Biden Celebrates Semiconductor Legislation to Boost US Competitiveness Against China

President Joe Biden virtually joined Michigan Governor Gretchen Whitmer Tuesday to celebrate the CHIPS and Science Act, which aims to boost U.S. competitiveness against China by allocating billions of dollars toward domestic semiconductor manufacturing and scientific research.

“This bill makes it clear the world’s leading innovation will happen in America. We will both invent in America and make it in America,” Biden said. He was scheduled to join the event in person but had to remain in isolation after testing positive for COVID-19 again on Saturday in what his physician described as a “rebound” case.

In the coming days, Biden is expected to sign the legislation, which passed in a 243-187 vote in the House of Representatives and 64-33 vote in the Senate last week.

The $280 billion act includes $52 billion in incentives for domestic semiconductor production and research, as well as an investment tax credit for semiconductor manufacturing. Advocates say it will allow the U.S. to catch up in the global semiconductor manufacturing race currently dominated by China, Taiwan and South Korea.

Last year, a semiconductor shortage affected the supply of automobiles, electronic appliances and other goods, causing higher inflation globally and pummeling Biden’s public approval among American voters.

Michigan, a major hub for the American auto industry, has been one of the states hardest hit by the semiconductor shortage.

“This bill will mean humming factories and lower costs on electronics, medical devices, farm equipment and cars for working families,” Whitmer said.

The act includes $4.2 billion to fund defense initiatives and the U.S. mobile broadband market, particularly efforts to promote non-Chinese 5G equipment manufacturing.

Catching up with China

The U.S. share of global semiconductor manufacturing capacity has decreased from 37% in 1990 to 12% today, largely because other governments have offered manufacturing incentives and invested in research to strengthen domestic chipmaking capabilities, according to a state of the industry report by the Semiconductor Industry Association.

Now China accounts for 24% of the world’s semiconductor production, followed by Taiwan at 21%, South Korea at 19% and Japan at 13%, the report said.

With the CHIPS Act, the administration hopes to bring as much semiconductor manufacturing to the U.S. as practically possible, said Bonnie Glick, director of the Krach Institute for Tech Diplomacy at Purdue University.

“And what can’t be reasonably onshore, either because it’s cost prohibitive or other allied countries simply do it better, we can ally-shore manufacturing and support that,” she told VOA.

The two allies the administration has leveraged are South Korea and Japan, both of which Biden visited in May. In Seoul, he toured a Samsung computer chip factory that is the model for a $17 billion facility that the South Korean technology giant is setting up in the U.S. state of Texas.

Last week, the U.S. and Japan launched a new joint international semiconductor research hub under a “bilateral chip technology partnership” to bolster manufacturing for 2-nanometer chips as early as 2025.

Washington has also persuaded Taiwan Semiconductor Manufacturing Ltd. (TSMC) to open a U.S. foundry to produce advanced semiconductors. The $12 billion facility in the state of Arizona was completed last month and is scheduled to start production of 5 nm chips by 2024. TMSC also has plants in China.

“We’re back in the game,” Biden said Tuesday. “Remember, we invented these chips, we modernized these chips, we made them work, and there’s a lot more we can get done.”

The CHIPS Act has laid out a clear strategy for Washington, said Volker Sorger, director of the Devices & Intelligent Systems Laboratory at the George Washington University.

“Gain autonomy and eliminate political dependencies on these global supply chain values,” Sorger told VOA.

That strategy puts the U.S. on a collision course with China, which also aims to be the global leader in semiconductors. In 2015, Beijing launched the Made in China 2025 project, which aimed to increase chip production from less than 10% of global demand at the time to 40% in 2020 and 70% in 2025.

The Made in China 2025 program and the People’s Liberation Army’s goal of military-civil fusion make it “overtly clear that Beijing is seeking to dominate global technology and supply chains through anti-competitive trade practices and infiltration of dual-use technology research,” Glick said.

The U.S. government has been pushing for stricter export regulations to China by prohibiting export of equipment needed for manufacturing chips at 14 nm and below. “That would mark an escalation from the previous ban covering 10 nm and below,” Glick added.

Taiwan’s strategic importance

Taiwan — a self-governed island that Beijing claims to be its breakaway province — lies at the heart of the increasingly tense U.S.-China rivalry.

Taipei has dominated manufacture of the world’s most high-tech chips, accounting for 92% of the global production of 10 nm or smaller semiconductors, essentially creating what some observers have characterized as a “silicon shield” that ensures American support in the event of a Chinese attack, as well as a deterrence to such a move.

A military conflict over Taiwan could disrupt TMSC’s semiconductor production and have disastrous effects on global manufacturing.

U.S.-China tensions are already spooking technology investors. TSMC shares fell nearly 3% on Tuesday as U.S. House of Representatives Speaker Nancy Pelosi landed in Taipei in a visit she said demonstrated American solidarity with the Taiwanese people.

Beijing has condemned the visit, the first by a U.S. House speaker in 25 years, as a threat to peace and stability in the Taiwan Strait.

Rare earths

The CHIPS Act does not include provisions to secure supply chains of rare earths — and other critical minerals used in semiconductors and other high-tech elements — to reduce the nation’s dependence on China, a major producer of these elements.

“I don’t know that we have developed a coherent strategy on accessing both rare and nonrare elements,” Glick said.

Last June, following Biden’s executive order to improve supply chains, the administration released a report concluding that the U.S. was overly reliant on China for critical minerals. Currently, China controls 87% of the global permanent magnet market, 55% of rare earths mining capacity and 85% of rare earths refining.

Earlier this year, the administration announced actions it said would bolster the supply chain of these elements, including a contract for U.S. company MP Materials to process heavy rare earth elements at its California production site — the first processing and separation facility of its kind in the nation.  
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