US May Halt Chip Subsidies, Lay Off 80% of Staff

According to eight people familiar with the matter, U.S. Commerce Secretary Howard Lutnick has hinted that he may suspend promised funding under the CHIPS Act as he is urging companies eligible for federal semiconductor subsidies to significantly expand their U.S. projects.

The sources said that the commerce secretary hopes companies that receive awards under the 2022 Chips and Science Act can follow the footsteps of Taiwan Semiconductor Manufacturing Company (TSMC), which recently announced an additional investment of $100 billion in U.S. factories on top of its previously committed $65 billion. The sources said Lutnick's goal is to secure hundreds of billions of dollars in additional semiconductor investment commitments without increasing the scale of federal grants. These sources spoke on condition of anonymity due to private discussions involved.

Some of the sources said during negotiations, Lutnick's team suggested he could cancel agreed-upon subsidy payments. Some sources said at the same time, Lutnick expressed interest in expanding the separate 25% tax credit under the Chips Act. This is more valuable to most companies than direct grant rewards. Major changes to the tax credit require congressional approval.

Lutnick previously stated that he intended to review the decisions under the Chips Act to obtain what he called "negotiation benefits." On Monday, President Donald Trump, who had previously urged Congress to repeal the act, signed an executive order partially focused on "negotiating a better Chips Act agreement than the previous administration."

This directive established a new office within the Department of Commerce to encourage large-scale investments by enterprises in the United States. The White House stated that the U.S. Investment Accelerator will promote projects exceeding $1 billion and manage semiconductor subsidies.

Jim Secreto, former deputy chief of staff to former President Joe Biden's Commerce Secretary, said, "Despite previous criticism of the Chips Act, this rebranding gives the president a permission structure to support basic policy."

This bipartisan law allocated $52 billion to revitalize the U.S. semiconductor industry, which had been shifting production to Asia over the past few decades. Most of this is direct funding to companies aimed at compensating for private spending and should be disbursed in stages as projects reach negotiated milestones.

Since President Trump took office, many companies have not reached any new benchmarks, meaning they are not expecting any funds under the new administration. However, there are signs that Lutnick's team is slowing down the final disbursement of these funds during the review of award agreements.

One small manufacturer that signed a binding Chips Act agreement had discussions about payment timing before Trump took office. These negotiations are now delayed, and it is unclear when the money will arrive.

Many companies have reached preliminary agreements during the Biden administration but have not yet signed final agreements, and it is uncertain when or whether they will receive funds. Wolfspeed Inc., headquartered in North Carolina, said last week that its $750 million deal might progress, but provided no further details, according to The Triangle Business Journal.

After the opening of New York markets on Tuesday, Wolfspeed shares fell 9.8% at one point. Intel Corporation, a struggling U.S. chipmaker, fell 2.6% at one point.

Meanwhile, sources said that TSMC reached a milestone equivalent to paying $750 million from its larger Chips Act award in late February. The status of this payment, originally expected to be made in early March, remains unclear. A TSMC spokesperson declined to comment on whether the company received the money.

Federal spending data shows that Commerce Department expenditures remained relatively stable since Trump took office until around $770 million was spent last week.

Biden's team distributed approximately $4.3 billion in Chips Act funds before leaving office and announced dozens of preliminary and final awards, which the previous administration hoped would limit interference with the program after Trump took office.

The main beneficiaries include TSMC, Intel, Micron Technology, Samsung Electronics, GlobalFoundries, and Texas Instruments, all of which will receive grants exceeding $1 billion. Together, these companies account for the majority of the $400 billion in private sector investments stimulated by the Chips Act.

However, Trump believed that tariffs could better incentivize companies to build factories domestically, and he hoped Congress would abandon the plan — given the strong bipartisan support for the plan in Congress, this prospect seems unlikely to happen.

Both Trump and Lutnick blamed the threat of tariffs on foreign-made chips for TSMC's decision to expand its three Arizona plants to six and for other investments in chip packaging and research. However, TSMC said its latest investments were based on U.S. market demand.

Trump plans to announce tariffs against other countries on April 2 and hinted that "future" tariffs would target chips. It remains an open question whether companies will respond to these threats by announcing more investments.

Samsung scaled back its planned investment in Texas last year, resulting in less funding from the Chips Act than initially expected. The company's semiconductor division has struggled in recent months, falling behind competitors. A Samsung representative declined to comment.

In the meantime, Micron initially planned up to four factories in New York, but last year began slowly advancing its third factory as it discussed building a similar facility there with Japanese officials. Micron publicly committed to building the first two factories in New York and another in Idaho, all of which are protected by its Chips Act awards. Micron declined to comment.

Thomas Caulfield, executive chairman of GlobalFoundries and former CEO of the company, said that tariffs combined with Chips Act grants and the 25% investment tax credit provided by the program could "create momentum to bring demand back."

In almost every case, Chips Act grants represent only a small portion of the subsidies companies will receive. A larger portion comes from the 25% tax credit, which is not contingent on environmental or labor conditions, something Republicans have long argued should not be part of the grant application process.

According to sources, Lutnick said he is willing to expand the tax credit but has not disclosed specific details.

The current guidelines allow companies to apply for credits for projects starting construction by the end of 2026, including chip and wafer production. A bipartisan group of lawmakers proposed a bill that would expand the scope of the credit to include semiconductor R&D and manufacturing and extend the eligibility to any project starting construction by the end of 2036, providing companies with another decade to get started.

"The credit is crucial," said Peter Cleveland, senior vice president of TSMC, at an event last week. Developing the U.S. semiconductor industry "depends on continuous cooperation with the current administration and future administrations," he said — "and this cooperation should take the form of extending the regulations regarding the credit."

There is no legislative cap on the amount companies can apply for, so any expansion's fiscal impact could be quite significant. The Peterson Institute for International Economics estimated in June 2024 that this credit could result in approximately $85 billion in lost revenue — more than three times the initial estimate by the Congressional Budget Office. This depends on the level of investment stimulated by the law.

Former U.S. President Donald Trump has repeatedly stated his intention to repeal the Chips and Science Act. According to reports, about 80% of employees at the Commerce Department's Chips Program Office (CPO) have been laid off or asked to resign to align with this stance. Established three years ago, the office primarily oversees semiconductor subsidies. It is said that about 120 out of the office's approximately 150 employees have been affected.

Dan Kim, former vice president of SK Hynix's Washington D.C. office, resigned last week. Kim joined the CPO as Chief Economist and Director of Strategic Planning and Industry Analysis nearly three years ago.

As a senior official familiar with Korean corporate operations, his resignation has further raised concerns about whether Samsung Electronics and SK Hynix will distribute their subsidies as planned.

The Chips and Science Act, passed in August 2022, allocates $52.7 billion (approximately 77.4 trillion Korean won) to support the U.S. semiconductor industry, with $39 billion for manufacturing facilities and $13.2 billion for R&D and workforce development.

To implement this initiative, the Biden administration appointed Michael Schmidt, a former Treasury Department official, to lead the newly formed "CHIPS for America" office within the Commerce Department, recruiting experts from government, the semiconductor industry, and finance.

Kim joined the CPO as Chief Economist and Director of Strategic Planning and Industry Analysis. At the time, the U.S. Commerce Department announced his appointment, stating that he had held senior positions in both the U.S. government and the private sector, with expertise in international competitiveness and national security issues related to the semiconductor industry.

The layoffs at the CPO were overseen by Elon Musk, who currently leads the Department of Government Efficiency (DOGE) and is leading a comprehensive overhaul of federal bureaucracy. It is unclear whether Kim's resignation was voluntary.

Korean companies are closely watching whether the subsidies approved by the Biden administration will be disbursed as planned. Any modifications to the original agreement by the Trump administration could affect the final amount.

Samsung Electronics is constructing a semiconductor fabrication plant in Texas. Under the Biden administration, the company has been approved for $4.745 billion in subsidies, accounting for approximately 12.8% of its total investment. However, reports indicate that these funds have not yet been disbursed. The law firm Covington & Burling, representing Samsung in the subsidy process, is also under scrutiny. Trump accused the company of participating in what he described as "weaponization of the legal system" by the Biden administration, following which the company faced sanctions under an executive order.

SK Hynix is expected to receive $458 million in financing, but has not received any funds either, as its factory is still in the pre-construction phase.

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