Chips arms race begins . . .
U.S. President Joe Biden signed the monumental CHIPS and Science Act into law on Tuesday. The CHIPS Act includes C$358 million in dedicated funding and will bolster U.S. competitiveness against China, with C$66 million allocated specifically to supporting the American semiconductor industry. The COVID-19 pandemic created a global semiconductor shortage due to lockdowns and constrained supply chains from Asia, leading to a scarcity of cars, major appliances, and computers. The CHIPS Act aims to reposition the U.S. semiconductor industry to be more competitive and less reliant on China, but it comes with caveats. Recipients of CHIPS Act funding will be unable to build certain facilities in China, forcing domestic and foreign companies to choose between the two superpowers.
Taiwan’s chip dominance . . .
The CHIPS Act comes on the heels of Democratic House of Representatives Speaker Nancy Pelosi’s controversial visit to Taiwan. On August 3, Pelosi met with the founder and chair of Taiwan Semiconductor Manufacturing Company (TSMC). TSMC has warned that a China-Taiwan war would further disrupt global semiconductor supply chains. TSMC dominates global semiconductor production, making chips for Apple, Intel, Qualcomm, AMD, and Nvidia. Last year, TSMC began construction on a C$15-billion manufacturing facility in Arizona. TSMC has said that the speed of construction will depend on the availability of subsidies from Washington through the Act. But for the U.S., supporting domestic chip producers such as Intel and Micron might take priority.
Spurring innovation . . .
While the CHIPS Act will further drive China-U.S. economic tensions by forcing companies to choose between the U.S. and China, Chinese investors still see opportunities for growth in China’s domestic semiconductor industry. Ahead of the bill’s passing, China’s largest semiconductor producers saw their stocks grow the most since 2020. Investors appear hopeful that the new Act will spur technological advancement among Chinese companies lagging behind Taiwan. Over-reliance on China is not the only concern. The U.S. and its allies also hope to reduce their reliance on Taiwan, which currently holds 90 per cent of global production capacity for semiconductors under 10 nanometres. In July, Japan announced a U.S.-based R&D centre for developing two-nanometre technology that it hopes to have up and running by 2025. Ultimately, as many observers hope and investors predict, the CHIPS Act could disrupt the global semiconductor industry by spurring innovation rather than conflict.