Industrial policy through the CHIPS and Science Act: A preliminary report

Gary Hufbauer and Megan Hogan

No PIIEB25-1 in PIIE Briefings from Peterson Institute for International Economics

Abstract: This PIIE Briefing assesses the effectiveness of the US government's program of federal subsidies to foster domestic production of advanced semiconductors. It focuses on the results so far of Division A of the 2022 CHIPS and Science Act, with a subsidy budget (including collateral investment tax credits) approaching $200 billion. The authors evaluate the program across several goals: expanding US production, enhancing economic and national security, reducing US reliance on imported chips, producing 20 percent of global leading-edge chips by 2030, and creating jobs. They also explore questions not specifically identified as CHIPS Act goals: Is semiconductor technology accelerated by subsidies? Is capital expenditure accelerated? Will future US subsidies be needed to achieve the 20 percent goal? And would tariff protection be a better policy than subsidies? The semiconductor industry has been generously subsidized since its inception, not only by the United States but also by major competitors (Japan, South Korea, Taiwan, China, and Europe). The authors conclude that the CHIPS Act burst of US subsidies will sharply increase production of advanced chips on US territory. This will enhance national security to the extent that it boosts the domestic supply of chips, reducing the risk of future shortages. But more US production might not provide the best security for the money, and it may reduce but not eliminate US reliance on imported semiconductors.

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