The Chips and Science Act is a USD 280 billion package that was passed by both the houses of the US Congress last week, but it prevents the companies that are receiving the federal subsidies from expanding their chip-making capacity in China or any other foreign country of concern for 10 years, Asia Nikkei reported.
Semiconductors are the “brains” of electronic devices like smartphones or laptops and they also play an important role in sophisticated weapons systems such as the Javelin antitank missiles the U.S. is supplying to Ukraine, it added.
The Act provides exceptions to “legacy semiconductors” and allows them to continue investing in China if those investments are aimed at protecting existing and significant business interests in the country.
Legacy chips, used in several electronic devices, are required in much larger quantities than cutting-edge processor chips and they are generally viewed as companion chips.
Intel is a dominant player in the market for premium core processors for Chinese computers whereas Qualcomm is a dominant handset maker.
Intel said that Congress had recognized that the US is competing against other countries for technology leadership by passing the Chips Act.
TSMC, a semiconductor manufacturing company in Taiwan, did not comment on the restriction to expand production in China, the publication said.
South Korean semiconductor company SK Hynix said, “Our company complies with regulations in countries where we do our business. We will respond flexibly to market circumstances in [our] investment and production plan.”
Clinton Yu, a Washington-based partner specializing in international trade and export control regulations, said that penalties can include not only losing the funding, but also other penalties ‘in the national interest’ adding that there is a reputational impact if a company misuses these funds.
Notably, several companies have committed to investing in America. TSMC and Samsung have committed to investing at least USD 12 billion in Arizona and USD 17 billion in Texas respectively.
An investment plan worth USD 15 billion was announced by SK Hynix last week for US and Intel and Micron are also ramping up investment, the article read.
Director of investment at Brandes Investment Partners Louis Lau said, “In the long run, China’s ambition is really to replace all the cutting-edge chips with domestically made chips. So there will be a question as to whether TSMC and Samsung can really continue to dominate high-end manufacturing in China.”
Lau added that the US is a captive customer as the domestic manufacturers are very weak adding that they’ve long lost the edge in manufacturing.”
The semiconductor companies are willing to invest in the US rather than China as Beijing is trying to increase the country’s share of homemade chips to 70 per cent by 2025.
The manufacturing sector will receive USD 39 billion of the total funding under the act and the remaining 13 billion will be allocated to research and development, and innovation.