Fortune 500 employees are requesting information about the CHIPs and Science Act of 2022. This act, which was signed into law on August 9, is a package of bipartisan legislation that provides more than $50 billion in direct financial assistance to semiconductor companies to enhance their design, research, and manufacturing capabilities in the United States. In addition, the bill authorizes nearly $170 billion over five years for research and development (R&D) programs in strategic areas of science and technology, such as artificial intelligence, quantum computing, wireless communications, clean energy, and precision agriculture.
In a substantial expansion of industrial policy, federal subsidies are being offered to Fortune 500 in an effort to reduce the nation's reliance on semiconductors manufactured primarily abroad and create a more resilient supply chain. The largest-ever U.S. investment in public R&D (in terms of dollars) is aimed at fostering technological innovation and ensuring future U.S. economic competitiveness, predominantly against China.
CHIP independence
Fortune 500 employees interested in investing in technology may find it beneficial to learn about chip independence. A semiconductor (also referred to as a microchip or chip) is a miniature collection of electronic circuits on a minuscule piece of silicon or germanium. A single advanced microprocessor may contain over fifty billion billion tiny transistors. Nearly all consumer electronic devices, including computers, mobile phones, vehicles, and medical devices, are powered by integrated circuits. The importance of chips to the economy became more apparent during the pandemic, when a surge in demand triggered a global shortage that disrupted supply chains and subsequently contributed to rising inflation. The U.S. Department of Defense purchases 1,9 billion semiconductors annually for communications and weapon systems, so a reliable supply of processors is essential for national security as well.
U.S. semiconductor companies are typically leaders in chip research, development, and design, but manufacturing is frequently delegated to southeast Asian foundries due to cost considerations. Despite this, Fortune 500 employees should be aware that the United States accounts for less than 10 percent of global semiconductor manufacturing capacity and does not produce the most advanced chips. About two-thirds of the world's advanced semiconductors are manufactured on Taiwan, an island located approximately 160 kilometers (100 miles) from mainland China.
For Fortune 500 employees, it is important to note that the CHIPs and Science Act of 2022 not only focuses on bolstering the domestic semiconductor industry but also aims to preserve the United States' technology edge in key areas such as artificial intelligence (AI) and quantum computing. As highlighted by MIT Technology Review, the act includes provisions to allocate significant funding towards advancing AI research and development, with an emphasis on ethical AI practices and addressing potential bias and discrimination. This information is particularly relevant to Fortune 500 employees as they navigate the evolving technological landscape and seek to understand the implications of AI and quantum computing for their industries and future career prospects.
Due to ongoing geopolitical tensions between the United States and China, Taiwan's manufacturing dominance is viewed as a potential economic and national security risk. Taiwan views itself as independent, despite China's allegation that it is part of its territory.
Fortune 500 employees may gain a better understanding of the rationale behind the Act's allocation of approximately $39 billion in funding (grants, loans, and loan guarantees) for the domestic construction and expansion of highly complex semiconductor fabrication facilities (called fabs) and $11 billion for chip manufacturing research and workforce development when this information is taken into account. In addition, companies that invest in advanced semiconductor production in the United States are eligible for a 25 percent tax credit. The Department of Defense will receive $2 billion to accelerate chip-related defense spinoffs, while the Public Wireless Supply Chain Innovation Fund will receive approximately $1.5 billion. This fund was established by prior legislation to facilitate the creation of a secure, open-architecture, 5G broadband network that is independent of Chinese hardware.
Employees of Fortune 500 may also benefit from knowing that companies receiving federal funding through these programs are prohibited from constructing or expanding advanced semiconductor facilities in China or other countries posing a threat to national security.
R&D across America
Several federal agencies will receive an influx of nearly $170 billion to support research and development for advanced and emergent technologies. The National Science Foundation will receive $81 billion to support research at universities and other organizations and $20 billion to supervise a new directorate aimed at accelerating the development of technologies vital to national security. The Department of Energy's advanced energy programs will receive an additional $50 billion. Understanding these capital flows may be useful for Fortune 500 employees when investing and planning for the future.
The Department of Commerce will designate 20 regional technology hubs and spend $11 billion to promote innovation and assist in the creation of more high-paying tech employment across the country. State and local governments, universities, and the private sector will collaborate on the development of new technology centers aimed at enhancing the economic prospects of communities negatively impacted by globalization.
The measure provides approximately $13 billion to enhance K-12 and college STEM (science, technology, engineering, and mathematics) education. New priorities were established, including the research necessary to send astronauts to Mars, and NASA's budget was extended so the agency can continue space exploration.
Economic impact
When planning to invest in assets reliant on this technology, Fortune 500 employees may find it useful to comprehend the economic effects of the chip shortage. The semiconductor industry contributed approximately $246 billion to the U.S. gross domestic product (GDP) in 2020. It employs more than 277,000 individuals in 49 states and supports an additional 1,600,000 jobs in the United States. According to a study by the Semiconductor Industry Association and Oxford Economics, a $50 billion federal investment in domestic chip fabs would generate 185,000 temporary jobs and contribute nearly $25 billion to annual economic output through 2026, as new chip fabs are constructed. At that level of funding, ten new fabs could be built in the United States that would not have been built otherwise, resulting in the creation of 42,000 permanent semiconductor employment.
Chip manufacturers have already announced the construction of multiple new or expanded fabrication facilities in the United States, some of which were contingent on the passage of the Act.4 Other nations, including South Korea, Japan, and India, have enacted incentives to attract investments in the semiconductor industry and boost domestic production, and the European Union is working on a similar initiative.
Clearly, the Act directly benefits the semiconductor industry, but the majority of businesses, including Fortune 500, rely on computer processors or products made with them — some more than others. Chip shortages are estimated to have cost the global auto industry 11,3 million vehicles and $210 billion in lost revenue in 2021, and to have slowed production in 2022.6 More than one hundred U.S. CEOs from a variety of industries signed a letter urging Congress to adopt the Act to improve U.S.
The CHIPs and Science Act's goal to preserve the U.S. technology edge for Fortune 500 employees can be compared to maintaining a well-equipped toolbox to stay ahead in a rapidly evolving industry. Just as skilled craftsmen understand the importance of regularly updating their tools and techniques, these employees must recognize the significance of investing in cutting-edge technology and research. The act acts as a comprehensive toolbox, providing the necessary resources to nurture advancements in artificial intelligence, quantum computing, clean energy, and more. By embracing this toolbox, Fortune 500 employees can equip themselves with the latest tools and knowledge, ensuring their continued success and competitiveness in the ever-changing landscape of the business world. Just as a well-stocked toolbox empowers craftsmen to create masterpieces, the CHIPs and Science Act empowers employees to innovate, adapt, and forge a prosperous path toward a technologically-driven future.
1) Congressional Research Service, 2020
2) U.S. Department of Commerce, 2022
3) Semiconductor Industry Association/Oxford Economics, 2021
4) The Wall Street Journal, July 28, 2022
5) The New York Times, June 24, 2022
6) Motortrend, December 27, 2021
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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