[Initial Insight] One Year Since the Introduction of the US Semiconductor Support Act... Difficult Separation from China

One Year Since the Introduction of the Semiconductor Support Act
The Boom in Attracting Semiconductor Factories
But Severing Ties with China Remains a Difficult Issue

Next month marks the one-year anniversary of the enactment of the U.S. Semiconductor Support Act. The act, which began with the goal of establishing an independent supply chain in the U.S. away from the shadow of China, a semiconductor production hub, came into effect when President Joe Biden signed the related executive order on August 6 last year.

One year later, countries around the world are making every effort to establish their own supply chains, following the lead of the U.S. at the forefront. This is driven by concerns about being left out of the supply chain restructuring and fears that U.S.-China tensions could impact semiconductor supply and demand. Not only China but also Europe, Japan, India, and South Korea have taken the lead. They have extended incentives to semiconductor companies with promises of subsidies. According to Bloomberg estimates, the funds planned for subsidies by the U.S., Europe, India, and Japan amount to $100 billion.

Semiconductor companies are seizing the opportunity to build overseas factories. With major semiconductor demand countries offering subsidies, there is no reason to delay establishing plants. Taiwan’s TSMC, the world’s largest foundry company, has begun building new factories in the U.S., Japan, and Germany, while U.S.-based Intel has investment plans in Germany, Ireland, France, Italy, and Israel. U.S. Micron has also decided to build new factories in Japan and India. Samsung Electronics has announced plans to build new factories in both the U.S. and South Korea.

On the surface, the U.S. Semiconductor Support Act appears to have successfully taken root, leading a wave of semiconductor investment among allied countries. However, this image also seems somewhat like a mirage. There are numerous challenges that need to be addressed.

China’s countermeasures pose the biggest problem facing the U.S. The Chinese Ministry of Commerce has designated eight gallium products and six germanium products as export-restricted items, requiring export permits starting from the 1st of next month. Gallium is used in next-generation power semiconductors, and germanium is a material used in semiconductor process gases. Over 95% of the world’s gallium production and more than 60% of germanium come from China. While countries initially predicted minimal impact, U.S. Treasury Secretary Janet Yellen boarded a plane to China after the sanctions. She stated, "A complete decoupling of our economies would be a disaster for both countries," but failed to find common ground with China. Concerns have grown that China’s sanctions may not end here.

It is also difficult to withdraw from the Chinese market. According to The New York Times, one-third of global semiconductor sales come from China, and for some U.S. semiconductor companies, 60-70% of their sales are generated in China. If companies exit the Chinese market considering their relationship with the U.S., others will fill the gap. The U.S. semiconductor market share is about 12%, and even maintaining this could become difficult.

Another challenge is that the semiconductor supply chain is not simply about attracting factories. The semiconductor parts supply chain, centered in Taiwan, Vietnam, and Malaysia, cannot be instantly replicated in the U.S. There are concerns about falling into the trap of redundant investments as semiconductor factories are rapidly established. Even if all the aforementioned issues are resolved, the costs of building new supply chains and the logistics expenses from supply chain restructuring will ultimately lead to product price increases, which will be borne by global consumers, weakening the persuasiveness of the Semiconductor Support Act.

Can the U.S. truly outpace China and regain its reputation as a ‘semiconductor powerhouse’? Having enacted the law, reversing course is difficult. However, it seems that taking a further step forward will not be easy, and the author is likely not alone in feeling this way.

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