Last month, Congress approved a new plan to boost America’s dominance in technological advancement and increase domestic semiconductor chip manufacturing. There is just one catch, though: any companies receiving federal funding under the new plan are barred from building any facilities in China for at least a decade.
The US Chips and Science Act finally got the green light in August, as Washington looks to ramp up America’s independence from Chinese-made advanced components. The plan, valued at nearly $53 billion, will increase US chip manufacturing, which slumped from 40% of overall global supply in 1990 to just a current 10%. The plan allocates $39 billion in subsidies for building new US-based semiconductor production plants, and includes a 25% investment tax credit for chip factories that begin construction next year.
However, the companies looking to tap into the government funding aren’t allowed to build factories in China. “We’re going to be implementing the guardrails to ensure those who receive CHIPS funds cannot compromise national security… they’re not allowed to use this money to invest in China, they can’t develop leading-edge technologies in China…. for a period of ten years,” said US Commerce Secretary Gina Raimondo. “Companies who receive the money can only expand their mature node factories in China to serve the Chinese market.”
Semiconductor chips became a scarce component during the Covid-19 pandemic, creating major production setbacks for automakers and electronic device manufacturers. Since majority of chips are produced in Taiwan and South Korea, the US lost its geopolitical foothold against Beijing, and is now attempting to re-assert its dominance by slashing reliance on Chinese semiconductors. But, some US chip manufacturers are already beginning to feel the negative impacts of Washington’s ban on technology sales to China.
Last week, Nvidia (Nasdaq: NVDA) revealed the Biden administration’s new regulations would cause the company to lose about $400 million in Chinese sales, as well as negatively affect the completion of certain circuits.
Information for this briefing was found via Reuters and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
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