White House proposes funding Intel's domestic chip manufacturing up to $8.5B

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Ahead of President Joe Biden signing the Chips and Science Act in August 2022, Intel has been a cornerstone of US efforts to increase domestic chip manufacturing. This morning, the White House announced an agreement with the Commerce Department that will provide the silicon company with up to $8.5 billion to expand U.S.-based production.

The CHIPS Act can be seen as a direct result of several important geopolitical issues. The first is supply chain disruptions which has been a persistent issue ever since Asia was hit hard in the early days of the pandemic. Second, there is the growing tension between the US and China which reached its peak under the previous administration and continues to simmer currently.

Asia – particularly Taiwan – continues to produce the bulk of the world's semiconductors. Major industries ranging from smartphones to automotive were brought to a virtual standstill amid the initial lockdown, with semiconductor giant TSMC in the densely populated East Asian country and the bulk of manufacturing taking place in Chinese cities like Shenzhen.

The above, coupled with long-term efforts to revive American industry, prompted economic efforts to reinvigorate manufacturing. Intel, which had ceded much of the smartphone industry to competition, was eager to be an active participant. While the CHIPS Act was still making its way through Capitol Hill, Intel announced plans to open a $10 billion manufacturing facility just outside Columbus, Ohio. It was not only a high-ticket show of confidence in American manufacturing capabilities, but also the growth of tech scenes outside the usual centers of San Francisco and New York.

Intel says it expects to 10x that investment over the next half decade, with its sights set on Arizona, New Mexico and Oregon in addition to Ohio. It said it expects those efforts to create 20,000 construction and 10,000 manufacturing jobs — music to the ears of an administration focused on the monthly jobs report.

A US-based company also has the added incentive of making the product in the US, which can reduce barriers by moving manufacturing closer to the point of consumption. These are all points on which an incumbent can potentially deliver in an election year.

“With this agreement, we are helping to encourage more than $100 billion of investment from Intel – one of the largest investments ever in U.S. semiconductor manufacturing, creating more than 30,000 good-paying jobs. and ignite the next generation of innovation,” U.S. Commerce Department Secretary Gina Raimondo said in a release.

The question of whether the US government is doing enough to level the playing field between domestic chip companies and the competition is entirely different. Many industry experts I have spoken to over the past few years have suggested that, while these initiatives are a good start, they are not enough to cover the gap between American manufacturing and major upstarts like TSMC. One also needs to account for how long it will take for many of these factories to come online.

Notably, Intel recently pushed back the manufacturing start date of its New Albany, Ohio plant by two years to 2027, citing changes in the business environment. According to the report, the company has spent $1.5 billion and “69 employees from 14 Ohio counties are working at the project site, and construction workers from 75 of Ohio's 88 counties have contributed to the project to date.” Not the kind of figures that are moving the needle on the jobs report just yet.

Additional sites are planned for Chandler, Arizona; Rio Rancho, New Mexico; and Hillsboro, Oregon.