A bipartisan group of US lawmakers introduced the CHIPS for America Act, which, if passed, will reserve tens of billions in federal funding to support domestic semiconductor manufacturing and research programs. The CHIPS Act, which stands for "Creating Helpful Incentives to Produce Semiconductors," would create a 40% income tax credit for semiconductor equipment, a $10 billion fund to match any chip manufacturing incentive programs at the state level, and $12 billion in R&D funding to be allocated over the next five to 10 years.

China was Huawei's predominant source of revenue in 2019
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The CHIPS for America Act will help shift chip manufacturing to the US, but its impact will be limited by exorbitant manufacturing costs and the challenges of shifting supply chains. The funding proposed by the CHIPS for America Act must be contextualized in order to grasp its significance. For instance, US chip design and manufacturing companies spent $40 billion on R&D in 2019 alone, so $12 billion in funding distributed over five to 10 years wouldn't exactly be game-changing in itself.

Similarly, building a single new chip factory with advanced manufacturing capabilities costs upwards of $10 billion, according to The Wall Street Journal. And because the US hopes to lure companies away from regions where they would otherwise locate their manufacturing facilities — namely South Korea, Taiwan, and China — chipmakers will inevitably incur incremental costs associated with revamping supply chains, hiring and training employees to operate plants, and complying with a new set of regulations. 

The bipartisan, bicameral push comes on the heels of the Semiconductor Industry Association, a trade group, lobbying for $37 billion in federal funding to help the US reduce its reliance on Asia for technology manufacturing. Amid escalating tensions with China, the Trump administration and the US military apparatus have pushed for greater semiconductor supply chain independence, as advanced chips are used in a variety of military applications including for missiles and fighter jets. 

If passed, the CHIPS for America Act will further pressure China to prop up a self-sufficient domestic chip supply chain. By providing more direct funding to chip manufacturers, the US will further entrench the divide between US- and China-aligned chipmakers. For China, it increasingly appears the government will need to fund an independent supply chain to ensure Huawei and other domestic tech companies can access the high-end components needed to sustain operations.

China's government has already stepped up these efforts — in May, for instance, it provided $2.3 billion in funding to help China-based Semiconductor Manufacturing International Corporation (SMIC) develop more advanced manufacturing capabilities. In this context, the CHIPS for America Act represents an escalation of the increasingly state-funded arms race between the US and China.

The decoupling of supply chains would free the US and China to take more aggressive countermeasures against one another, such as when the Chinese government reportedly considered launching "endless investigations" against US tech companies in response to further Huawei sanctions, according to China's state-run newspaper The Global Times.

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