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Biden signs law authorising US$53 billion in subsidies for semiconductor makers in US

South China Morning Post logo South China Morning Post 8/9/2022 Robert Delaney

US President Joe Biden on Tuesday signed into law bipartisan legislation to provide billions of dollars in government funding for the US semiconductor industry, capping an effort to boost America’s technological competitiveness driven by concern over China’s advances.

The Chips and Science Act earmarks nearly US$53 billion in semiconductor manufacturing incentives and another US$200 billion for research into artificial intelligence, quantum computing and other advanced technologies – all areas the Chinese government has designated as national priorities.

The law also restricts any recipient of the funds from expanding semiconductor production in China “or any other foreign country of concern”.

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Some US companies, including memory chip maker Micron Technology, have already announced expansion plans that will be supported by the subsidies that they expect the new law to provide.

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“America invented the semiconductor … and this law brings it back home,” Biden said after signing the bill. “It’s in our economic interest and it’s in our national security interest to do so.

“We need these semiconductors … for weapons systems in the future that are going to be even more reliant on advanced chips. Unfortunately, we produce zero per cent of these advanced chips now,” he said.

“China is trying to move way ahead of us to manufacture these sophisticated chips as well,” he added. “The United States must lead the world the production of these advanced chips. This law will do exactly that.”

The legislation’s sponsors promoted it as a response to concerns that China’s new technological prowess might displace American companies and make the US military more vulnerable.

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The Biden administration tapped former officials who served under Biden’s predecessor Donald Trump to lobby critics of the bill in Congress – many of whom have said that it amounts to an industrial policy – with the same message.

These issues came into sharp focus last week, when US House Speaker Nancy Pelosi visited Taiwan as part of a larger Asia tour, sparking the most pressing bilateral diplomatic crisis in years.

Beijing had warned against Pelosi making the trip and after she left, the PLA conducted military exercises that nearly encircled the island, with a set of live-fire drills unprecedented in scale.

Pelosi’s brief trip to Taiwan, in all less than 24 hours, included a meeting with Mark Liu, the chairman of Taiwan Semiconductor Manufacturing Co (TSMC) – underscoring the importance that US lawmakers attach to strengthening semiconductor supply chains and the role that TSMC plays.

During her meeting with Liu, Pelosi called the act “a major victory for American families and the American economy”.

US Senate Majority Leader Charles Schumer, Democrat of New York, had been a leading sponsor of the bill. Photo: Bloomberg © Provided by South China Morning Post US Senate Majority Leader Charles Schumer, Democrat of New York, had been a leading sponsor of the bill. Photo: Bloomberg

On Monday, in his first remarks about the military drills that followed Pelosi’s visit, Biden said he was “concerned” about them.

“I’m not worried, but I’m concerned that they’re moving as much as they are,” he told White House reporters. “But I don’t think they’re going to do anything more than they are.”

The US share of semiconductor production has fallen from nearly 40 per cent in 1990 to 8 per cent this year, according to the Congressional Research Service (CRS), leaving the country reliant on imports from China and elsewhere.

TSMC and other firms based in Taiwan account for 54 per cent of total outsourced semiconductor production, according to CRS, followed by firms based in the United States, such as Intel, at 17 per cent. Companies in China and Singapore are tied for third at 12 per cent each.

TSMC, the world’s leading contract chip maker, is building a 5-nanometre semiconductor factory in the US state of Arizona. Plans call for it to be operational in 2024, though the chips it produces there are expected to trail the technology of those TSMC will be making in Taiwan by then.

In a fact sheet released before the signing, the White House announced initiatives meant to bolster and speed the Chips and Science Act’s goals, including an inter-agency group that will coordinate with state and federal officials to help companies secure permits for hi-tech manufacturing facilities.

Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co (TSMC). Photo: EPA-EFE © Provided by South China Morning Post Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co (TSMC). Photo: EPA-EFE

Micron, based in Boise, Idaho, may be one of many companies that benefits from easing the permit process.

The company announced shortly before Biden’s address that it expects to use incentives offered by the new law to help fund a US$40 billion investment to build out US semiconductor manufacturing capacity. The company aims to begin producing chips after 2025.

The White House also promoted recommendations made by an advisory group, the President’s Council of Advisers on Science and Technology, as another initiative it said would help advance Chips and Science objectives.

The council recommended, among other things, “a national microelectronics training network for semiconductor workforce development across academic institutions” and a plan t0 “build the first ‘zettascale supercomputer’, which would be 1,000 times faster than the fastest supercomputer available today”.

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The US Chamber of Commerce – which counts Micron, Intel, Qualcomm and other American chip makers as members – praised the new law, saying it would “boost microchip production at home, strengthen our supply chains, increase domestic research and development, and bolster our national security”.

“American companies are too reliant on foreign manufacturers and suppliers to secure necessary microchips, leaving us vulnerable and exposed,” Neil Bradley, the chamber’s chief policy officer, said.

“With today’s signing of the Chips Act into law, we take the first step to strengthening our economic and national security.”

A rendering of TSMC’s semiconductor fabrication facility in Arizona, which is scheduled to open in 2024. Image: Handout © Provided by South China Morning Post A rendering of TSMC’s semiconductor fabrication facility in Arizona, which is scheduled to open in 2024. Image: Handout

Scott Kennedy, trustee chair in Chinese business and economics at the Centre for Strategic and International Studies (CSIS), rebuffed assertions that the migration of semiconductor manufacturing overseas meant that the US had fallen behind China in terms of innovation.

The US, Kennedy said, “does not need to ‘catch up’ – the typical justification for industrial policy – but rather needs to accelerate an economic transformation for itself and the globe in an era when transnational cooperation for research, production and consumption is less assured because of both geostrategic tensions and rising energy and transportation costs”.

Kennedy also noted that Taiwan’s chip manufacturing prowess was partly a result of an industrial policy, combined with “good timing” owing to higher US production costs and the “emergence of China as a key assembler in global information and communications technology supply chains”.

“While the United States looks to strengthen its own chip fabrication capacity, it will also need, as Taiwan has done, to explore new technologies and business models that address critical needs and take advantage of emerging opportunities,” he added.

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