It’s official: US chipmakers will receive billions in grants and tax breaks

President Joe Biden stood with chipmakers as he signed a bill that would give them billions of dollars in subsidies. Vice President Biden's pen was seen by executives from companies like Intel, HP, and Lockheed Martin. There has been a persistent shortage of memory chips that has affected everything from cars to weapons.

The Creating Helpful Incentives to Produce Semiconductors for America Act allows the US to give up to $200 billion in subsidies over the next 10 years. The long-term vision is for the US to be the leader in the chip industry.

The Department of Commerce will make rules for how grants will be disbursed once the law is in place. Venture capitalists are less likely to fund long-term projects because of the investment needed for chipmaking. The federal government is in a position to fill that funding gap.

Ahead of the signing of the bill into law, some chipmakers have already announced long-term investments, including a commitment from Qualcomm to purchase $7.4 billion worth of chips over the next six years from a New York factory. More money was set aside to fund memory chip manufacturing. When compared to the 38 percent market share that the US used to enjoy, the recovery is still relatively modest.

The 25 percent investment tax credit is available to chip manufacturers. On top of the $50 billion in grants, that's another $24 billion boon for the industry.

Corporate subsidies are thought to be counterintuitive to ensuring a free market. The European Union and China have invested in their own production in order to address global supply chain concerns.

There are signs that the US will need to monitor progress closely to ensure maximum profitability on its investment, but this could help put the US ahead as a top chip manufacturer. China's chipmaking industry has descended into chaos after top Chinese chip industry officials were arrested on corruption charges. China is still on the hook for another $20 billion as investigations begin and their technology still lags behind Taiwan's.

There is nothing surprising about corruption in an industry with so much money. In the US, corruption from increasing corporate welfare has been criticized since the 1980s, when watchdogs first tried to "drain the swamp" of politically motivated and financially controlling corporations. China's example of wasted money on low-quality technology that can't compete in global trade shows how important it is to cut ties with foreign suppliers.