With this week’s $6.4 billion deal by the U.S. and South Korean chipmaker Samsung Electronics to draw semiconductor expertise to American shores, the administration of President Joe Biden has highlighted another win under the CHIPS and Science Act.
On Monday, Samsung became the latest beneficiary of the Biden administration’s efforts to shore up precarious supply chains and protect its national security interests amid geopolitical concerns over Chinese chip advances.
From a new facility in Texas, Samsung will produce chips for aerospace, consumer technology and automotive applications, the company announced. One of the world’s leading advanced chipmakers, Samsung has also committed to directly manufacture semiconductors in the U.S. for the Department of Defense.
Security has been a key motivation behind much of the U.S. movement around semiconductors. After the COVID-19 pandemic resulted in widespread supply chain snags, exposing their fragile nature, access to semiconductors became a political priority for governments and politicians, including in the U.S.
Joel Martin, executive research leader at HFS Research, said such factors had powered the U.S. semiconductor push.
“Information security, data security and geopolitics are all coming together to drive a repatriation of the chip industry to the U.S. — given fuel by the Biden administration's 2022 CHIPS and Science Act,” he said.
The act, which is at the forefront of the efforts to draw semiconductor production and expertise back to U.S. shores, has also been key in a push to rebalance the current reliance the U.S. has on East Asia, which is responsible for 75% of global chips production.
At present, the U.S. produces around 10% of the world’s supply of semiconductors, and it doesn’t produce any of the most advanced chips.
By offering billions in funding, the act has been an avenue through which to entice companies to pick the U.S. as a manufacturing and production base. Prominent suppliers TSMC and Intel have already been offered megafunding deals under the effort.
The act is “a huge step forward to revitalize the U.S. chip industry,” Martin said, noting that Micron and GlobalFoundries have also received significant incentives to build and modernize semiconductor capabilities in the U.S.
“It is doubtful these investments would have happened organically without this act,” Martin said.
Reflecting on the policy, Biden on Monday took a victory lap following the Samsung deal’s announcement.
“I signed the CHIPS and Science Act to restore U.S. leadership in semiconductor manufacturing and ensure America’s consumers, businesses, and military maintain access to the chips that underpin our modern technology,” he said.
While semiconductors are certainly big business — the market was worth around $618 billion in 2022, and is projected to reach $1 trillion by 2030, according to an EY 2023 report — there is little doubt of the geopolitical subtext.
Underlying discussion of resilient supply chains has been China and worries of heightened geopolitical tensions in the Taiwan Strait. The U.S. has made little secret that this is a large factor in its semiconductor gambit — even pushing allies like Japan to echo its restrictions of overseas sales of chipmaking equipment to China. Beijing, meanwhile, has accused the U.S. of "economic coercion.”
Jacob Feldgoise, a data research analyst at Georgetown's Center for Security and Emerging Technology, said there had been a politically informed shift in how countries utilize their economic statecraft tools, which had led to conflict occurring when, for example, the U.S. takes action to protect national security interests but such action results in economic harm to China.
“What happens when those national security interests clash? That's where we encounter problems where, what one country sees as national security, the other sees as economic coercion,” he said.
The U.S. does not see these geopolitical risks as dissipating any time soon and has resolved to push forward with its efforts.
This was made clear Monday, when U.S. Secretary of Commerce Gina Raimondo said that the Commerce Department is on track to divvy out the entirety of its $39 billion in grant money under the CHIPS Act by the end of the year.
While there is little doubt of the intention, reactions to the CHIPS Act and its viability going forward have been mixed.
Jonathan Lang, practice head of trade and supply chains at Eurasia Group, said that while the economic security intent of the law “is sound,” it also “highlighted shortfalls in early Biden administration movement towards industrial strategy.”
“The specific goal of onshoring fab capacity is progressing but the law and strategy failed to adequately consider supply chain adjacencies and dependencies, oversights which are challenging the timeline of actual production,” he said, singling out a shortage of skilled labor necessary for production as the most notable challenge.
When the act was first introduced, Goldman Sachs research said it was unlikely to “make a dent in supplanting Asia’s dominance in the sector,” in part due to higher U.S. production costs. “Much more funding will be needed to reshape the global semiconductor industry,” the researchers wrote.
More recently, Brookings Institute research in 2023 echoed funding as a key hurdle in the United States’ ambitions, arguing that financial investment in the program is falling short, with bureaucratic hurdles in part to blame for delays in funneling the finances to semiconductor firms.
Valerie Wirtschafte, a foreign policy, artificial intelligence and emerging technology initiative fellow at Brookings, echoed sluggish funding allocation as a hurdle.
“It has been a little less than two years since the law passed and at this point, funding appropriations have consistently fallen short of what the law initially authorized,” she said.
But the part of the act focused on semiconductors was fully funded, Wirtschafte said, with some large-scale investments rolling into the domestic semiconductor industry and creating jobs — which in turn required further funding allocation set aside for training.
Still, Georgetown's Feldgoise said that the act was laying the groundwork to achieve its strategic objectives in a sustainable way.
“I think a lot of people frankly have overambitious expectations of how quickly the CHIPS Act or the CHIPS office would be able to set up these programs,” he said. “In an ideal world, everything would happen as quickly as possible ... but the reality is that the United States is rebuilding a muscle that we haven't exercised to this degree in a long time."
Then there have been suggestions of oversupply in some chip categories, as countries — including Japan, Singapore and Malaysia — also rush to develop their own semiconductor industries.
Last year, a flurry of new plant announcements and subsidies were unveiled as Japan attempts to reclaim its former glory as a semiconductor exporting powerhouse.
China is also seeking to expand its chipmaking capabilities, but this has been complicated by recent U.S. sanctions and restrictions.
Still, analysts say semiconductors will remain on the political front lines for some time.
“This will continue to be a cat and mouse game,” Eurasia Group’s Lang said, noting that “China is adept at identifying and exploiting loopholes.”
Indeed, Wirtschafte noted that while export controls had hindered China’s capabilities, “they haven’t completely stalled them.”
“Loopholes in regulations and underground markets have still allowed some chips to enter the Chinese market and restrictions on high-end chips have led to more rapid domestic innovation,” she added.
While there are still large question marks dangling over the viability of the CHIPS Act strategy and its effectiveness in rerouting global semiconductor supply chains, the foreign companies that the U.S. has attracted under the act are throwing their weight behind the political vision.
On Monday, Kye Hyun Kyung, CEO of Samsung Semiconductor, echoed the language often used by American officials seeking to promote the development of the semiconductor industry in the U.S. as he spoke about the new plant.
“We’re not just expanding production facilities,” he said. “We’re strengthening the local semiconductor ecosystem and positioning the U.S. as a global semiconductor manufacturing destination.”
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