US Seeing 'Tremendous Interest' in Chips Act Funding Despite Guardrails, Official Says

Proposed U.S. guardrails around the Chips Act aren’t likely to stop semiconductor companies from applying for funding, Michael Schmidt, the Commerce Department official in charge of the program, said this week. While Semiconductor Industry Association CEO John Neuffer agreed, he also urged the government to coordinate any chip-related restrictions with trading partners or risk U.S. companies losing Chinese market share, calling the idea of decoupling a “protectionist fairy tale.”

The Commerce Department proposed the guardrails earlier this year to restrict certain uses of American chips funding and align those limits with existing export restrictions (see 2304050050), although trade groups and technology companies told Commerce in public comments that it needs to amend the rules so they don’t inhibit “routine” business activities (see 2305250022).

Schmidt, speaking during an event this week hosted by the Center for Strategic and International Studies, said the agency is “in the process of finalizing” the proposed rules and declined to address specific public comments. But he said Commerce is “seeing tremendous interest” from chip companies, even after taking into account the guardrails. They are “expressing significant interest in investing in the United States as part of our program,” said Schmidt, director of Commerce’s Chips Program Office.

Neuffer agreed, saying he expects “some major players” to apply for the grants. “While there are strings attached to this, let's face it: it’s a lot of taxpayer dollars, so we're going to get some strings attached,” he said during the event. “Notwithstanding all that, we still have some of our friends and allies, companies in those countries, that are embracing and are going to be participating in this effort.”

But Neuffer said the government could do a better job implementing a “complimentary trade policy” alongside the Chips Act and other industrial policies to promote foreign market access for U.S. exporters. He noted that 80% of the chip industry's customers are in foreign countries, “so we want bigger markets overseas.”

He derided the idea that U.S. chip companies would ever decouple from China. “We have very effectively built out these amazing supply chains around the world, and that has fed our innovation,” Neuffer said. “So to think that somehow we're going to diminish those supply chains is really kind of fantasy.”

But he also acknowledged that export controls are sometimes necessary as long as they are coordinated with allies. “We had a turbulent experience a few years ago where we had a bunch of unilateral export controls thrown down, and it passed a lot of market share to non-Chinese competitors overseas,” Neuffer said, adding that the “national security objective was not achieved because the Chinese company was getting its goods from somewhere else.”

The U.S. needs to take a similar approach to its outbound investment restrictions, he said, which are currently being crafted by the Biden administration (see 2305310075). “If we slap a bunch of rules on our own companies,” Neuffer said, “others will jump in and fill the vacuum if there's not collaboration with allies.”

Gregory Allen, director of the CSIS Wadhwani Center for Artificial Intelligence and Advanced Technologies, said he believes the U.S. and its allies are hoping to combine export controls and chip industry incentives as part of a broader “unified economic competitiveness framework.” He said Europe in particular is “thinking along similar terms.”