Last month, President Biden signed the $280 billion industrial policy bill known as the Chips Act. It has long been discussed as a response to computer chip shortages that have devastated the supply chain following the fallout from the pandemic. The expansive legislation is also seen as an effort to compete with China’s growing influence in the global economy. Let’s break it down.
For starters, the policy includes:
· $52.7 billion in subsidies to computer chipmakers.
· A 25% investment tax credit for chip manufacturing plants.
· $10 billion for the Department of Commerce to create 20 regional technology hubs.
$200 billion for new manufacturing and research initiatives in areas such as AI, robotics, quantum computing, etc.
The law could have broad implications for U.S. manufacturers. With a lot to figure out, here are some key takeaways.
It is about addressing our vulnerabilities vis-à-vis China, and it is necessary.
If we thought a break in the supply chain related to the Russian-Ukrainian war was bad, consider the potential fallout from a geopolitical fight with China, which has 24% of the semiconductor market by revenue. and has invested aggressively with the goal of being the world leader by 2030. Supporters of the Chip Law also point to the nightmare scenario in which China takes over Taiwan’s semiconductor industry, representing an additional 21% of the market and giving China leverage on prices. The United States currently holds 12% of the market, up from 37% in 1990.
Semiconductors are the basis of nearly every cutting-edge technology, from smartphones and airplanes to weapons and the power grid, which means shortages not only threaten our economy, but also our national security. The Chips Act efforts will undoubtedly take time to materialize in the form of increased US production, but the United States can no longer afford to wait any longer to act.
As a country, we have invested heavily in strengthening our defenses and deterring war. Yet we have left ourselves vulnerable to attacks on our supply chain that can significantly impact our security and our way of life. It’s time to invest in manufacturing to guard against this shortcoming.
It is also about building resilience.
To me, globalism is not a four-letter word. But there comes a time when outsourcing becomes not only risky but dangerous, and as the pandemic has revealed, we’ve crossed that cliff.
During a given supply chain disruption, you need a manufacturing ecosystem that can ramp up production to make up for the shortfall. If this capability does not exist, it can create a huge problem. During the pandemic, we have seen manufacturers attempt to reinvent themselves to accommodate local semiconductor needs, a long and costly process fraught with uncertainty. Sometimes it worked. Others have failed miserably. And in any case, it was barely enough to put a stop to the shortage.
It’s time to rebalance the scales. In an ideal future, not only do we bring home more critical state-side manufacturing during normal economic times, but we also have a mix of small and large chipmakers who can use their existing manufacturing spaces, with all the efficiency and build -in cutting-edge capacity that Industry 4.0 technologies like collaborative robots and machine monitoring can provide- to double or triple production and fill gaps in times of crisis, when we are cut off from foreign suppliers.
Technology will play a crucial role as the US manufacturing ecosystem evolves.
In addition to creating 20 regional technology hubs, the New York Times reported that the legislation “will direct billions to the Department of Energy and the National Science Foundation to promote both basic research and research and development in the manufacture of advanced semiconductors, as well as development programs labor force, with the aim of creating a pool of labor for a large number of emerging industries.
It is a very good thing. Technology will continue to be the main driver in building an American manufacturing ecosystem that can withstand the vagaries of the market. We are already facing a critical talent shortage in advanced manufacturing and as our capabilities expand, it is critical that we seize opportunities to develop a manufacturing workforce ready to build a new future.
It will also be critical that, as we invest in research, we are able to take lessons from the academic setting and apply them in practice to create a more thriving local supply chain.
It is not just up to the government to create a more competitive American manufacturing landscape.
No matter what slice of the industry they operate in, every manufacturer should invest to create a more sustainable future in the face of supply chain disruptions.
The Chips Act will help, but it’s only a step. And while we hope manufacturers will continue to receive help to compete with a government-backed Chinese ecosystem, small, medium, and large manufacturers can start taking steps today to build excess capacity. One way to do this is to gradually invest in technology; Small gestures like setting up real-time data monitoring can snowball, helping manufacturers create high-tech operations that increase capacity and reduce the need to outsource.
Don’t get me wrong, the road we are on is a long one. We will not regain the ground we lost to China overnight. But with the federal government prioritizing state resilience and U.S. manufacturers committed to creating a thriving, high-tech ecosystem, we can regain a balance between domestic and foreign production and protect our supply chain from future disruptions. catastrophic.