1.Background
On August 9, 2022, the U.S. Congress passed the "2022 Chip and Science Act" (hereinafter referred to as the "Chip Act"), which approved a total value of US$52.7 billion in financial support for the chip industry and US$24 billion for companies. Investment tax credits to encourage companies to develop and manufacture chips in the United States to help revive advanced semiconductor manufacturing in the United States and limit China's development and progress in this field. Just two months later, the Biden administration of the United States issued broader restrictions on the export of chips and chip manufacturing technology to China to weaken its ability to obtain and manufacture related chips.
More than half a year has passed. Although the chip bill, a boulder thrown from a high altitude, stirred up thousands of waves at the time and caused heated discussions around the world, it has now slowly sank to the bottom of the lake.
It returned to calm, but the ripples it caused on the lake are still spreading outward, affecting all parts of the world. Next, this article will introduce the impact of the chip bill on the United States, China, and South Korea
2.The Impact of Chips and Science Act on the United States
In the months since the Chip Act was enacted, companies in the semiconductor ecosystem have announced dozens of projects to provide U.S. chip manufacturing capabilities. Here's what came out of the chip bill push:
1. More than 40 new semiconductor ecosystem projects have been announced across the United States, including the construction of new semiconductor manufacturing facilities (fabs), the expansion of existing sites, and facilities that supply materials and equipment used in chip manufacturing
2. 16 states across the U.S. announced more than $200 billion in private investment to boost domestic manufacturing capacity
3. Announced 40,000 new high-quality jobs in the semiconductor ecosystem as part of the new program, which will support more jobs across the U.S. economy
These new projects cover a series of activities required to support the US chip ecology, including new construction, expansion and upgrade of fabs, semiconductor factories and equipment facilities in various semiconductor fields, and also increase the demand for key materials required for the production of chips. Investments by suppliers of materials, chemicals and equipment; companies supplying semiconductor manufacturing equipment and materials used in chip production announced plans to invest in multiple facilities to support increased domestic manufacturing capacity. In general, the promulgation of the Chip Act has played a positive role in the US semiconductor industry.
As an important industrial policy of the U.S. government with future influence, the "Chip Act" can have a certain "siphon effect" on attracting relevant companies to invest in the United States. However, as far as the industrial policy tool itself is concerned, the direct effect of the $52.7 billion fiscal subsidy will be limited in many ways:
First of all, the US$52.7 billion in financial subsidies is a lot of money for the US federal government, but for the chip industry, it can be said to be a drop in the bucket. In 2022, Taiwan Semiconductor Manufacturing Company (hereinafter referred to as "TSMC") will invest more than 40 billion U.S. dollars in chip manufacturing; in January 2022, Intel Corporation will build two new chip manufacturing plants in Ohio, USA, which will cost 20 billion U.S. dollars. The U.S. Chip Fund allocated 24 billion U.S. dollars in the first year. Even if it can be implemented, it is only equivalent to the annual investment of a large company like Intel. Therefore, it is unrealistic for the United States to try to make up for and strengthen the shortcomings of chip manufacturing in the short term through financial subsidies.
Secondly, as a market economy like the United States that has always advertised free competition, direct industrial subsidies will not only not encourage corporate innovation, but may put companies like Intel in a situation where they use various political means to fight for subsidies, or even defraud them. The raw power of innovation. Moreover, critics in the U.S. industry believe that this situation undermines the long-term foundation of free competition in the United States.
Thirdly, the cost of building a factory in the United States and operating costs are extremely high. TSMC estimates that the cost of building a factory in the United States is 50% higher than that in Taiwan, China. In this sense, $39 billion in production subsidies is equivalent to investing around $20 billion in Asia. This is only from the perspective of the cost of building a factory. More importantly, the labor cost in the United States is several times that of East Asia. This will lead to high operating costs for chip factories in the United States. Make up for the extra cost of chip companies moving their factories from China to the United States.
3. The impact of the Chips and Science Act on China and South Korea
The impact of the US Biden administration's trade restrictions on the production and use of advanced semiconductors in mainland China has been fully demonstrated in other environments, especially the impact on the development of advanced artificial intelligence capabilities and memory chip production. Some people in the industry believe that in China At the stage when China's local semiconductor industry is still immature, the impact of the U.S. Chip Act may lead to more severe external pressure on China's semiconductor industry. But there are also many people in the industry who are optimistic. They believe that the impact of the chip bill introduced by the United States on the local industry will be more beneficial than harmful. The tenacity of "breaking the boat" to break through the difficulties, let some people "break the illusion", do not rely on globalization to make up for the shortcomings, but really rely on technological innovation and independent research and development to make up for these shortcomings little by little, and ultimately promote the entire semiconductor industry. development of.
Few people pay attention to the role of China as an important market for chips in the semiconductor supply chain. With imported chips, the unchangeable reality of the semiconductor supply chain is that the target of US sanctions is also one of the core players in the industry. U.S. restrictions on China's semiconductor progress pose a greater challenge to South Korean semiconductor companies because they are more deeply integrated into the Chinese economy than Taiwanese manufacturers such as TSMC. South Korea's economy is dominated by large conglomerates, and its semiconductor industry has only a handful of producers, with production mostly focused on memory chips.
Like Taiwan, South Korea exports about 60 percent of its chips to China, and South Korean chipmakers produce far more chips at factories in China than Taiwanese companies. Overall, South Korean chipmakers are much more dependent on China. About 30% of Samsung Group's $11.2 billion in exports to China in the first quarter of 2022 came from Samsung Electronics' semiconductor sales; South Korean companies' factories in China are vulnerable to U.S. trade restrictions, and the Biden administration has limited exports to China. Restrictions on technology and technology transfer have put South Korean companies in a bind.
According to Yonhap Sejong, according to the Korean Statistics Office, the chip inventory rate in South Korea in January this year was 265.7%, the highest in 26 years since March 1997. The inventory ratio is the percentage obtained by dividing the seasonal factor inventory index by the shipment index, indicating the ratio of shipments to inventory. The chip shipment index (excluding seasonal factors) in January was 71.7, a month-on-month decrease of 25.8%. During the same period, the inventory index rose 28% month-on-month to 190.5. A high chip inventory rate means that supply exceeds demand. Exports of semiconductors, South Korea's main export, fell 42.5% last month amid slumping demand and falling chip prices. Given that chips are South Korea's main export product, South Korea's export and economic prospects are worrying.
Containers are stacked at a port in the southeastern city of Busan on Feb. 26, 2023. (Yonhap)
Total exports excluding chip exports rose 0.8 percent year-on-year to $44.1 billion in January, data from the Ministry of Trade, Industry and Energy showed. However, the total export value including chips decreased by 7.5% year-on-year to US$50.1 billion, falling for five consecutive months. This was attributed to the seven consecutive months of decline in chip exports.
4. Summary
In summary, the development of the U.S. chip industry has shifted from the efficiency logic based on the global division of labor to the institutional logic based on confrontation and containment. This approach may eventually lead to a situation where both sides will suffer. Although it has successfully curbed the development and upgrading of China's semiconductor industry, it has further aggravated the situation. This has increased the country's financial expenditure and increased the labor cost of enterprises; in the future, a series of chain reactions may occur, and the price of semiconductor products may also be greatly increased.
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