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.
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The first draft of the CHIPS Program Office's guiding "Vision for Success" paper was a historical analysis of how the U.S. lost its semiconductor manufacturing edge. This diagnostic approach was replaced with a forward-looking, target-setting document to be more practical and less academic for stakeholders.
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 US has reversed its strict chip controls on China. Instead of a complete ban, it now allows NVIDIA to sell advanced H200 chips but with a 25% tax, effectively turning a geopolitical restriction into a significant revenue stream for the US Treasury, estimated at $5 billion annually.
It's a common error to conflate the CHIPS Act and the October 2022 chip controls. The CHIPS Act was a legislative effort for domestic manufacturing resilience. The executive export controls were a separate national security policy focused on denying China access to high-end compute for military applications.
A tax deduction lowers your taxable income, saving you an amount proportional to your tax bracket. In contrast, a tax credit directly subtracts from your final tax bill, offering a full dollar-for-dollar reduction. Prioritizing actions that yield credits provides a much larger financial benefit.
The US government's reversal on Nvidia H200 chip sales to China, now with a 25% tax, indicates a strategic shift. The policy is no longer a complete blockade but aims to keep China one generation of chips behind while generating significant tax revenue for the US.
The U.S. focus on building domestic fabrication plants (fabs) is misguided because fabs represent a lower value-added, highly capital-intensive part of the semiconductor value chain. National security and economic strategy would be better served by focusing on downstream activities like testing and packaging, which are closer to the end consumer.
The credit's requirements for North American manufacturing and sourcing from trade partners were designed to counter China's dominance in the EV supply chain. Its elimination undermines this strategic goal, leaving tariffs as the primary, less effective tool.
China is explicitly subsidizing domestic semiconductor firms through its National Integrated Circuit Industry Investment Fund. This state-backed capital is the key driver behind its policy to achieve technological independence and replace foreign companies like NVIDIA.
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.