[Insight & Opinion] Chip War and the Semiconductor Megacity Act

Japan Threatens with Bold Partnerships with Taiwan and the U.S.
U.S. Pursues Ambitions for a Semiconductor Supply Chain Empire
Korea Must Provide Aggressive, Direct Subsidies

NVIDIA will begin mass production of its next-generation artificial intelligence (AI) semiconductor, ‘Blackwell,’ by the end of this year. The competition between Samsung Electronics and SK Hynix over the high-bandwidth memory (HBM) used in it is heating up. At NVIDIA’s developer conference last month, CEO Jensen Huang made a welcome remark that both companies will face tremendous growth opportunities ahead. However, Jensen Huang’s affection was still directed toward his homeland, Taiwan.

TSMC, the world’s largest semiconductor foundry (contract manufacturer), exclusively produces NVIDIA’s AI semiconductors. It is threatening that TSMC has partnered with Japan, which is calling for a semiconductor revival. At the opening ceremony of TSMC’s first plant in Kumamoto Prefecture, Kyushu, Japan, last February, Japanese Prime Minister Fumio Kishida repeatedly emphasized firm support for the semiconductor industry. His remarks were also reflected in previous actions. The Japanese government supported about 40% of the 1.1 trillion yen (approximately 4.25 trillion KRW) project cost for TSMC’s first plant. For the Kumamoto second plant, scheduled to start construction at the end of this year and operate in 2027, they are investing even more?about 730 billion yen (approximately 6.5 trillion KRW).

It’s not just Taiwan’s TSMC. The Japanese government is also providing subsidies of up to 138.5 billion yen (approximately 1.23 trillion KRW) to Micron Technology’s factory in Higashihiroshima, a U.S. memory semiconductor company. Japan’s bold moves with its allied countries reveal an ambition to stabilize its domestic semiconductor supply chain. One can read the determination to raise the semiconductor self-sufficiency rate, which is only 5%, to 44% by 2031.

On the 20th of last month, the U.S. announced plans to invest $19.5 billion (26 trillion KRW) in federal subsidies and loan support for domestic semiconductor company Intel under the CHIPS Act. The CHIPS Act is legislation that provides a total of $52 billion (about 70 trillion KRW) in subsidies and tax benefits for semiconductor investments within the U.S. Intel will receive $8.5 billion in subsidies and $11 billion in loans to build and expand $100 billion worth of factories across four U.S. states. Intel hopes to secure an additional $25 billion through tax reductions. The U.S. has launched a large-scale funding offensive for key semiconductor companies worldwide through the CHIPS Act. There is growing public opinion in the U.S. that Intel must soon be able to compete with semiconductor rivals from Taiwan and South Korea. The U.S. aims to achieve 20% of global advanced semiconductor production by 2030 by building a semiconductor empire centered on U.S. personnel, technology, and supply chains.

The construction of the semiconductor cluster in Yongin City began in March 2021. SK Hynix has started to see the fruits of operating the first phase plant there by spring 2027. Road expansion work is in full swing to meet the scheduled groundbreaking in March next year. Over the years, the government, local governments, and companies have faced numerous difficulties in forming a ‘one team’ amid the global chip war. SK Hynix wasted a year and a half due to conflicts with local governments over securing 265,000 tons of industrial water per day. Samsung Electronics suffered for five years over power transmission tower issues with local governments at its Pyeongtaek campus. Disputes over regulations related to the entry of semiconductor materials, parts, and equipment companies into industrial complexes have also been ongoing. It is fortunate that Yongin City’s efforts to create a mega semiconductor cluster are now showing signs of success.

Although late, it is welcome that both ruling and opposition parties have proposed a special law pledge to build a ‘semiconductor megacity’ encompassing Yongin and the Gyeonggi Province area. It would be even better if, like Japan’s Kumamoto Prefecture, it could be arranged to achieve regional balance. Compared to the U.S. and Japan, indirect support such as tax credits alone is insufficient. Direct, large-scale subsidies comparable to those of major semiconductor competitors must be provided. Only then can a sustainable foundation for survival in the chip war be established.

Wonkyung Cho, Professor at UNIST & Director of the Global Industry-Academia Cooperation Center