The Arrival of 'Semiconductors and Science Law'... Implications and Response Strategies

KIET Publishes Report on 'Policy Implications of the U.S. CHIPS and Science Act'
"Need to Foster System Semiconductors... Must Utilize the 탈 대만 Card"

Overview Table of Semiconductor and Science Act [Source=Korea Institute for Industrial Economics & Trade]

[Asia Economy Reporter Kim Pyeonghwa] As the United States accelerates the isolation of China in the advanced semiconductor industry, it has introduced the Chips and Science Act worth 366 trillion won along with the Chip 4 alliance to secure a competitive edge. The bill has been evaluated as a signal of a new Cold War amid ongoing US-China hegemony competition. It is expected to have a significant impact on the domestic semiconductor industry.

To respond to this, advice has been given to raise support for the domestic semiconductor industry to the level of major countries and to foster the promising field of system semiconductors. There are also suggestions to find business opportunities by leveraging the efforts of the US and Europe to reduce dependence on Taiwan.

President Biden Signs the Chips and Science Act on the 9th... $52 Billion Invested in Semiconductor Industry

The Korea Institute for Industrial Economics and Trade (KIET) recently released a report titled “Policy Implications of the US Chips and Science Act.” The report contains the main contents of the Chips and Science Act, which reflects the US ambition to strengthen economic and industrial security amid US-China hegemony competition. It also explores domestic response measures.

The Chips and Science Act was created by coordinating the US Senate bill “US Innovation and Competition Act (USICA)” and the House bill “America COMPETES Acts.” After over a year of discussions between both chambers and parties, the law was enacted. The core is to support the semiconductor industry, advanced technology, and basic science research and development (R&D), with a budget of $280 billion (365.68 trillion won). After passing the US Congress in July, President Joe Biden signed the bill on the 9th (local time), marking the start of its full implementation.

The law attracted attention by including the “CHIP Act,” which provides a total of $52.7 billion (68.8262 trillion won) solely for the semiconductor industry, including support for building semiconductor facilities in the US ($39 billion, 50.934 trillion won) and advanced semiconductor R&D ($11 billion, 14.366 trillion won). It also includes the “FABS Act,” which offers a 25% tax credit to companies building semiconductor factories in the US. This tax credit is expected to provide support worth $24 billion (31.344 trillion won) over ten years. A guardrail clause prohibits companies receiving related subsidies from expanding semiconductor manufacturing facilities or making investments in China and other countries for the next ten years.

President Joe Biden delivering a speech at the White House in Washington DC, USA, on the 10th (local time)
[Image source=Yonhap News]

The Chips and Science Act also includes a total investment of $81 billion (105.786 trillion won) in basic science, artificial intelligence (AI), and related advanced industry R&D. This largely adopts the recommendations of the US National Security Commission on Artificial Intelligence (NSCAI) report, which sets tasks such as securing technological superiority over China.

The ten core technologies to focus R&D on are ▲ AI ▲ High-Performance Computing (HPC) and semiconductors ▲ Quantum information science ▲ Robotics and advanced manufacturing ▲ Natural disaster prevention and preparedness ▲ Advanced communications ▲ Bio, genetics, synthetic biology ▲ Data, distributed ledger, cybersecurity ▲ Advanced energy (batteries, nuclear) ▲ Advanced materials. Additionally, the plan includes investing $13 billion (16.978 trillion won) from next year through 2027 to strengthen STEM (science, technology, engineering, mathematics) education across the entire education cycle from pre-kindergarten to graduate school. Over 3,000 STEM graduate scholarships will be newly established within the next five years.

KIET: "Need to Foster System Semiconductors... Utilize the De-Taiwanization Card"

KIET described the Chips and Science Act as “a clear signal of the new Cold War in the US-China technological hegemony competition and economic and industrial sectors, following the launch of the Indo-Pacific Economic Framework (IPEF) and the renewal of NATO’s strategic doctrine.” It also evaluated that “it re-highlights the fact that national competitiveness is determined by science, technology, and advanced industry competitiveness.” The report added a forecast that the global semiconductor division of labor system will enter a structural transition period around 2025.

The semiconductor industry is expected to be affected by the Chips and Science Act, with domestic companies such as Samsung Electronics, which plans to expand its semiconductor factory in Texas, and SK Hynix, which announced new investment plans in the US. Although they can benefit from tax credits and other incentives, both companies have semiconductor factories in China and conduct related businesses there, which could cause damage. It is considered a time to seek solutions.

KIET advised expanding the quantity and improving the quality of semiconductor industry support policies. Since strategic industries have not only economic and industrial effects but also future national competitiveness and security value, direct subsidies and tax benefits should be provided at the level of major countries. The report also included the need to resolve investment difficulties caused by various regulations and local government permits.

Table of Key Contents of the Semiconductor Support Act Included in the Semiconductor and Science Act [Source=Korea Institute for Industrial Economics and Trade]

It also proposed a strategy to preempt the strategic de-Taiwanization demand from the US and Europe. Since they aim to reduce dependence on Taiwan, which faces security threats, in the short term, it is necessary to strengthen the competitiveness of the domestic advanced post-processing ecosystem as well as chip manufacturing. In the mid to long term, a two-track strategy focusing on maintaining the super-gap in the core memory semiconductor sector and strengthening competitiveness in the promising system semiconductor sector is required.

Especially considering future demand markets, it is time to develop an industrial growth strategy in the system semiconductor field. At the corporate level, expanding networks with global companies leading future demand industries is necessary, and at the government level, strengthening strategic cooperation with the US and the European Union (EU) is essential, according to KIET. It is also necessary to foster the system semiconductor industry ecosystem by nurturing domestic small and medium fabless (semiconductor design) companies and design personnel.

KIET emphasized, “When formulating system semiconductor industry strategies, it is necessary to strengthen the focus on future demand industries such as AI-related advanced industries and automotive semiconductors,” adding, “It is crucial to enhance cooperation linked to major domestic demand industries such as automobiles, shipbuilding, and IT, while establishing an information collection and proactive response system for the growth of future promising new technology products and service markets at the global level.”

This content was produced with the assistance of AI translation services.