[Global Focus] Astronomical Semiconductor Subsidy Distribution... Risk of Falling into the Trap of Overlapping Investments

Securing a Stable Semiconductor Supply Chain Without Being Swayed by Geopolitical Risks
Semiconductor Companies Strive to Attract Domestic Investment
Challenges in Expanding Market Share and Concerns Over Overproduction

Following the United States and Europe, Japan and India have also joined the race to establish their own semiconductor supply chains. They are attracting semiconductor factories to their countries by providing astronomical subsidies. This move aims to ensure timely supply of semiconductors, which serve as the ‘rice’ of advanced industries such as generative artificial intelligence (AI) and autonomous vehicles, without being swayed by various factors like geopolitical conflicts. However, concerns are emerging that the proliferation of semiconductor supply chains could trap the global economy in a cycle of redundant investments.

◆Major Countries Compete in Semiconductor Subsidies... Distributing $100 Billion

According to Bloomberg on the 19th (local time), the subsidies provided by the United States, the European Union (EU), India, and Japan to attract semiconductor companies to their countries amount to approximately $100 billion (about 129.16 trillion KRW).

In the case of the United States, it decided to support semiconductor companies investing domestically with $39 billion (50 trillion KRW), considering their contributions to national security and the economy. According to the U.S. Department of Commerce, more than 200 companies have applied for semiconductor subsidies. Among them, Taiwan’s TSMC, the world’s largest foundry company, plans to build two foundry plants in Arizona and apply for subsidies worth up to $15 billion from the government.

Japan has also invested huge resources to attract semiconductor companies. The Japanese government decided to support 40% of the project cost for TSMC’s current plant construction in Kumamoto, which amounts to 476 billion yen (about 10.6 trillion KRW) out of the total 1.1 trillion yen (about 10.6 trillion KRW).

The EU has also joined the subsidy competition. Germany decided to provide Intel, a U.S. semiconductor company, with subsidies amounting to one-third of the construction cost of its semiconductor plant in Germany, totaling 10 billion euros. Germany is also negotiating subsidy levels related to the establishment of a plant to be built by TSMC in Dresden, Germany. Italy plans to support 40% of the project cost for Intel’s semiconductor packaging and assembly plant.

In addition, third countries such as Israel and India are also fighting fiercely to attract semiconductor companies. Intel is expected to receive subsidies amounting to 12.8% of the $25 billion project cost for factory construction from Israel. India has recently targeted companies leaving the Chinese supply chain amid the U.S.-China hegemony competition.

India provides subsidies of up to 50% of the investment amount to companies investing in land acquisition and facility establishment within the country, and also offers subsidies of 10-25% to local governments. For example, Micron from the U.S., which plans to build a semiconductor packaging plant in India, will be able to receive a total of $1.34 billion in incentives through these support measures.

◆Countries Betting on Securing Supply Chains... Companies Avoid Geopolitical Risks

Major countries are striving to attract companies by distributing subsidies to secure semiconductor supply chains centered on their own countries. During the pandemic, China locked down export routes citing COVID-19 spread prevention, causing severe semiconductor supply issues worldwide. Consequently, major countries began reshoring semiconductor manufacturing to cope with supply chain disruptions.

Image of the office building at the factory under construction by TSMC in Kumamoto Prefecture, Japan [Image source= JASM]

The economic benefits from attracting companies themselves are also enormous. When global companies are attracted, clusters form around them, generating ripple effects that revitalize regional economies.

For example, in Japan, a massive semiconductor cluster has been formed centered on Kumamoto Prefecture, where TSMC built its plant. Leading Japanese semiconductor companies and equipment manufacturers relocated their factories following TSMC, turning Kumamoto Prefecture into a major semiconductor production hub. Kyushu Financial Group, a financial group in Japan’s Kyushu region, estimated that TSMC’s entry will bring economic effects exceeding 4.3 trillion yen to Kumamoto Prefecture over the next decade.

◆Concerns Over Overproduction Due to Redundant Investments... UK Chooses Diversified Investment

However, there are criticisms that such movements will ultimately reduce the overall efficiency of the global semiconductor industry due to redundant investments. As companies expand factories worldwide to obtain subsidies, the specialization function of semiconductor technology may decline.

Currently, the semiconductor industry is dominated by Taiwan, South Korea, the United States, and China in production. In semiconductor equipment, the Netherlands (ASML) leads; in semiconductor design, the United Kingdom (ARM) plays a leading role; and in semiconductor research and development, Belgium (IMEC) is dominant. Luc Van den Hove, CEO of IMEC, pointed out, "Each country has unique strengths in different semiconductor industry sectors," adding, "If every country tries to perform all functions, significant disruptions will occur."

[Image source=Getty Images Bank]

At the national level, it is also expected that redundant investments will not lead to increased market share. If factories are built in each country due to subsidy competition, it will be difficult to increase each country’s market share because the overall supply volume itself will increase. Jan Peter-Kleinhans, a semiconductor researcher at the German think tank SNV, predicted, "The share of cutting-edge manufacturing capabilities will not change significantly from a geographical perspective."

There are also concerns that subsidy competition could lead to unprecedented semiconductor overproduction. Such concerns have reportedly been raised within the EU as well. Bloomberg reported in February that government officials from Belgium, France, Germany, Italy, and the Netherlands raised the issue of semiconductor overproduction ahead of the EU’s semiconductor support law. Bloomberg stated, "Some of these countries emphasized that government support should be used to support European companies," and "Some member states are worried that subsidy competition could lead to excessive semiconductor production." This reflects fears of a chicken game triggered by increased semiconductor supply.

SoftBank-owned British semiconductor design company ARM

The United Kingdom recognized this issue and adopted a different strategy from other countries. It chose to concentrate investments only in areas where it has advantages. Last month, the UK announced a ?1 billion (about 1.65 trillion KRW) investment plan to strengthen its domestic semiconductor industry. Although the budget is smaller compared to other countries, the UK decided to focus investments intensively on design and compound semiconductor fields where it has strengths.

On the other hand, semiconductor production will be entrusted to a partnership with Japan. Politico, a U.S. political media outlet, reported, "UK government officials expect that Japan’s manufacturing strengths will complement the UK’s design capabilities, creating a synergistic effect."

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