Semiconductor power play chip off the old block

United States President Joe Biden signed into law the CHIPS and Science Act, kickstarting the bid to reclaim US supremacy in semiconductor chips manufacturing. Despite the US preaching of the free market worldwide, and emphasizing its fierce opposition to government interference in industrial policies, especially the use of government subsidies in other countries, the US has finally decided to make another exception of itself.

The name of the new legislation — Creating Helpful Incentives to Produce Semiconductors — highlights how the new legislation contravenes the freemarket ethos the US constantly seeks to proselytize.

It sets a rare precedent in US industrial policy by earmarking $52.7 billion to help expand semiconductor chip fabrication facilities in the US in the next five years. And this is only part of a $280 billion law that also funds basic and applied research.

Self-contradictory and embarrassing as it is, what is annoying about the new US law to China and other countries and regions, though, is not just the US government’s open embrace of what it has been crusading against, doing itself what it has attacked others for, but rather that the Act is not just an industrial policy, it’s first and foremost an instrument to serve geopolitical purposes.

From the US Capitol to the White House, people have made no secret of the fact that the legislation is meant to suppress China’s technological advancement. It prohibits companies that receive federal funding from expanding advanced chip manufacturing in China. To be specific, it prevents companies from expanding production of anything more advanced than 28-nanometer designs, a technology that is already more than a decade old. Private recipients are subject to a 10-year ban on expanding certain chip manufacturing in China. And it includes a special fund to help US telecommunications companies compete with the Chinese enterprise Huawei, and limit the scope of other telecommunications firms with China ties.

That geopolitical imperative ensured that the Act sailed relatively smoothly through both chambers of the US Congress, propelled as it was by the China-phobia that prevails in Washington’s decision-making circles.

But what they aspire to is not only a costly undertaking, it will at the same time disrupt the industry and supply chains of the highly globalized industry and thus deal a heavy blow to the existing industry giants who are not shored in the US.

And while the US chip policy is defined primarily in terms of combating the “China threat” to US tech dominance, and China is indeed trying to accelerate the development of the sector, that bid has been triggered by such zero-sum moves by the US, which have prompted it to seek semiconductor self-sufficiency.

Meanwhile, because the central idea is cuttingedge technologies and capabilities in the field of semiconductor chips must be in the grip of the US, although companies on the Chinese mainland are the clear target of the new law, it will inflict conspicuous collateral damage on industrial giants in the Republic of Korea, Japan and China’s Taiwan.

All in all, the law is good news for the shareholders of US chip companies but bad news for tech R&D.