While simple, tax credits are a passive tool. Discretionary funding grants, like those in the CHIPS Act, allow government agencies to actively negotiate for specific strategic outcomes, such as compelling a company to build an extra fab or onshore a critical technology that a tax credit alone would not incentivize.
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The CHIPS program office developed an internal "4Cs" framework to systematically evaluate funding applications. This model assessed projects based on manufacturing volume (Capacity), technological know-how (Capability), market dynamics (Competition), and importance to end-use markets (Criticality), ensuring consistent and fair decision-making.
The CHIPS Act's success came from a 'happy medium' design. Congress set a clear, bipartisan objective (semiconductors) but granted the executive team broad discretion on implementation. This structure proved more effective than an overly broad mandate (e.g., 'economic security') or overly prescriptive legislation.
Lacking formal demand-side tools like government purchase guarantees, the CHIPS Act team relied on persuasion and strategic influence—the 'bully pulpit.' They actively engaged major customers like Apple and Nvidia to signal demand for new US-based fabs, creating market confidence through informal channels.
A U.S. national security document's phrase, "the future belongs to makers," signals a significant policy shift. Credit and tax incentives will likely be redirected from financial engineering (e.g., leveraged buyouts in private equity) to tangible industrial production in order to build resilient, non-Chinese supply chains.
The CHIPS Act deliberately de-emphasized funding for critical materials. This was a pragmatic choice driven by tax law: material processing projects don't qualify for the 25% investment tax credit that fabs get. Covering this gap with direct grants would have been too costly for the program's limited budget.
The CHIPS team's primary goal was securing a commitment for three TSMC fabs, viewing it as a strategic tipping point. They believed the operational scale of a three-fab cluster would make building a fourth, fifth, and sixth a near certainty, creating a self-sustaining 'mega fab' without requiring subsidies for later expansions.
Government intervention is most effective when targeting industries that meet three criteria: they must be critical to national security or the economy, compromised by foreign dependence or choke points, and fundamentally changeable through targeted financial incentives that can shift their long-term economics.
The government's equity stake in Intel replaced a milestone-based grant system. This delinks the funding from specific performance targets, like building fabs, converting the deal into a higher-risk bet on the company's overall success rather than a payment for specific outcomes.
Demonstrating a collaborative approach to "friend-shoring," some allied governments actively asked the U.S. CHIPS Program Office to refer semiconductor projects that were considered but ultimately not funded. These countries were eager to use their own subsidies to attract manufacturing capacity that the U.S. couldn't accommodate.
High-achievers from the private sector are drawn to government service by missions with tangible impact and the resources to execute. The CHIPS program's success in recruiting was tied directly to its significant funding and clear mandate, which is far more compelling than a purely analytical or advisory role.