President Joe Biden signed the $52.7 billion CHIPS and Science Act into law on Tuesday in hwhat he characterized as an effort to combat supply-driven inflationary pressures.
“America invented the semiconductor,” Biden said during a signing ceremony, “and this law brings it back home. It’s in our economic interest and it’s in our national security interest to do so.”
Multiple key Asian manufacturing economies enforced harsh lockdown measures two years ago in response to COVID, creating bottlenecks in the global semiconductor supply chain that persist to the present day. The new law provides $39 billion in manufacturing incentives for semiconductors — a major component behind rising price levels for automobiles and other consumer goods — as well as $13.2 billion for research and development and a 25% investment tax credit for semiconductor production.
After Congress greenlit the CHIPS and Science Act, Micron announced a $40 billion memory chip project, while Qualcomm and GlobalFoundries announced a $4.2 billion chip manufacturing partnership. Several companies, including GlobalFoundries, issued “public warnings” earlier this summer threatening to “scale back their plans to make semiconductors” in the United States since the incentives had not yet been approved, according to the Department of Commerce.
“One-third of the core inflation last year was due to the higher price for automobiles — for automobiles and a shortage of semiconductors,” Biden added in his remarks. “Folks, we need to make these chips here in America to bring down everyday costs and create jobs.”
Despite the argument that more domestic chip production will resolve bottlenecks and cut consumer prices, several Biden administration officials have faced criticism for relying upon federal subsidies in their approach to battling inflation. In a recent interview, CNBC host Carl Quintanilla pressed National Economic Council Director Brian Deese on the “circular argument” of spending more money to combat the effects of spending money — especially in light of the $6 trillion in federal stimulus packages enacted over the past two years in response to COVID.
“I think you have to look at the unique situation that we’re in as an economy and think about how do we build more supply, how do we increase the productive capacity of our economy, so that we actually can supply more goods, bring prices down,” argued Deese, who formerly worked as a senior adviser to President Barack Obama. “We know the answer on semiconductors exactly. We need more supply of those goods.”
Such criticism has mounted in recent days as the Biden administration endorsed the “Inflation Reduction Act” — a $740 billion package centered on a $369 billion climate spending provision. Vice President Kamala Harris cast the tiebreaking vote in the Senate earlier this week, with all 50 Democrats supporting the bill and all 50 Republicans opposing it. One YouGov poll shows that 12% of Americans believe the bill will decrease inflation.
The law also provided the Internal Revenue Service (IRS) with $80 billion in funding to hire up to 87,000 new employees. Republicans on the Senate Finance Committee released data last week from the nonpartisan Joint Committee on Taxation indicating that taxes will increase for all Americans, except those earning between $10,000 and $30,000 per year.