[Global Focus] Companies Hurt by US Semiconductor Law... "Decoupling Is an Illusion, Will Only Help China's Self-Reliance"

[US Semiconductor Act & IRA 1 Year]①
$260 Trillion Investment in US Manufacturing... 30% in Semiconductors
China's Semiconductor Imports Down 22.4% in H1
US Semiconductor Association Urges Government to Refrain from China Sanctions
Dissatisfaction Within Japanese Government
ASML: "Decoupling Is an Illusion"
NVIDIA: "Will Only Help China's Self-Reliance"

Editor's NoteThe United States' CHIPS and Science Act (CSA) and Inflation Reduction Act (IRA) mark their one-year anniversary this month. The targets of these two bills are clear: to revitalize manufacturing reshoring (the return of overseas companies to domestic soil) and secure mineral supply chains away from China, aiming to curb China's "rise in advanced technology" amid the US-China hegemonic competition era. As the US-China trade war ignited during the Trump administration escalates into a technology hegemony war under the Joe Biden administration, this article assesses the current status and outlook of the CSA and IRA, which are seen as symbols of US-China conflict and decoupling between the two countries.

One year ago, on August 6 last year, the US CHIPS and Science Act (CSA) passed Congress, ushering in a new turning point for the global semiconductor industry. By designating semiconductors?often called the "rice of industry"?as a core asset of 21st-century economic security, the curtain officially rose on efforts to build a US-centered semiconductor supply chain.

Over the past year, the US's encirclement strategy to exclude China from the semiconductor supply chain by rallying allies has gradually tightened. Especially following news that $52 billion (about 66 trillion KRW) in subsidies would be distributed based on the CSA, companies like Samsung Electronics, SK Hynix, and TSMC flocked to the US, kickstarting their own supply chain construction. However, this triggered subsidy-driven bleeding competitions among countries including Europe and Japan, raising concerns about a "zero-sum" game. Since the CSA's implementation, the US's unilateral semiconductor production and export restrictions against China have accelerated, causing strain among allies and global companies.

Amid this, experts cautiously predict that the US will not fully succeed in "decoupling" from China in the semiconductor industry. The idea of relocating the currently optimized international division of labor semiconductor supply chain entirely to the US is considered a fantasy. Moreover, while sanctions against China continue, China is also striving intensely to develop its technology, suggesting that US containment will not necessarily lead to the decline of Chinese semiconductors.

Semiconductor Companies Surge US Investment... Building Encirclement of China with Allies

According to major foreign media on the 1st, from August 2022 when the US CSA and Inflation Reduction Act (IRA) took effect until March this year, announced manufacturing investment plans in the US reached $204 billion (about 260 trillion KRW). This is twice the total US investment in 2021 and 20 times that of 2019. Of the 75 total investment cases, about 30% (21 cases) were semiconductor-related investments. With the "carrot" of semiconductor subsidies and strong pressure from President Joe Biden to build factories domestically, global semiconductor companies competitively opened their investment purses. Samsung Electronics decided on its Texas Taylor plant, while TSMC and Intel chose investments in Arizona and Ohio plants, respectively.

US semiconductor regulations targeting China have become more explicit since the CSA's implementation. Viewing semiconductors as "security assets," the US decided last October to restrict exports of advanced semiconductor equipment to China and requested the Netherlands and Japan to join. These three countries, which hold core semiconductor technologies, monopolize the equipment market. Currently, the top five companies holding 65.5% of the semiconductor equipment market share are all from the US, the Netherlands, and Japan. Notably, the US included extreme ultraviolet (EUV) lithography equipment?essential for advanced semiconductor fine processes and exclusively produced by the Dutch company ASML?in the list of prohibited exports, completely tying China's hands in developing advanced semiconductors.

In March this year, through the CSA guardrail provisions, semiconductor companies receiving US subsidies were restricted from increasing their production in China by more than 5% for advanced products and 10% for older products. As a result, China's semiconductor sector has felt the impact. China's semiconductor imports in the first half of the year dropped 22.4% year-on-year to $162.6 billion (about 207 trillion KRW), significantly exceeding the overall decline in China's total imports (-0.1%). This is analyzed as an effect of US restrictions on China's access to advanced semiconductors and equipment.

China's Retaliation, Industry Backlash... TSMC Delays Factory Operation

Clear limitations have also emerged during the one year since the CSA took effect. The semiconductor industry anticipates significant difficulties continuing US restrictions on China due to China's retaliatory measures, industry backlash, and concerns from allied countries. The US Semiconductor Industry Association (SIA) officially requested the US government last month to refrain from further export control measures against China. The SIA argued, "It is important to allow continued access to China, the world's largest semiconductor market," and warned that "repeated measures with overly broad, vague, and unilateral restrictions risk weakening the competitiveness of the US semiconductor industry and disrupting supply chains."

Fearing China's retaliation, the semiconductor industry has taken urgent countermeasures. Previously, China retaliated against the US by banning sales of US company Micron's products domestically and restricting exports of semiconductor materials such as gallium and germanium. For companies, turning their backs on the Chinese market?which accounts for one-third ($180 billion) of global semiconductor purchases?is an unimaginable loss.

Discontent has also surfaced in the Japanese government, which has followed US semiconductor export controls against China. There are complaints that the US is forcing sacrifices on allies for economic security reasons and excessively restricting corporate management activities. A Japanese Ministry of Economy, Trade and Industry official told a foreign media outlet last month after Japan added 23 advanced semiconductor manufacturing equipment items to its export control list against China, "Japan cannot sanction a specific country unless there is a conflict," and expressed, "We feel uncomfortable with the way the US operates." Japan is concerned about possible Chinese retaliatory measures such as banning Japanese-made electric vehicle sales.

Another major obstacle to the US's own supply chain construction is the shortage of skilled semiconductor workers for new US semiconductor factories under the CSA. TSMC recently delayed the operation of its foundry plant under construction in the US by about a year to 2025, citing a lack of skilled workers. According to US consulting firm McKinsey & Company, by 2030, the US is expected to face a shortage of approximately 390,000 semiconductor engineers and technicians. Due to this shortage of skilled semiconductor workers and high labor costs, there are forecasts that the US will never be able to replace Asia in the semiconductor supply chain.

"Decoupling Is a Fantasy"... Could Accelerate China's Semiconductor Self-Reliance

The overwhelming advantage in the US-China semiconductor technology hegemony competition currently lies with the US. This is based on an anti-China semiconductor alliance with allies. Cooperation with European and Japanese countries holding core technologies, and Asian countries like South Korea and Taiwan, which account for 80% of global semiconductor production, serve as US support forces. However, semiconductor policies that involve sacrifices from companies, markets, and allies raise significant concerns that they will ultimately disrupt supply chains. There is widespread criticism that the reshoring plan to build a semiconductor manufacturing belt in the US?where costs are higher than in Asia?is likely to remain an illusion.

Christoph Puecker, Senior Vice President of ASML, recently told Japan's Nihon Keizai Shimbun in an interview, "We do not believe decoupling is possible," adding, "Decoupling would be extremely difficult and very costly." John Neuffer, president of the SIA, emphasized that the secret to semiconductor industry innovation is "the tremendous supply chain effectively built worldwide over decades," and dismissed the idea that the role of supply chains will diminish as "a fantasy." Currently, semiconductor production is led by South Korea, Taiwan, and China; equipment by the Netherlands (ASML); design by the UK (ARM); and research and development (R&D) by Belgium (IMEC).

There is also speculation that US containment of China may instead accelerate China's semiconductor self-reliance. Despite US sanctions, the Chinese government has recently increased semiconductor company investments through a massive semiconductor investment fund launched in 2019 worth 204.1 billion yuan (about 36 trillion KRW). In particular, investments in material, parts, and equipment companies are expanding, strengthening the semiconductor industry's foundational capabilities. Jensen Huang, CEO of NVIDIA, warned, "If Chinese companies cannot buy chips from the US, they will develop their own," adding, "This only helps China's semiconductor self-reliance."

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