"Lower Costs, Create Jobs, Strengthen Supply Chains and Counter China." The title of the press release published on Tuesday, August 9, on the website of the White House is enough to understand the Chips and Science Act signed the same day by President Joe Biden in the White House gardens. He was surrounded by several industry leaders, including Pat Gelsinger, the CEO of Intel, the leading US chipmaker.
Launched by the Senate and backed by Democrats and Republicans alike, the Chips and Science Act is clearly aimed at attacking Chinese holdings in the production of components, the strategic nature of which became clear with the shortages triggered by the Covid-19 pandemic. The Chinese embassy in Washington said it regrettably sees this text as a "reminder of the spirit of the Cold War."
It was signed just a few days after House Speaker Nancy Pelosi visited Taiwan on August 3. Reigniting tensions with Beijing, this trip reminded the United States of the national security risks of relying on components manufactured in China and, more broadly, in Southeast Asia.
Several safeguards
According to the Semiconductor Industry Association (SIA), the US now accounts for only 12% of the world's chip production capacity, three times less than it did in 1990. In 2020, out of 39 new factories built worldwide, only four were in the United States, compared to 10 in China, 10 in Taiwan, five in South Korea, five in Japan, four in Europe and one in Singapore, according to the SIA.
To shift the balance of power, Washington is prepared to lay out 52.7 billion dollars (51.6 billion euros) in subsidies, spread over 10 years, including 39 billion dollars in manufacturing incentives on American soil. Two billion will be set aside for automotive and defense chips alone. In addition, industrial and equipment investments will be eligible for a 25% tax credit, at an estimated cost of 24 billion dollars.
To ensure that these measures are effective, US lawmakers are imposing several restrictions. "Recipients" of this aid cannot under any circumstances build certain facilities in China and other countries of concern, warns the White House. This includes Russia and Iran, along with North Korea according to the text of the bill. Recipients must also agree not to increase the manufacturing capacity of their Chinese high-performance chip factories for 10 years.
On the other hand, foreign groups such as Taiwanese TSMC or Korean Samsung should be able to benefit from these subsidies in order to increase their manufacturing capacity in the US. In early 2022, TSMC announced plans to build a new factory in the US, the first in 20 years. Manufacturers must also not use these subsidies to fund stock buyback programs or dividends. Intel spent 14.1 billion dollars on stock buybacks in 2020 and another 2.4 billion dollars in the first quarter of 2021. This has since ended.
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