiative Beyond Support for Technological Development

The Biden Administration envisions 'CHIPS for America' as an opportunity for cross-cutting public intervention, as detailed by Gina Raimondo, Secretary of Commerce, in her speech on 23 February 2023 at Georgetown University’s School of Diplomatic Service. She spoke not only of ensuring national security and promoting industrial development by strengthening US competitiveness with the initiative but also of providing worthwhile employment, advancing women’s equality, and ensuring the proper use of public funds, among other issues. To achieve this vision, several innovations in public support have been introduced in the framework of the solicitation requirements.  In the programme, it goes beyond the traditional models where beneficiaries basically were only required to submit a sound technical proposal within a specific field, within a framework of non-distortion of competition that was ensured by the public entity limiting the aid intensity.

[Recibe los análisis de más actualidad en tu correo electrónico o en tu teléfono a través de nuestro canal de Telegram]

First, the Biden Administration requires future 'CHIPS for America' recipients to move from words to deeds in the provision of decent, quality jobs. Applications for assistance must include a workforce development plan, which will be evaluated for its alignment with the Good Jobs Principles developed by the Department of Labor and the Department of Commerce. The principles outline characteristics of a non-discriminatory, diverse, egalitarian, inclusive, and accessible work environment from recruitment, as well as sufficient and fair pay, social benefits, and job security, among other characteristics. Companies will have to reflect in the plan not only the measures they intend to develop to enact the principles, both in the construction and operation of the chip factories, but also the milestones and metrics for compliance.

Applicants will also be assessed on the climate and environmental responsibility of the development or expansion of their chip manufacturing facility projects. The aim is for semiconductor companies to reduce their environmental impact and increase their competitive advantage by helping their customers achieve net-zero emission targets. Among other measures, new plants must use only renewable energy, have plans to increase water recycling year-on-year, and be transparent in meeting green transition targets, with each proposal also being judged on its ambition. Projects will also be judged on their environmental risk mitigation strategy, assessed according to the framework set out in the National Environmental Policy Act (NEPA). 

Another aspect that will be taken into consideration for projects seeking 'CHIPS for America' support will be their ability in advancing gender equality, in an assessment throughout the proposal’s development lifecycle. On the one hand, the construction of the factories is expected to be a lever for the initiative to attract one million women into the construction industry over the next decade. On the other hand, in addition to complying with the non-discrimination of good jobs principles, grants in excess of $150 million are to provide a plan for access to affordable, accessible, reliable, and high-quality childcare services to employees, also covering the construction phase. The programme includes other pro-equality benchmarks, such as the inclusion of women-owned businesses in the project’s supply chain.

During the passage of the CHIPS Act, a group of Democratic senators led by Bernie Sanders promoted that it should not be a blank cheque for industry and managed to enshrine guarantees of proper use of taxpayers’ money in potential projects. Therefore, in line with the doctrine of the entrepreneurial state drawn up by Mariana Mazzucato, the first call for proposals includes a provision for the return of profits exceeding a threshold agreed with the recipient of the aid for projects in excess of $150 million. Similarly, beneficiary companies will have to refrain from or set limits on share buybacks for five years.

To highlight one final aspect of the multifaceted political character of the call, there is an overt intention to use it as a mechanism to force compliance with trade restrictions that are also being pushed by the Biden Administration for national security reasons. The ten-year prohibition on expanding in China (and other rival countries) and establishing joint projects with companies on the Entity List is more digestible in exchange for public assistance than the mere threat of sanctions for non-compliance for US business interests. At the same time, strategic companies in the supply chain of allied countries voluntarily accept restrictions on their business practices by entering the programme, eliminating the need for tough negotiations with their home governments (as has recently been the case with the Netherlands and Japan).

Criticism of the Programme’s Entry Requirements

While the programme and its first call for proposals have been received favourably by the main US industry association, the holistic policy intervention vision adopted by the Department of Commerce has also raised reservations. 

First, the programme’s extensive list of requirements has been criticised as making it a scattershot and overly interventionist programme in how companies run their business. The inclusion of obligations relating to gender equality and favouring other groups has been described by the Financial Times as a 'Christmas tree where all stakeholders get a trinket' and by the Wall Street Journal as an 'industrial policy that has been transformed into a social policy'.  The latter also rejects the dirigiste character of 'CHIPS for America' as 'French industrial policy, where the government pays companies to invest in what, where and how the government wants'.

Largely derived from the above criticism, the programme has been predicted to fail in its central objective, to restore the US to its central role in the global chip manufacturing market, where it now holds a 12% share whereas in 1990 it enjoyed a 37% share. To this end, 'CHIPS for America' was intended to cover the cost difference between manufacturing semiconductors in the US rather than in Asia, estimated to be between 30% and 50%. Some analysts believe that the requirements favouring certain groups, in addition to the environmental ones, will raise production costs excessively, making the provision of aid useless. Because of these requirements already targeted in the Chips Act, Goldman Sachs predicted that the incremental effect on the US share of the global chip manufacturing market would be less than 1%.



In a nation with a federal system of government such as the United States, states and local authorities are also criticised for being relegated to a secondary role and for being restricted in their autonomy. Although one of the prerequisites for companies to apply for 'CHIPS for America' support is to have an offer of funding from state or local governments, the latter’s support should preferably be directed towards areas that favour the creation of ecosystems (e.g., workforce training or the creation of civil infrastructure). Despite the initial intentions expressed by some states and counties, they will not be free to offer unconscionable tax breaks to attract projects to their territory.

Finally, analysts also point to the possible reluctance of companies to share information on expected results in order to determine the level of excess profit. The data and reports associated with their structure and operations to verify estimates related to their earnings forecasts could be categorised as trade secrets. The first to express such reluctance have been Korean companies Samsung and SK Hynix, although there is reason to believe that they are partly motivated by the restrictions that being a 'CHIPS for America' beneficiary could place on their operations in China.

Conclusions

Does 'CHIPS for America' mark the beginning of the decline of the technocratic vision of industrial and technological development programmes? Beyond sharing the clearly Democratic ideological objectives behind the requirements for the beneficiary projects or seconding the criticism of the programme as interventionist and useless for rebuilding the 'Made in the USA' semiconductor industry, the paradigm shift is appreciable. We are faced with an Administration, as reluctant to intervene as the US, that is committed to turning a sectoral promotion initiative into a POLITICAL action (with capital letters), with multidimensional transcendence in the economy and society. 

It is highly likely that the implementation of aid programmes for the green industry derived from the IRA (Inflation Reduction Act) will be conditioned by requirements similar to those of 'CHIPS for America'. It is also unlikely that the same administrative practices will be followed in some of the similar programmes in other economic areas like Europe. The consolidation of the trend towards the politicisation of industrial and technological development will depend on the evaluation of the results obtained.