Government chip aid is 'not a handout,' Commerce official contends

A panel discussion on chip production incentives was sponsored by ITIF featured officials from the Biden administration, technology trade groups and a union. (screen grab)

A Biden administration official told chipmakers Wednesday that billions in federal incentives and grants proposed for a buildup of domestic semiconductor plants must be accompanied with private funds as well.

“This is not a handout,” said Sree Ramaswany, Commerce Department senior policy advisor under the Biden administration.  “We’re expecting the private sector to significantly step up company investment. It’s not [only] a grant plan….Private sector investment has a broader spillover effect.”

He made the comment in a virtual webinar sponsored by the Information Technology & Innovation Foundation.  

The U.S. Innovation and Competition Act (USICA) passed on a bipartisan vote by the Senate last week provides $39 billion in grants for companies to build or expand seven to 10 fabs in the U.S. in coming years.

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 “But far more investments are required from the private sector,” said Semiconductor Industry Association President John Neuffer, another panelist in the event.

SIA and other backers of USICA funds believe the grants are necessary to compete with grants provided by governments in other countries for their own domestic semiconductor production and research.

“It’s not a question of when we’re building but where—here or overseas,” Neuffer said.  He said over the net decade, there will need to be a 56% increase in demand for chips. “Kind of a super cycle is coming at us; we may even be in one.”

In addition to USICA, which is expected to pass the House and be signed into law by President Biden, a series of recommendations in a 250-page report have recently been issued by the White House on ways to bolster to supply chain for chips and other vital goods like batteries. 

RELATED: White House report puts heavy focus on domestic chip production, R&D

Panelist Sameera Fazili, deputy director of the National Economic Council, said the Biden administration has identified a range of tools to boost chip production, including using the Defense Production Act. The DPA was used to procure materials needed to fight Covid-19.  “The country kind of rediscovered that authority,” she said. “It’s not that well understood…We are going to be pulling together agencies about what we have learned and what has well in DPA.”

She also said the president’s tax agenda will “make sure we are getting away from setting incentives that overly incentivize offshoring” of chip manufacturing where companies seek to lower corporate taxes paid to a central government. It was encouraging that the G7 countries this week support a 15% minimum corporate tax, Fazili added

Neuffer at the SIA argued that the effort to increase incentives and grants for U.S. chip production and research should not be seen as walking away from the decades-old global supply chain for chips. “No one should adopt the goal of decoupling from the global supply or reshoring or onshoring,” he said.

If the U.S. tried to wall off the supply from other countries that would cost $1 trillion and take years to accomplish, while also driving the cost of chip up by 35% to 65%, he said, citing a recent Boston Consulting Group study conducted with SIA. “That is too high a price to pay,” Neuffer said. “This notion we can decouple these supply chains is one that we can’t go towards at all.”

The panelists agreed that USICA and the White House report are a starting point in a years-long process toward greater domestic chip production and research. Robert  Atkinson, president of ITIF, compared the work being done to a marathon.

“Congress has its job to do to make these things come to life,” said panelist Brad Markell, executive director of the AFL-CIO Industrial Union Council.