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Global semiconductor competition fierce

by The Washington Post | June 15, 2021 at 1:57 a.m.

When a semiconductor company opens a factory in Taiwan, the government covers almost half of the land and construction costs and 25% of the equipment costs. In Singapore, government subsidies cut the cost of owning a computer-chip factory by more than a quarter.

Europe is cranking up financial incentives, too. And in China, the government is on track to spend as much as $200 billion to subsidize semiconductor companies through 2025.

The bonanza of perks, detailed in a White House report last week, shows what the United States is up against as it attempts to entice more manufacturers to build domestic factories to produce computer chips, the precious electronics now in short supply.

The U.S. came closer to entering the subsidy competition last week when a rare bipartisan vote in the Senate endorsed legislation funneling $52 billion into new chip manufacturing and research. The measure, supported by President Biden, still must clear the House.

But even if it does, the United States will continue facing stiff global competition to attract the factories that make the cutting-edge technology as countries around the world, riding a wave of industrial nationalism, attempt to secure their own manufacturing rather than relying on imports in an uncertain world.

Some Asian nations have long subsidized their chip and hardware manufacturers. But the trend is spreading to more regions, and the perks are growing in size, partly as a reaction against globalization and the dissatisfaction it brought many workers in the developed world, who lost jobs as manufacturing shifted overseas.

It's also a response to the coronavirus pandemic, which sent countries into lockdown and disrupted global supply chains, leaving many Western nations without the medical equipment and other essential goods they needed to fight the virus and restart their economies.

Perhaps most of all, it's a response to the enormous sums the Chinese government is investing in its domestic tech industries, a trend U.S. lawmakers and officials fear could further erode U.S. economic might if left unaddressed.

"We are in a competition to win the 21st century, and the starting gun has gone off," Biden said after the Senate endorsed the bill. "As other countries continue to invest in their own research and development, we cannot risk falling behind. America must maintain its position as the most innovative and productive nation on Earth."

The urgency of competing with China has persuaded even some Republicans to embrace more government intervention in the U.S. economy, an approach known as industrial policy that is typically more associated with Democrats.

FIRMS BOOMING ALREADY

Critics of the chip subsidies question the need to throw billions of taxpayer funds at a profitable industry and warn that the incentives arms race could create a glut of production.

"Congress should work to expand U.S. microchip production" but "should not be handing out $53 billion in corporate welfare to some of the largest and most profitable corporations in the country with no strings attached," Sen. Bernie Sanders, I-Vt., tweeted last month. He was the only Democrat to vote against the legislation.

Willy Shih, a Harvard Business School professor who specializes in technology and manufacturing, called the U.S. subsidy plan "worrisome."

"All the lobbyists are out there trying to ensure their firms 'get their share' with less focus on how the money will be precisely spent, or the outcomes measured," he said by email.

Sen. Mark R. Warner, D-Va., who led the push for the funding along with Sen. John Cornyn, R-Texas, said the United States has no choice but to subsidize, given the incentives other nations are offering.

"We need that supply chain here in the United States," he told reporters last week. Semiconductor factories are among the most expensive manufacturing facilities to build, costing $10 billion or more because of their specialized machinery.

FACTORY EXPANSION

Thomas Sonderman, chief executive of Minnesota-based chip manufacturer SkyWater Technology, said the company hopes to use some of the subsidies to accelerate expansion of its factory in Bloomington, Minn. The automotive industry is one customer of SkyWater's chips, using them to power dashboard displays. Appliance manufacturers and the Defense Department also use them.

SkyWater will add equipment to the facility with or without subsidies because of soaring demand, but can buy the machinery faster with federal support, Sonderman said, estimating the total investment to be $250 million.

With federal funding, SkyWater could double output at the factory in six to 12 months, he said. "If we did it without that funding, then you are getting into years' time frame," he said.

The incentives game is also heating up over lithium-ion batteries, an essential component of the new green economy. The batteries power electric vehicles and store renewable energy for utility companies. They are also expected to become increasingly important for powering aircraft and military equipment such as drones.

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