Biden signs CHIPS Act, Leaves No Bargaining Chip for China
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Issue Net Edition | Date : 27 Aug , 2022

The new USCHIPS and Science Act of 2022 is the beginning of Washington’s“technology arms race” against China, analysts are telling us. As was expected, Beijing has reacted strongly by calling the bill’s so-called “protective measures” anti-China and geopolitics inspired.Experts and analysts globally are also fearing the new bill will force global chipmakers to choose between the Chinese and American information systems and infrastructure, respectively. Because mainland China is the world’s largest chip market, the “choosing of sides” has put the world’s top chip foundries in a huge dilemma.

The passage of the 1000-page CHIPS and Science Act of 2022 by the two Houses and its subsequent signing by the US President, has generated conflicting news headlines in the global press. The New York Times called it “the ultimate arms race in the 21st century.” Explaining the future arms race raison d’etre, the NYT further wrote that commercial and geopolitical motives urge China to create chips as quickly as possible, whereas the United States has competitive motives to stop China’s access to advanced technology. Reuters lead “Technology” report said,“Biden signs bill to boost US chips, compete with China.” Japan’s Nikkei Asia says the Act’s overseas investment restrictions leave “Chipmakers choose between China and America.” 

“America is only playing catch-up”: Too little, too late 

As reflected in the remarks Biden made at the pre-signing ceremony of the Act, the chief reason behind the legislation is the nervousness that rivals such as China will overtake the US in the semiconductor industry. Industry experts believe China is in the process of investing well over US$150 billion in the coming five to eight years in order to develop home-grown chip companies. “In the face of this, America is only playing catch-up,” the industry analysts point out. As the high-tech semiconductor industry is becoming more important, it is argued that the reason for the nervousness is that the US today accounts for just 10 percent of global semiconductor fabrication capacity, down from around 40 percent thirty years ago.

From the US Capitol to the White House, as also in mainstream media in the US and globally, no one has made a secret of the fact that the new CHIP law – its actual name being Creating Helpful Incentives to Produce Semiconductors – was vital to “competing with and encountering China.”The legislation is intended to grant US$52 billion to support advanced chip manufacturing and research and development in the US.

But according to Singapore-basedAsia Times, the real reason behind the CHIP Act is to protect and promote US chip companies competing against TSMC or Samsung. In fact,US companies such as Intel, Micron, Nvidia, and other American fabs are no competition to chip foundries in East Asia, which contribute 75 percent of the world’s total chip manufacturing. For example, the US-based Intel, etc. do not possess the know-how to produce 5-nm chips whereas companies such as Taiwan’s TSMC are already moving on to 3-nm and possibly 2-nm feature sizes, the Asia Times reported.

The bipartisan US Chip Act aims to “kill” China’s chip industry

Months before the US Chips and Science Act of 2022 was signed into law by President Biden on August 9, the bill was dubbed as “China competition bill” and the stated purpose of the bipartisan bill was to implement a “precise strike” on China’s chip industry.Obviously, it did not go unnoticed in Beijing that President Biden repeatedly mentioned China in his speech at the bill signing ceremony on the South Lawns of the White House. “The US must lead the world in chip production. It is not surprising that the Chinese Communist Party is actively lobbying US companies against the bill,” Biden said.

As if reminding his Chinese counterpart that “America is back,” the US President recalledhis reply to a question asked by President Xi in Beijing – when both leaders were vice-presidents. “He [Xi] asked me to define America for him. I said I can do it in one word: Possibilities,” Biden said in the speech. Following the signing of the US$280 billion chip act, Biden also tweeted: “We will invest in the United States. We will succeed in the United States. We will win the economic competition in the 21st century in the United States.” What the Biden tweet was actually conveying to the world was that with the “Chip and science Act of 2022,” chip manufacturing is now returning to America after three decades.

Beijing: Washington’s doomed attempt to weaponize, politicize chips 

Because the world’s top chip manufacturers including TSMC, Samsung, Intel, Micron, etc. all have chip packaging and testing plants in China, experts have dubbed the CHIP Act as Biden’s doomed attempt to politicize and weaponize chip manufacturing. An article in Shijiezhoulast week pointed out that the Chip Act has directly invested a mere US$50 billionin the field of semiconductor manufacturing, which is “a drop in the bucket.” The meagre amount can only basically meet the factory construction of Intel, Samsung, and TSMC, and cannot support the overall industrial chain which requires an up-front investment of at least US$1 trillion, the Chinese weekly commented.

Furthermore, on the day Biden signed the law, an editorial in China Daily (CD) – the country’s widest circulating English language daily which is run by the Party’s Propaganda Department – termed the new law “self-contradictory” and “embarrassing.” The three-decades-old newspaper is described by China watchers as the CPC’s “instrument of public diplomacy” which targets foreign diplomats and expats in China, and foreign tourists. “What is annoying about the new US law is that the Act is not just an industrial policy, it’s first and foremost a tool to serve [the US] geopolitical purposes,” the CD editorial wrote.

CHIP Act is no panacea for US chip woes

Indeed, Beijing’s negative view of the US bid of reclaiming its lost supremacy in semiconductor chip manufacturing can easily be rejected as politically motivated. Yet interestingly many industry insiders outside China have described the new law as “no panacea for US chip woes.” They also point out that the expediency by the Democrats to take the bipartisan CHIP Act through the two Houses shows it is more of a political act than any serious high-tech agenda. It is pertinent to recall as soon as Biden took office, he released two policy documents, “Helm” – a National Technology Strategy to Meet China’s Challenges” and “Asymmetric Competition: A Strategy to Meet China’s Technology Competition.”

However, the chip manufacturing scenario is totally different in East Asia, including in China, from what the US administration believes it to be. According to a commentary in Shijiezhou, for chipmakers such as TSMC, Samsung, and even Intel to give up the Chinese market – the world’s largest chip market – is to give up the future. Morris Chang, the former founder-chairman of TSMC, did not hide his concerns when he said the biggest challenge the US will face in ramping up domestic chip production is “a lack of manufacturing talent.”

Citing TSMC’s upcoming plant in Ohio as a case, Chang said the cost for the same product is about 50 percent more than the cost in Taiwan. “The US will increase onshore manufacturing of semiconductors somewhat. But all of that will be a very high-cost increase, high unit cost. It will be non-competitive in the world markets,” he said.Finally, Biden’s remark at the CHIP Act signing ceremony that the Chinese Communist Party was actively lobbying against the bill may have been far-fetched. Industry insiders in East Asia say while it is true the CHIP Act will “reward US chipmakers for not investing in their future,” the CHIP and Science Act of 2022 will not be able to stop “China from having free access to US tech and know-how.”

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Hemant Adlakha

is professor of Chinese, Jawaharlal Nehru University in New Delhi. He is also vice chairperson and an Honorary Fellow, Institute of Chinese Studies (ICS), Delhi.

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