Biden administration aims to stop China, Russia from using chip funding
March 21, 2023 Updated Tue., March 21, 2023 at 8:57 p.m.
WASHINGTON – The U.S. Commerce Department released proposed guidelines Tuesday to prevent China, Russia, Iran and North Korea from benefiting from $52 billion in federal funding for semiconductor chip production.
Companies receiving a portion of the funding won’t be allowed to use the funds for projects outside of the United States. Recipients will also be barred from building or significantly expanding semiconductor manufacturing facilities in the “foreign entities of concern” for the next 10 years, even with their own capital.
The Commerce Department also plans to designate certain types of chips, including those used for quantum computing, in “radiation-intensive environments” and for other military use, as “critical to national security.” Funded companies will be restricted from conducting joint research or licensing technology from the foreign entities of concern.
If a company violates the rules, the federal government can take back all CHIPS funding doled out to the company.
“These guardrails will help ensure we stay ahead of adversaries for decades to come,” Commerce Secretary Gina Raimondo said in a statement. The CHIPS and Science Act “is fundamentally a national security initiative and these guardrails will help ensure malign actors do not have access to the cutting-edge technology that can be used against America and our allies.”
The CHIPS and Science Act passed last year approved $39 billion in direct grants for semiconductor chip production, the tiny components that are crucial for computers and electronics, modern appliances and vehicles. It also approved a 25% tax credit for companies that build domestic chip plants, which is expected to be worth at least $24 billion.
The U.S. Treasury Department released proposed rules Tuesday for the 25% tax credit. Companies that began construction on new semiconductor facilities after the CHIPS Act was enacted on Aug. 9 last year and placed them in service after Dec. 31 are eligible. Treasury also noted that foreign entities of concern cannot claim the tax credit.
The coronavirus pandemic kicked off a global shortage of semiconductor chips that dramatically disrupted the global automotive industry, forcing temporary plant shutdowns as automakers failed to secure the chips needed to finish vehicles. It slowed the supply and pushed up the price of vehicles, becoming one of the drivers of inflation in 2022.
The proposed guidance released Tuesday also aligns with export controls the Commerce Department announced in October that aims to prevent China from buying high-end chips.
The agency will begin accepting applications for leading-edge semiconductor chips later this month, with applications for all chip types opening in late June.
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