Uncle Sam is beginning to dole out $52 billion in CHIPS Act grants—and the payouts could change the relationship between the government and business for years to come

The U.S., where computer chips were invented, hasn’t manufactured leading-edge chips since 2017. From then until now, the world’s fastest, most valuable chips, the kind that power OpenAI’s ChatGPT, Apple’s newest iPhones, and the world’s biggest supercomputers, have been made only in Taiwan and South Korea. But sometime next year, if all goes as planned, the U.S. will reclaim global leadership when Intel starts producing in volume a next-generation chip in the U.S. The chip technology, which Microsoft has already committed to use as the foundation for Intel-made proprietary chips, probably won’t be fully matched elsewhere for at least many months.

The dramatic turnaround owes much to the CHIPS and Science Act, which was signed into law in 2022 to revive semiconductor manufacturing in the U.S. Some $52 billion in grants is being disbursed to companies, led by Intel. Subject to reaching milestones in coming years, Intel could receive a grant of up to $8.5 billion, plus up to $11 billion in government loans and a 25% tax credit on a planned $100 billion in investment. A senior administration official said Intel’s package of subsidies would likely be the largest in the program. Commerce Secretary Gina Raimondo, who oversees most of the program, explains its rationale succinctly: “We cannot allow ourselves to be overly reliant on one part of the world for the most important piece of hardware in the 21st century.”

The CHIPS Act is significant for companies beyond the tech industry. With $280 billion in total authorized funding (most of it not yet spent), it’s an enormous exercise of industrial policy—government support of a specific industry. Wide-spreading ripple effects could help or hinder businesses across the economy. For example, local businesses in cities with large projects (such as Phoenix or New Albany, Ohio) may boom, while companies in almost any industry nationwide could face stiffer competition for tech-literate employees.

More broadly, the CHIPS Act may presage a new era for a range of companies, pushing them into an unfamiliar, geopolitical role. The semiconductor industry leads the trend because no modern economy or military can exist without semiconductors, and the more advanced the chips, the more dominant the economy and its military can be. Lazard CEO Peter Orszag and two colleagues, all with deep government experience, describe the larger picture in the latest issue of Foreign Affairs. Nations today contend mainly through economic competition, they say. As a result, “a tectonic shift is taking place, one that is forcing corporations to become actors on the geopolitical stage.” Citing examples including the CHIPS Act, they say “corporations have increasingly become both the objects and instruments of foreign policy.” Few CEOs or directors signed up for that.

America owned the semiconductor industry after Texas Instruments and Fairchild Semiconductor separately invented the chip in the late 1950s, but the technology’s worldwide spread was inevitable. In 1990 the U.S. had 37% of global chip manufacturing capacity, more than any other country, says Boston Consulting Group research. Taiwan, South Korea, and China had none. By 2020 the picture had reversed: Taiwan had the most of any market (22%), followed by South Korea (21%) and China (15%). The U.S. had 12%.

Several factors contributed to America’s relative decline, including a series of missteps in the 2000s at Intel, the largest U.S. chipmaker then and now. But the main factor was long-running generous government support of chipmakers in all three of the economies that now dominate the industry.

For many years, that didn’t seem like a problem. In the era of globalization, Western companies happily bought high-quality, competitively priced chips from China’s SMIC, South Korea’s Samsung and SK Hynix, and Taiwan’s TSMC, among others. As those companies advanced steadily, fueled by subsidies, U.S. competitors couldn’t keep up. “Look at Taiwan and its manufacturing preeminence,” says Brandon Kulik, a principal at Deloitte Consulting. “You don’t get the scale and the innovation you need without the government being a partner.”

The threat to the U.S. became apparent in the 2010s. The CHIPS Act was introduced in Congress in 2020 but might never have passed if not for the pandemic. “There were lots of chip shortages, and people couldn’t buy refrigerators or toasters or cars,” says John Neuffer, CEO of the Semiconductor Industry Association (SIA), which pushed hard for the CHIPS Act. “Without that we wouldn’t have had the public wind in our sails to achieve this historic piece of legislation.”

Today the SIA counts 82 projects announced by dozens of companies since the CHIPS Act was introduced. Planned investments total $257 billion in 25 states. Companies planned those investments without knowing if they would get a grant. The larger and more reliable incentive has been that 25% investment tax credit. “It’s hugely important,” says a lobbyist. “Without that, if it was just the grants, this wasn’t going to work. We wouldn’t have had this explosion of investment.”

Will the CHIPS Act make a case for more industrial policy in other industries? It will subsidize some of the American companies’ most formidable competitors, which are already subsidized at home. TSMC is planning two new fabrication plants in Arizona at a cost of $40 billion—one of the largest foreign direct investments in U.S. history—and Samsung plans a $17.3 billion fab in Texas. The CHIPS Act also will not render the U.S. chip industry self-reliant. Making chips is one of the most complex industrial processes in the world, and specialized inputs such as high-precision machines and ultrapure chemicals are produced only in other countries and probably will be for years.

Nor will everything go smoothly. Both of TSMC’s new fabs are behind schedule largely because the company can’t find enough workers with the required skills, chairman Mark Liu has said. Announcements of grants for major chipmakers with projects didn’t begin until mid-March, 19 months after the CHIPS Act became law.

Still, the program will likely be able to claim credit for putting the U.S. back in the industry’s forefront. Intel CEO Pat Gelsinger says the company is on schedule to produce next year that next-generation chip that no other company has been able to make. It will initially be made at Intel’s research facility in Oregon; full-scale production will move to a new CHIPS Act–subsidized fab in Chandler, Ariz.

In the long term, the CHIPS Act will be measured by its progress toward a broad goal: reversing a downward cycle in the advancement of America’s chip technology. When a country falls behind a technology’s leading edge, many of the best minds go elsewhere, and the country falls further behind the leaders. But when a country is at the leading edge, it attracts the best minds from around the world, further accelerating its lead—an upward cycle. “We were in a 30-year downward cycle in the U.S.,” Gelsinger says. “We needed a bit of a shock to the industry, and that’s what the CHIPS Act provided.”

That’s a lot to achieve in the five-year program authorized by the CHIPS Act, but five years may be just the beginning. When a country starts subsidizing a major industry, turning back abruptly becomes almost impossible. In February, Raimondo mentioned the possibility of a CHIPS Two. Gelsinger says, “I fully expect that we need a CHIPS Two. Thirty years of poor economic policy cannot be fixed in a three- to five-year CHIPS One program.” Canceling incentives is especially hard when competition is intense. SIA’s Neuffer notes, “After five years, our competitors around the world are not going to say, ‘We’re going to stop providing incentives ourselves.’ ”

Regardless of its success, the global pressures that motivated the CHIPS Act show no signs of abating. For companies and their leaders in every industry, the importance of the CHIPS Act is the light it has shone on a world order increasingly dominated by competition through economics, trade, and technology. The winners will be those who confront that reality fastest and most fully.

This article appears in the April/May 2024 issue of Fortune with the headline, “Today, CHIPS. Tomorrow, everything.”

This story was originally featured on Fortune.com