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The global reliance on semiconductors, the tiny brains behind countless modern technologies, has been ruthlessly exposed in recent years. Fragile supply chains, often concentrated in specific regions, have led to chip shortages that have devastated industries from automotive to consumer electronics. In a bid to bolster domestic production and fortify national security, the United States enacted the Chips and Science Act (also known as the Chips Act) in August 2022. This landmark legislation promises a significant investment in American semiconductor manufacturing and research, aiming to rebuild domestic capabilities and lessen dependence on foreign sources.

But what does this mean for those within the AI supply chain?

From Abundance to Scarcity: The Rise of the Chip Crisis

For decades, the United States held a dominant position in global semiconductor manufacturing. In fact, it’s suggested that in the very “beginning, the US represented 100 percent of the manufacturing capacity of semiconductors.” However, driven by globalization and economic factors, production capacity steadily shifted overseas, particularly to East Asia. This trend coincided with a surge in demand for microchips as technology became ever more ubiquitous. The result? A perfect storm – a complex and geographically concentrated supply chain facing unprecedented strain.


The COVID-19 pandemic further exacerbated the situation. Lockdowns and factory disruptions severely hampered production, while surging demand for electronics during lockdowns stretched resources even thinner. The chip shortage became a significant bottleneck, impacting everything from smartphones and laptops to automobiles and medical devices.

Key Objectives of the CHIPS Act

The CHIPS Act has several goals, including:

  • Making the US a global player: Increasing US competitiveness in chip technology.
  • Fortifying national security: Strengthening national security by reducing reliance on foreign-produced chips
  • Job Creation: Creating jobs in the semiconductor industry.
  • Incentives: The Act provides financial incentives for companies to build new or expand existing semiconductor factories in the United States. Incentives include grants, tax credits, and funding for R&D.
  • Focus on domestic production: The Act restricts funds from being used for expanding chip manufacturing in certain countries, including China.