What the Chips Act is missing 2 years later

While companies including Intel (INTC+2.68%), Taiwan Semiconductor Manufacturing Company (TSM-1.02%), and Samsung have plans to use the proposed funding to build facilities for manufacturing, research and development, and other chipmaking infrastructure, experts say the Chips Act is missing key components that are crucial to supporting a robust chipmaking industry in the U.S.

Meanwhile, the Biden administration has announced new export controls on critical technologies, including semiconductors and quantum computers, as it steps up efforts to curb China’s technological advances. The rules cover sectors which “warrant export controls because of national security concerns,” the U.S. Department of Commerce’s Bureau of Industry and Security said.

Here’s what tech and policy experts say is missing in the Chips Act, two years in.

No funding (yet) for advanced chipmaking equipment companies

While the Chips Act aims to bring manufacturing of logic chips, memory chips, and other parts of silicon infrastructure back to the U.S., “What they’ve neglected to do is actually understand the technical stack necessary to build chips,” Steve Blank, co-founder of the Gordian Knot Center for National Security Innovation at Stanford, said.

Advanced chip manufacturing requires wafer fab equipment, which comes from only five companies in the world — three of which are in the U.S., Blank said.

ASML (ASML+0.33%), based in the Netherlands, is perhaps the most well-known manufacturer of advanced chipmaking equipment for patterning, he said, but U.S.-based Applied Materials (AMAT+0.54%), KLA (KLAC+0.43%), and LAM (LRCX+1.31%) dominate the space.

“The problem is that the Chips Act gave $0 to any of those companies,” Blank said. However, “while we were doing the Chips Act, we put export controls on the three U.S. companies to stop selling their advanced equipment to China.” And the export controls did not apply to Japan-based Tokyo Electron, Blank said.

“So while we’ve strangled U.S. companies, Tokyo Electron sales have doubled mostly to China,” Blank said. “We’ve built a dam across half the river.”

While the Biden-Harris administration has focused on toughening trade restrictions to prevent China from buying advanced chipmaking equipment, “the other piece of the puzzle is, ‘What have we done to support the three U.S. companies that make the machines?’”

“Yes, it’s about time the U.S. puts those export controls on, but still, the Chips Act has been doling out billions of dollars to the people who make the factories, not the people who make the critical machinery,” Blank said.

Contracts need to address potential workplace issues

The Chips Act is also about creating new U.S. jobs, said Chris Mills Rodrigo, managing editor of Inequality.org at the Institute for Policy Studies, a political think tank. However, there hasn’t been a lot of focus on potential workplace issues.

“We spoke with semiconductor workers and also did analysis of available data on wages, and our takeaway was that there is a pretty sizable portion of the industry where the jobs aren’t great,” said Mills Rodrigo, the lead author of the IPS’s “Leveraging the CHIPS Program to Create Good Jobs for All Semiconductor Workers” report. The report found semiconductor workers are mostly concerned about low wages, grueling work schedules, and exposure to harmful and toxic chemicals.

For example, most workers on the production line in chip fabs are paid hourly, and often don’t have full 40-hour weeks due to inconsistent scheduling and frequent work stoppages, Mills Rodrigo said.

And while the industry has previously addressed the possible harms of exposure to toxic chemicals involved in semiconductor manufacturing, those “concerns are still popping up in foreign facilities, and there’s no real guarantee that they’re not being used here because all the companies say that the mix of chemicals they use is proprietary,” Mills Rodrigo said. Concerns around toxic chemicals were raised in the 1990s after industry-backed studies found links to increased rates of certain types of cancer and miscarriages.

Meanwhile, the Occupational Safety and Health Administration, which sets standards for toxic chemicals, has acknowledged it hasn’t updated the standards in 50 years, rendering them “outdated and inadequate,” Mills Rodrigo said.

The Biden administration should try to guarantee that the jobs being created by the Chips Act are good jobs before releasing proposed funds to recipients, Mills Rodrigo said. One way could be by using the “Good Jobs Principles” doctrine set by the Labor and Commerce Departments in 2022, Mills Rodrigo said, which addresses basic demands about wages, hiring, benefits, and bargaining rights.

“I think they should be putting teeth into the contracts to actually enforce those provisions,” Mills Rodrigo said, adding that there should also be enforceable commitments for workforce development, including training investments, minimum job creation numbers, and living wages.

Downstream supply chain costs have not been addressed

While the Chips Act is creating infrastructure for chipmaking, it only scrapes the surface of what’s needed for domestic chip production, Tom Kieley, chief executive of supply chain management software company SourceDay, said.

From a supply chain standpoint, Kieley said the U.S. is mostly dependent on South Africa, Canada, and China for minerals and raw materials necessary for chip manufacturing. Therefore, the U.S. needs to figure out how to remove barriers with customs imports of raw materials.

The packaging used for finished goods is dependent on those imports, Kieley said, so “significant” components that go into producing chips “are still kind of untouched, and a significant risk to inbound supply and production being in the U.S.”

Importing raw materials, components, and packaging equipment will become the challenge, Kieley said, adding that the U.S. needs to improve port capacity and improve customs clearance speed to avoid hurting production and causing shortages.

Kieley said there are ways to solve this issue, including by adopting technology to improve timing on production and deliveries.

He also said the U.S. should continue improving relations with China to partner on raw materials and minerals required in the manufacturing process, but must find alternative suppliers and countries to work with so the U.S. is not completely reliant on one country for critical components.