US chip production subsidies in doubt despite bipartisan support

Almost exactly a year ago, the Senate approved $52B in funding to boost US chip production, and the House likewise gave its support in February of this year. Apple also lobbied for the deal. Despite this, the subsidy now appears to be in doubt.

Democrats and Republicans are reported to be bogged down in arguments about other measures in the bill …

Background

There are two motivations for the funding. First, to help address the global chip shortage. We’ve previously summarized this problem.

The shortage was created by a mix of factors. These include increased demand for technology during the pandemic, COVID-related production disruption, and a growing demand for chips by car-makers; as cars rely on increasing numbers of microprocessor units.

The biggest issue is not with CPUs and GPUs, but far more mundane chips like display drivers and power management systems. These relatively low-tech chips are used in a huge number of devices, including Apple ones.

Apple CEO Tim Cook revealed that supply constraints cost Apple $6B in two quarters, and warned that the hit could be as high as $8B this quarter.

A recent report says that there have been shortages across seven chip categories, and that four of them will continue to be affected throughout 2022.

Second, a desire to ensure that the US isn’t left behind by China – or left overly dependent on it.

US chip production subsidies in doubt

The Washington Post reports that, a year later, there is still no final agreement on the exact content of the CHIPS Act – and some are concerned that the bill now won’t be passed.

One year later, the funding still isn’t signed into law. It took the House until February to agree to the subsidies. Since then, the process of combining the House and Senate bills has been bogged down over disputes about elements of the legislation unrelated to chips, including climate provisions and trade with China. Myriad other issues, including military aid for Ukraine and gasoline price inflation, have also distracted lawmakers.

Proponents of the chips funding say they are now racing to salvage it before Congress breaks for its August recess, after which election season will probably stifle prospects for any big, new legislative packages.

House and Senate leadership met Tuesday to try to hammer out an agreement. They did not emerge with a deal on what to include in the final bill, but they agreed that they must act quickly to prevent chip manufacturers from bypassing the United States and investing overseas, according to a person familiar with the talks, who spoke on the condition of anonymity to discuss sensitive negotiations.

“We expressed our belief that there is no reason that we should not pass this bill through Congress in July,” House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Charles E. Schumer (D-N.Y.) said in a statement afterward. “Democrats have already made accommodations in the name of reaching an agreement, which we are optimistic can happen soon.” Republican leadership didn’t immediately provide comment.

The proposed subsidies are intended to help companies meet the very high setup costs involved in building new chip fabrication plants.

Even if the act does pass into law, it won’t be a quick fix: It takes years between approving plans for a new chip plant and the start of volume production. Back in 2020, Apple chipmaker TSMC announced plans for a $12B plant in Arizona, which was scheduled to come online in 2024. A subsequent report suggested that up to five additional plants may follow, but work is already said to be three to six months behind schedule.