Four Takeaways From America’s $280 Billion Industrial Policy To Counter China

Last month, President Biden signed the $280 billion industrial policy bill known as the Chips Act. It’s been long discussed as an answer to the computer chip shortages that have devastated the supply chain in the fallout from the pandemic. The expansive legislation is also viewed as an effort to compete with China’s growing sway on the global economy. Let’s break it down.

For starters, the policy includes:

· $52.7 billion in subsidies for computer chip makers.

· A 25% investment tax credit for chip plants.

· $10 billion for the Department of Commerce to create 20 regional tech hubs.

· $200 billion to new manufacturing initiatives and research in areas like AI, robotics, quantum computing, and more.

The Act could have wide-ranging impacts on American manufacturers. With a lot to understand, here are a few key takeaways.

This is about addressing our vulnerabilities to China—and it is necessary.

If we thought a break in the supply chain related to the Russia-Ukraine war was bad, consider the potential fallout from a geopolitical sparring match with China, which has 24% of the semiconductor market by revenue and has been investing aggressively with a goal to be the global leader by 2030. Proponents of the Chips Act also point toward the nightmarish scenario in which China gains control over Taiwan’s semiconductor industry, accounting for another 21% of the market and granting China more pricing leverage. The U.S. currently has 12% of the market, down from 37% in 1990.

Semiconductors are at the root of just about any advanced piece of technology, from smartphones to planes to weapons to the electric grid, which means shortages threaten not only our economy but our national security. Chips Act efforts will no doubt take time to come to fruition in the form of increased American output, but the U.S. can’t afford to wait any longer to take action.

As a country, we’ve invested heavily to bolster our defenses and deter war. Yet we’ve left ourselves vulnerable to attacks on our supply chain that can have meaningful impact on our security and way of life. It’s time to invest in manufacturing to protect against this shortcoming.

This is also about building resilience.

In my eyes, globalism is not a four-letter word. But there’s a point at which outsourcing becomes not only risky but dangerous, and as the pandemic exposed, we’ve gone over that cliff.

During any given supply chain disruption, you need a manufacturing ecosystem capable of ramping up production to account for the shortfall. If that capability doesn’t exist, it can create a massive problem. During the pandemic, we saw manufacturers attempting to reinvent themselves to account for local semiconductor needs, a costly and lengthy process fraught with uncertainty. Sometimes it worked. Others it failed miserably. And at any rate, it was barely enough to even put a dent in the shortage.

It’s time to rebalance the scales. In an ideal future, not only have we brought home more mission-critical manufacturing state-side during normal economic times, but we also have a mix of small and large chip makers that can use their existing manufacturing spaces—with all the efficiency and built-in surge capacity that Industry 4.0 technologies like collaborative robots and machine monitoring can provide—to increase production two- or three-fold and fill the gaps in times of crisis, when we’re shut off from foreign suppliers.

Technology will play a crucial role as the U.S. manufacturing ecosystem evolves.

In addition to creating 20 regional technology hubs, the New York Times reported that the legislation will “steer billions to the Department of Energy and the National Science Foundation to promote both basic research and research and development into advanced semiconductor manufacturing, as well as work force development programs, in an effort to build a labor pipeline for a slew of emerging industries.”

This is a very good thing. Technology will continue to be the key driver in building a U.S. manufacturing ecosystem that can withstand the ups and downs of the market. We are already facing a major shortage of advanced manufacturing talent, and as our capabilities expand, it’s vital we stand up opportunities to train a manufacturing workforce that’s ready to build a new future.

It will also be critical that as much as we invest into research, we’re able to take the learnings out of the academic setting and apply them practically to create a more flourishing local supply chain.

It’s not just on the government to create a more competitive U.S. manufacturing landscape.

No matter what slice of the industry they operate in, every manufacturer should be making investments to create a future more durable to supply chain disruption.

The Chips Act will help, but it’s merely one step. And while we are hopeful that manufacturers will continue to receive assistance to compete with a Chinese ecosystem propped up by its government, small, medium, and large manufacturers can begin taking steps today to build excess capacity. One way to do that is through incremental investments in technology; small acts like implementing real-time data monitoring can snowball, helping manufacturers create high-tech operations that boost capacity and reduce the need to outsource.

Make no mistake, the road we’re on is a long one. We won’t gain back the ground we’ve lost to China overnight. But with the federal government prioritizing state-side resilience and U.S. manufacturers committed to creating a thriving and high-tech ecosystem, we can find our way back to an equilibrium between domestic and foreign production—and protect our supply chain against catastrophic future disruption.