Global chips battle intensifies

The logo of semiconductor company Advanced Micro Devices Inc (AMD) is seen on a graphics processing unit (GPU) chip in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration

WASHINGTON: Superpowers led by the United States and European Union have funnelled nearly US$81bil toward cranking out the next generation of semiconductors, escalating a global showdown with China for chip supremacy.

It’s the first wave of close to US$380bil earmarked by governments worldwide for companies like Intel Corp and Taiwan Semiconductor Manufacturing Co (TSMC) to boost production of more powerful microprocessors.

The surge has pushed the Washington-led rivalry with Beijing over cutting-edge technology to a critical turning point that will shape the future of the global economy.

“There is no doubt we’ve passed the Rubicon in terms of the tech competition with China, particularly on semiconductors,” said Jimmy Goodrich, senior China and strategic technology adviser to the RAND Corp. “Both sides have basically made this one of their top strategic national objectives.”

What began as concern over China’s rapid advances in key electronics blossomed into a full-scale panic during the pandemic, as chip shortages highlighted the importance of these tiny devices to economic security.

At stake now is everything from the revitalisation of US tech manufacturing to the assertion of an upper hand in artificial intelligence (AI) to the balance of peace in the Taiwan Strait.

Chips spending by the United States and its allies marks a new challenge to Beijing’s decades of industrial policy – albeit one that will take years to bear fruit.

The rush of funding has hardened battle lines in the US-China trade war, including in places like Japan and the Middle East. It’s also giving a lifeline to Intel, the one-time global leader in chip manufacturing that in recent years has lost ground to rivals including Nvidia Corp and TSMC.

Investment plans have reached a critical juncture in the United States, where officials last month unveiled US$6.1bil in grants for Micron Technology Inc, the largest American maker of computer-memory chips.

That was the final multibillion-dollar grant for an advanced chipmaking facility in the United States, capping a flurry of commitments nearing US$33bil to companies including Intel, TSMC and Samsung Electronics Co.

President Joe Biden opened that funding spigot with his signature 2022 Chips and Science Act, promising a total of US$39bil in grants for chipmakers, sweetened by loans and guarantees worth an additional US$75bil plus tax credits of up to 25%.

It’s the heart of his high-stakes bid to revive domestic semiconductor production – especially of leading-edge chips – and deliver a rush of new factory jobs to help convince voters he deserves re-election in November.

Those investments by the United States seek to do more than just counter China, which still trails the rest of the world by several generations in advanced semiconductor technology.

They also aim to close the gap on decades of state-directed incentives from Taiwan and South Korea that have made those places centers of the chip industry.

The spending spree likewise is fuelling rivalries among the United States and its allies in Europe and Asia, all chasing a piece of the growing demand for devices powering advances in AI and quantum computing.

“Technology is moving fast,” US Commerce Secretary Gina Raimondo, who’s leading the administration’s semiconductor charge, said at a conference in Washington last month. “Our enemies and competitors, they’re not moving slowly. They’re moving fast, so we have to move fast.”

Across the Atlantic, the European Union has forged its own US$46.3bil plan to expand local manufacturing capacity. The European Commission estimates that public and private investments in the sector will total more than US$108bil, mostly in support for large manufacturing sites.

Europe’s two largest projects are in Germany: an Intel fab planned in Magdeburg worth about US$36bil and receiving nearly US$11bil in subsidies, and a TSMC joint venture worth roughly US$11bil, half of which will be covered by government funds.

Even so, the European Commission has not yet given final approval for state aid to either, and experts caution that the bloc’s investments will not be enough to achieve its goal of making 20% of the world’s semiconductors by 2030.

Other European countries have struggled to fund major projects or attract companies. Spain announced in 2022 that it would put nearly US$13bil toward semiconductors but has only doled out small amounts to a handful of companies owing to the lack of a semiconductor ecosystem in the country.

Emerging economies are also looking to break into the chips game. India in February approved investments powered by a US$10bil government fund, including a Tata Group bid to build the country’s first major chipmaking facility.

In Saudi Arabia, the Public Investment Fund is eyeing an unspecified “sizeable investment” this year to kick off the kingdom’s foray into semiconductors as it seeks to diversify its fossil fuel-dependent economy.

In Japan, the trade ministry has secured about US$25.3bil for its chips campaign since its inception in June 2021. Of that sum, US$16.7bil has been allocated for projects including two TSMC foundries in southern Kumamoto and another foundry in northern Hokkaido, where Japan’s homegrown venture, Rapidus Corp, aims to mass produce two-nanometer logic chips in 2027. — Bloomberg

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