Hemant Adlakha

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.”