[Global Focus] Semiconductor Hegemony War Rekindled... US Bets 73 Trillion Won

Comprehensive Pressure on China
Advanced Semiconductor Manufacturing Returns to the US... Strengthening Security
US-China Confrontation Intensifies

[Image source=Reuters Yonhap News]

The United States is exerting comprehensive pressure to surpass China in the global semiconductor dominance competition. While distributing astronomical amounts of funds, it has also raised the level of sanctions against China.

The U.S. government is working to regain semiconductor dominance by providing subsidies to major domestic and international semiconductor companies under the Chips Act. To encourage semiconductor companies to expand their facilities investment in the U.S., it will support companies building factories in the U.S. with a total of $39 billion in semiconductor production subsidies (approximately 54 trillion KRW) and $13.2 billion (approximately 17 trillion KRW) in research and development (R&D) support funds, totaling $52.7 billion (approximately 73 trillion KRW) over five years.

Intel alone gets 12 trillion KRW... 73 trillion KRW to semiconductor companies over 5 years

The Joe Biden administration announced on the 20th of last month (local time) that it will provide Intel with up to $8.5 billion (approximately 12 trillion KRW) in subsidies and support loans worth $11 billion (approximately 15 trillion KRW). This is the largest amount of funding under the Chips Act. Intel plans to invest $100 billion (approximately 138 trillion KRW) over the next five years, including building two state-of-the-art logic fabs in Arizona, as well as facilities in Ohio, New Mexico, and Oregon.

It is not only American companies. To bring advanced semiconductor supply chains into the U.S., large-scale subsidies are being provided to global semiconductor companies. Taiwan's TSMC, the world's largest foundry, has been decided to receive a total of $11.6 billion (approximately 16 trillion KRW) in funding. This includes $6.6 billion (approximately 9 trillion KRW) in direct subsidies for factory construction and $5 billion (approximately 7 trillion KRW) in low-interest loans. Initially, it was expected to receive $5 billion in direct subsidies, but the amount exceeded the forecast by more than 30%.

TSMC is already constructing two factories in Arizona with an investment of $40 billion (approximately 55 trillion KRW), and plans to expand its U.S. investment to $65 billion (approximately 90 trillion KRW) and build a third factory in Arizona using 2-nanometer process technology. Taiwanese media have speculated that with the U.S. government's unprecedented support, TSMC might expand its original plan of building three factories in Arizona to as many as six.

Samsung Electronics decided on the 15th to receive $6.4 billion (approximately 9 trillion KRW) in subsidies from the U.S. government. This is the third-largest subsidy amount after Intel and TSMC.

Samsung Electronics is currently investing $17 billion (approximately 24 trillion KRW) to build a semiconductor manufacturing plant in Taylor, Texas. It plans to expand the factory size and investment to a total of $40 billion (approximately 56 trillion KRW) by 2030, more than double the existing investment scale.

The significant increase in investment scale by Samsung Electronics and TSMC is interpreted as a result of the substantial increase in direct subsidy amounts. Initially, it was widely expected that Samsung Electronics would receive only $2 to 3 billion, and TSMC about $5 billion in support.

Strengthening sanctions against China... expanding to allies and legacy semiconductors

Since October 2022, the U.S. has implemented control measures banning exports of advanced semiconductor equipment and technology to China to block China's access to advanced semiconductors. Recently, it has been demanding similarly strong sanctions from allies such as the Netherlands, Japan, and South Korea.

While the initial focus was on sanctions targeting advanced semiconductors essential for artificial intelligence (AI), the scope has recently expanded to include legacy semiconductors. Legacy semiconductors generally refer to those manufactured with processes of 28 nm (nanometers, one billionth of a meter) or larger. They are widely used in home appliances, smartphones, electric vehicles, and military sectors, accounting for about 75% of the total semiconductor market. As the U.S. regulates advanced semiconductors, China is focusing on legacy semiconductors and investing huge capital.

In response, the U.S., the European Union (EU), and other Western countries are discussing joint sanctions. Since legacy semiconductors are widely used and versatile, there are concerns that if China gains dominance in the legacy semiconductor market, it could pose a serious threat to the security of Western countries.

The large-scale support under the Chips Act can also be seen as a de facto sanction against China. Companies receiving subsidies are allowed to expand production capacity in countries of concern, including China, by only 5% or less over ten years. This limits China's production capacity and aims to relocate semiconductor manufacturing bases to the U.S.

Grasping semiconductors to strengthen national security... political calculations as well

The Joe Biden administration enacted the Chips Act and supports companies to prevent a recurrence of supply chain disruptions caused by COVID-19 in 2022 and to reduce overseas dependence on semiconductors, which are critical to national security, while raising the level of sanctions against China. Especially since the advanced semiconductor market, once led by the U.S., has shifted its weight to Asian countries, the goal is to bring the advanced semiconductor manufacturing market back to the U.S. The principle is "If it was invented in America, it should be made in America."

In the midst of the U.S.-China technology hegemony war, the high overseas dependence on semiconductors, a core advanced technology, has been a factor holding back the U.S. government. Semiconductors are called the "rice of industry" because they are used comprehensively in various fields. As an essential advanced technology, falling behind China and others could jeopardize overall national security. According to the Semiconductor Industry Association, the U.S. share of global semiconductor manufacturing dropped sharply from 37% in 1990 to 12% in 2020. Therefore, the U.S. is providing large subsidies to companies building semiconductor production bases domestically to prevent new factories from being established in China and elsewhere.

[Image source=Yonhap News]

It is also related to political calculations. With the presidential election coming up in November, the administration aims to emphasize economic achievements compared to rival former President Donald Trump to appeal to voters. Especially, Arizona, where Intel and TSMC's key factories will be located, is one of the battleground states that could decide the election outcome. After announcing Intel's subsidy support, President Biden criticized, "My predecessor allowed the future to be made not in America but in China or other countries." President Biden emphasizes the "Made in America" and "Invest in America" policies.

"Market distortion" China protests... also orders U.S. companies to withdraw

China is protesting the U.S. subsidies to semiconductor companies as discriminatory measures. On the 21st of last month, the day after the Intel subsidy announcement, He Yadong, spokesperson for China's Ministry of Commerce, said, "The U.S. provides huge subsidies and tax benefits to its domestic chip industry, and some provisions force companies to abandon China and choose the U.S., which is clearly discriminatory," adding, "It seriously violates market rules and international economic and trade rules and will cause distortions in the global semiconductor industry chain in the future."

At the same time, China is reducing its dependence on U.S. technology in key infrastructure to reduce U.S. dominance in its domestic market and prepare for additional sanctions. According to the Wall Street Journal (WSJ), the Chinese government ordered the three major state-owned telecom companies earlier this year to gradually replace foreign-made central processing units (CPUs). According to market research firm TrendForce, the server CPU market share this year is dominated by U.S. companies with Intel at 71% and AMD at 23%. Consequently, Intel and AMD are inevitably impacted. Previously, government departments and state-owned enterprises also instructed the removal of U.S. companies by mandating the use of only "safe and reliable" processors and operating systems (OS) in PCs and servers.

With Chinese companies such as Huawei succeeding in technology development despite the U.S.'s stringent sanctions, the semiconductor dominance battle between the U.S. and China is expected to become even fiercer. Huawei, which struggled due to restricted access to 5G chips from U.S. sanctions, revived by launching a 5G smartphone equipped with a 7 nm process processor in August last year. Since then, the U.S. has increased pressure on China by investigating Huawei's chip manufacturing foundry SMIC and blacklisting Nvidia's Chinese partners.