What Is the CHIPS Act? Senate $52bn Bill to Tackle Semiconductor Shortage

The U.S. Congress appears poised to pass the CHIPS Act after the Senate approved a procedural motion by a vote of 64 to 34 on Tuesday that will allow the legislation to advance.

The bill, which deals with shortages in essential semiconductor chips, could be passed into law by the Senate and the House of Representatives by the end of next week, before Congress goes into recess on August 8, and will likely be signed by President Joe Biden as the administration has urged passage of a semiconductor bill.

Semiconductor chips are essential in a wide variety of technologies, including cars, home appliances and even Javelin missiles, many of which the U.S. has provided to Ukraine in its war against Russia.

The aim of the Creating Helpful Incentives for the Production of Semiconductors (CHIPS) for America Act is to reduce U.S. reliance on foreign-made semiconductors and comes in the context of the growing geopolitical rivalry between the U.S. and China, though the full text of the bill was not released ahead of the Senate vote.

The legislation would provide $52 billion in government subsidies to companies that produce semiconductors, according to Senate aides, in an apparent effort to see those firms ramp up production.

The bill also provides for a four-year, 25 percent tax credit designed to encourage companies to open more plants in the U.S. That tax credit has an estimated value of $24 billion.

Chip manufacturers have been seeking government subsidy and the passage of the bill will be considered a win for companies like Intel, but there are also concerns about restrictions chip manufacturers could face if they agree to receive federal funding.

The legislation contains "guardrails"—supported by the White House—that would restrict the ability of subsidized companies to invest in China. Those restrictions could include preventing companies from manufacturing the most advanced chips in China.

Chip manufacturers have reportedly lobbied against those restrictions and want the secretary of commerce to have the power to determine what size semiconductors can and cannot be produced in China.

It remains to be seen what the guardrails in the final bill will be once it has passed both chambers but White House Press Secretary Karine Jean-Pierre said on Monday that the Biden administration continues "to support strong guardrails" in the legislation.

Jean-Pierre said the bill was meant to "generate more semiconductor investment here in the U.S., not in China and guardrails help slow the growth of investment in China."

Democratic Senator Debbie Stabenow, who has been pushing for the semiconductor bill, explained the importance of the legislation on Twitter on Tuesday.

"From cars to appliances, our every day lives depend on semiconductor chips. Most of them are made overseas right now but we are going to change that!" Stabenow wrote.

"The CHIPS Act will lower costs and bring jobs home while strengthening our national security," she said.