US Government Policy and Action on Chips
- Larry Chou
- Mar 26
- 11 min read
The US government has taken a comprehensive approach to bolstering the domestic semiconductor industry, driven by concerns about national security, economic competitiveness, and technological leadership. This decline in the U.S. share of global semiconductor manufacturing capacity, from 37% in 1990 to 10% in 2022, prompted policymakers to take action1. This report provides a detailed overview of the key policies, regulations, and actions related to chips, encompassing manufacturing, registration, export control, security requirements, funding and incentives, punitive measures, and specifications and standards for AI chip design, manufacturing, use, and deployment.
Chip Manufacturing
The CHIPS and Science Act of 2022 is the cornerstone of the US government's strategy to revitalize domestic chip manufacturing. This bipartisan legislation allocates $52.7 billion to support the semiconductor industry, with $39 billion specifically earmarked for constructing and expanding semiconductor fabrication plants ("fabs")2. Of this funding, $2 billion is specifically designated for "mature node" semiconductors essential to the military, automotive, and manufacturing industries2.
Key provisions of the CHIPS Act related to manufacturing include:
Financial Assistance: The CHIPS for America Fund provides grants and loans to incentivize investments in facilities and equipment for semiconductor fabrication, assembly, testing, and packaging in the United States3. Priority is given to projects that enhance the resilience of semiconductor supply chains for critical industries3.
Investment Tax Credit: A 25% Advanced Manufacturing Investment Credit is available to incentivize investments in semiconductor manufacturing and semiconductor manufacturing equipment4. This credit applies to qualified property placed in service after December 31, 2022, and covers construction occurring after August 9, 20224. This credit is available for facilities that manufacture semiconductors or semiconductor manufacturing equipment4.
Geographical Restrictions: To ensure that federal funding supports national security interests, the CHIPS Act prohibits recipients from expanding semiconductor manufacturing in China or any countries deemed a national security threat2. These restrictions apply for 10 years from the date of funding2. These restrictions apply to any new facility, unless the facility produces legacy semiconductors predominantly for that country's market2. Companies that design chips but outsource manufacturing may need to consider new partnerships to comply with these geographical restrictions2.
Workforce Development: Recognizing the need for a skilled workforce, the CHIPS Act includes provisions to foster semiconductor workforce development through initiatives such as the National Science Foundation's microelectronics workforce development activities3. The law provides an opportunity to make step changes in digital manufacturing and relevant workforce skills2.
The CHIPS Act has spurred significant investment in the US semiconductor sector. For example, Intel has been approved for $8.5 billion in grants and $11 billion in loans to support its planned $100 billion investment in new US facilities5.
To further expedite the establishment of domestic chip fabrication facilities, the Building Chips in America Act of 2023 removes the need for National Environmental Policy Act (NEPA) reviews for semiconductor manufacturing projects that are receiving government subsidies through the CHIPS and Science Act6. This exemption from environmental reviews aims to speed up approvals and maximize the impact of the CHIPS Act on national security and the economy6. However, this provision has faced criticism for potentially removing important environmental safeguards6.
The CHIPS Act aims to reverse the trend of declining US semiconductor manufacturing capacity and regain global leadership in the semiconductor industry1. By incentivizing domestic chip production, the Act seeks to strengthen the US economy, enhance national security, and ensure access to critical technologies.
Chip Registration
While there isn't a formal "chip registration" process, the CHIPS Act includes provisions that function as a form of registration for companies receiving federal funding. These provisions require companies to provide detailed information about their operations, supply chains, and security measures to the Department of Commerce7. This information allows the government to track the use of federal funds, monitor compliance with the Act's requirements, and assess the impact of the program on the domestic semiconductor industry.
Specifically, the CHIPS Act requires companies to provide information related to:
The Semiconductor Industry Association (SIA) also supports the enactment of an investment tax credit for semiconductor design, recognizing the importance of design in the overall semiconductor ecosystem1.
Chip Export Control
The Bureau of Industry and Security (BIS) within the Department of Commerce plays a crucial role in regulating chip exports. BIS has implemented export controls on advanced computing chips and AI model weights to protect US national security and foreign policy interests8. These controls are designed to prevent the transfer of sensitive technology to countries of concern, such as China and Russia9.
The export control regime divides countries into three groups:9
Trusted Partners: A small set of close allies and partners, such as Australia, Canada, and the European Union member states, are mostly exempted from the regulatory controls on AI exports due to the low risk of technology diversion to countries of concern.
Countries of Concern: These are countries where the United States has an arms embargo, such as China and Russia, and are presumed to be ineligible for receiving advanced American AI technology.
Other Countries: All other countries fall into a middle category, including countries making substantial investments in AI, such as Saudi Arabia and the United Arab Emirates.
Key aspects of the export control regime include:
Licensing Requirements: Authorizations are required for exports, reexports, and transfers of advanced computing chips and certain closed AI model weights to a broad set of countries8. For example, end-use controls are in place, requiring export licenses for items intended for use in supercomputers located in China10.
License Exceptions: To facilitate legitimate commercial transactions, BIS has established license exceptions, such as the Artificial Intelligence Authorization (AIA) and the Advanced Compute Manufacturing (ACM), which allow for the export of certain chips without an authorization to allies and partners or for specific purposes like development and production8.
Validated End User (VEU) Authorizations: Data Center VEU authorizations allow companies to build data centers in specified locations without additional authorizations, subject to certain conditions and restrictions8. There are two types of VEU authorizations: Universal VEUs (UVEUs) for U.S. and allied companies and National VEUs (NVEUs) for entities headquartered in other countries8.
Country Allocations: When licenses are required, applications are reviewed under a presumption of approval until the total quantity of controlled chips exported to a specific country exceeds a defined allocation8.
Foreign Direct Product Rule: This rule extends controls to certain model weights and semiconductor manufacturing equipment produced abroad using US technology or equipment8.
These export controls are subject to ongoing review and updates to keep pace with technological advancements and evolving national security concerns10. The export control regime for chips and AI models is designed to strike a balance between protecting national security and fostering international collaboration with allies and partners8.
Chip Security Requirements
The CHIPS Act emphasizes the importance of security in the semiconductor supply chain. Companies receiving CHIPS funding must implement measures to mitigate security risks, including those related to access, availability, confidentiality, integrity, and geographic diversification12.
The CHIPS Program Office has established priorities and measurable criteria for evaluating applications, including: 13
Commercial viability
Financial and technical feasibility
Workforce development
Broader impacts
Specific security requirements include:
Supply Chain Security Plans: Applicants for CHIPS funding must submit an executable plan to identify and mitigate relevant semiconductor supply chain security risks12.
Counterfeit Chip Prevention: For projects involving semiconductor production, assembly, or packaging, applicants must implement policies and procedures to combat cloning, counterfeiting, and relabeling of semiconductors12.
Secure Manufacturing Facilities: The Department of Commerce evaluates proposals based on their potential value to US national security, considering factors such as operational security, supply chain security and resilience, and the applicant's approach to security12.
Data Center Security: Validated End User authorizations for data centers include security conditions to safeguard the storage of advanced AI models and prevent diversion of advanced computing chips8.
These security requirements are designed to protect sensitive technology, ensure the integrity of the semiconductor supply chain, and prevent adversaries from gaining access to critical technologies. The CHIPS Act emphasizes a comprehensive approach to security, considering not only national security but also factors like supply chain resilience, workforce development, and broader societal impacts12.
Chip Punishment
The US government has implemented various measures to punish companies and individuals that violate chip-related regulations, particularly those related to export controls and national security. These measures include:
Civil Penalties: Fines can be imposed for violations of export control regulations, with penalties varying depending on the severity of the violation14.
Criminal Penalties: Individuals involved in illegal chip exports or other violations can face imprisonment. For example, Senator Josh Hawley's proposed Decoupling America's Artificial Intelligence Capabilities from China Act of 2025 would impose penalties of up to 20 years in prison or $1 million in fines for individuals violating AI-related trade and collaboration restrictions14.
Forfeiture of Licenses and Benefits: Companies found in violation of export controls or other regulations may face the forfeiture of any licenses, contracts, grants, or public benefits previously awarded by federal agencies14.
Entity List Additions: The BIS maintains an Entity List of individuals, organizations, and companies that are subject to specific license requirements for exports, reexports, and in-country transfers11.
Intellectual Property Protection: The US government actively investigates and prosecutes intellectual property offenses related to chips15. This includes criminal trademark infringement, criminal copyright offenses, and economic espionage. Specialized Assistant United States Attorneys (AUSAs) play a key role in enforcing these laws15.
The Copyright Act defines a "semiconductor chip product" as the final or intermediate form of any product16:
Having two or more layers of metallic, insulating, or semiconductor material, deposited or otherwise placed on, or etched away or otherwise removed from, a piece of semiconductor material in accordance with a predetermined pattern.
Intended to perform electronic circuitry functions.
These punitive measures are designed to deter violations, protect US national security, and ensure compliance with chip-related regulations. The US government has a multi-layered approach to punishing chip-related violations, combining civil penalties, criminal prosecution, and administrative measures14.
Chip Funding and Encouragement
The CHIPS Act provides substantial funding and incentives to encourage domestic semiconductor production and research. In addition to the $52.7 billion allocated for manufacturing incentives, the Act includes provisions for research and development, workforce development, and international cooperation17.
Key funding and encouragement mechanisms include:
CHIPS for America Fund: This fund provides $39 billion in financial assistance for semiconductor manufacturing, including grants and loans for building, expanding, and equipping domestic fabrication facilities17.
Research and Development: The CHIPS Act allocates $11 billion for semiconductor research and development, including funding for a National Semiconductor Technology Center, a National Advanced Packaging Manufacturing Program, and Manufacturing USA Institutes18.
Workforce Development: The CHIPS for America Workforce and Education Fund supports the National Science Foundation's microelectronics workforce development activities3.
International Cooperation: The CHIPS for America International Technology Security and Innovation Fund supports international information and communications technology security and semiconductor supply chain activities3.
Enhanced Federal Matching Rate for CHIP: To encourage states to expand coverage for children, the federal government matches state spending on the Children's Health Insurance Program (CHIP) at a rate that is 15 percentage points higher than the Medicaid matching rate19.
These funding and encouragement mechanisms aim to create a favorable environment for semiconductor companies to invest in the United States, conduct research and development, and develop a skilled workforce. CHIP plays a crucial role in ensuring affordable healthcare access for children, particularly those in low-income families19. CHIP has a long history of bipartisan support and has helped reduce the nation's uninsured rate for children to a record low of 5%21.
Specifications and Standards for AI Chip Design, Make, Use, and Deployment
While the US government does not mandate specific specifications and standards for AI chip design and manufacturing, several initiatives and policies influence the development and deployment of AI chips.
NIST Research and Standards: The National Institute of Standards and Technology (NIST) conducts research and develops standards related to semiconductor technology, including areas relevant to AI chip design and manufacturing, such as metrology, materials, and testing22. NIST plays a vital role in supporting the semiconductor industry through research, standards development, and the operation of nanofabrication facilities22.
CHIPS R&D Programs: The CHIPS Act funds research and development programs focused on advanced semiconductor technologies, including those relevant to AI18. These programs support the development of next-generation AI chips and contribute to the advancement of AI technology.
Export Control Regulations: Export control regulations on advanced computing chips and AI model weights indirectly influence the design and deployment of AI systems by restricting access to certain technologies8.
Responsible AI Development: The Biden administration's Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence promotes responsible AI development and deployment, which includes considerations related to safety, security, fairness, and privacy23.
These initiatives and policies collectively contribute to the development of secure, reliable, and responsible AI chip technologies in the United States23.
Synthesis and Conclusion
The US government's approach to chips is characterized by a multi-faceted strategy that combines financial incentives, regulatory measures, and research and development initiatives. The CHIPS and Science Act is the centerpiece of this strategy, providing substantial funding to revitalize domestic chip manufacturing and strengthen the US position in the global semiconductor industry.
Export controls play a crucial role in protecting national security and preventing the transfer of sensitive technology to adversaries. Security requirements are embedded throughout the CHIPS Act and related regulations, ensuring that federal funding supports the development of secure and reliable semiconductor technologies.
While the government does not dictate specific specifications and standards for AI chip design, various initiatives and policies influence the development and deployment of AI chips, promoting responsible innovation and technological leadership.
The US government's comprehensive approach to chips is expected to have a significant impact on the domestic semiconductor industry, fostering innovation, creating jobs, and enhancing national security. This strategy positions the United States to compete more effectively in the global technology landscape and maintain its leadership in AI and other critical technologies.
However, challenges remain, including the need for continued investment in research and development, workforce development, and international cooperation to ensure the long-term success of the US semiconductor industry. The global semiconductor industry is characterized by rapid technological advancements and intense competition. To maintain its competitive edge, the United States must sustain its focus on innovation, talent development, and strategic partnerships.
The CHIPS Act and related policies represent a significant commitment by the US government to support the domestic semiconductor industry. By fostering a robust and secure semiconductor ecosystem, the United States aims to ensure its economic prosperity, national security, and technological leadership in the years to come.
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