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04/25/2025 | Press release | Distributed by Public on 04/25/2025 13:51
Innovation Lightbulb: Tracking CHIPS Act Incentives
Innovation Lightbulb: Tracking CHIPS Act Incentives
Three Takeaways on America's Semiconductor Push
Photo: Kyle Green/Bloomberg/Getty Images
Newsletter by Chris Borges, Yutong Deng, and Julie Heng
Published April 25, 2025
In August 2022, Congress passed the bipartisan CHIPS and Science Act (CHIPS Act) to revitalize U.S. semiconductor research and manufacturing and drive innovation-a vital national security priority given the ubiquity of chips in modern defense, computing, and other technologies. The CHIPS Act takes a comprehensive approach to strengthening the semiconductor ecosystem, including investments in research and development, workforce training, and supply chain resilience.
As one key component of this strategy, the CHIPS Act establishes direct incentives to expand domestic semiconductor manufacturing in the United States. These incentives span the semiconductor value chain, from integrated device manufacturers (IDMs), which design and manufacture their own chips, to contract manufacturers (foundries), which manufacture chips designed by other firms, to outsourced semiconductor assembly and test (OSAT) firms, which assemble, package, and test the chips to ensure they work. Now, over two years later, the distribution of CHIPS Act incentives offers an early look at how this ambitious industrial policy is taking shape.
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Program Manager and Associate Fellow, Economics Program and Scholl Chair in International Business
Yutong Deng
Research Intern, Renewing American Innovation
Programs & Projects
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Observation 1: Most CHIPS funds are boosting fabrication capacity-and catalyzing private investment.
About 95 percent of CHIPS Act incentives have gone to support semiconductor fabrication, with IDMs receiving 50 percent of funds and foundries receiving 45 percent. This strategic allocation reflects the urgent need to restore U.S. chipmaking capacity, which has steadily eroded over the past several decades, shrinking from 37 percent of global capacity in 1990 to 10 percent in 2022.
Encouragingly, this public investment is already crowding in private capital. Since the CHIPS Act was signed, companies have announced over $540 billion in U.S. semiconductor investments, according to the Semiconductor Industry Association, which are projected to triple total U.S. chip manufacturing capacity over the next decade. Even though this number is in flux, it represents a dramatic and game-changing surge in U.S. manufacturing capacity for both advanced and mature chips.
Observation 2: The United States is building foundries, but not enough to meet demand from U.S. chip designers.
Roughly 45 percent of total awarded funding-about $14.65 billion-has been directed toward foundries, including those capable of producing advanced semiconductors. This is a win for the United States' world-leading chip designers and will help ensure more of the value they generate is captured domestically: despite losing much of its capacity to manufacture semiconductors over the last several decades, U.S. firms currently make up 46 percent of global chip design sales and 72 percent of chip design software and license sales, all of which are ultimately produced in foundries.
Still, reliance on overseas manufacturers will not disappear overnight. As of 2020, the United States accounted for just 7 percent of global logic chip foundry capacity. Meanwhile, TSMC, the world's largest foundry with 60 percent market share, derives 75 percent of its revenue from North American customers-mostly U.S. firms. Even as new foundries come online, U.S. chip designers will remain dependent on East Asian manufacturers for the foreseeable future.
Observation 3: Advanced packaging is growing-but still lags behind.
3 percent of CHIPS Act incentives have supported OSAT capacity, particularly in advanced packaging-a suite of technologies that leverage the packaging process to boost chip performance. Additionally, $1.4 billion has been awarded through the CHIPS National Advanced Packaging Manufacturing Program (NAPMP), aimed at developing new technologies and creating an end-to-end ecosystem where advanced chips are both made and packaged in the U.S.
Yet the global imbalance is stark. As of 2021, 81 percent of global OSAT capacity was located in East Asia, including 38 percent in China. Without continued investment in this segment of the value chain, U.S.-fabricated chips may still need to be shipped abroad for packaging before entering final products, creating vulnerabilities.
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The CHIPS Act represents a rare and successful bipartisan effort to strengthen U.S. competitiveness in a critical technology. Funding awards are already catalyzing private investment and expanding domestic manufacturing, and the Department of Commerce should move swiftly to allocate the remaining incentives. But the work is far from over: sustained investment will be essential to closing remaining gaps-particularly in foundry capacity and advanced packaging-and building a globally competitive domestic semiconductor industry that spurs economic development, supply chain security, and robust innovation.
Data visualization by Sabina Hung