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.
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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 decision to allow NVIDIA to sell powerful AI chips to China has a counterintuitive goal. The administration believes that by supplying China, it can "take the air out" of the country's own efforts to build a self-sufficient AI chip ecosystem, thereby hindering domestic firms like Huawei.
The U.S. industrial strategy isn't pure "reshoring" but "friend-shoring." The goal is to build a global supply chain that excludes China, not to bring all production home. This creates massive investment opportunities in allied countries like Mexico, Vietnam, Korea, and Japan, which are beneficiaries of this geopolitical realignment.
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.
Restricting allies like the UAE from buying U.S. AI chips is a counterproductive policy. It doesn't deny them access to AI; it pushes them to purchase Chinese alternatives like Huawei. This strategy inadvertently builds up China's market share and creates a global technology ecosystem centered around a key U.S. competitor.
Contrary to their intent, U.S. export controls on AI chips have backfired. Instead of crippling China's AI development, the restrictions provided the necessary incentive for China to aggressively invest in and accelerate its own semiconductor industry, potentially eroding the U.S.'s long-term competitive advantage.
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.
