Everyone Wants a Chip Factory

Several times in the past two years, U.S. Secretary of Commerce Gina Raimondo has cited a version of the same statistic, almost like a mantra. 

“Decades ago, the United States produced nearly 40% of the world’s chips. Now, we produce just 12%,” she wrote in a post last month on X (formerly Twitter), echoing similar posts from July 2023, May 2023, and November 2022. “We’re changing that with the CHIPS and Science Act.” 

Passed in August 2022, the act is one of the Biden administration’s signature pieces of legislation, earmarking nearly $53 billion in subsidies and investment to convince semiconductor chip companies to move their factories—colloquially known as fabs—back to the United States. It’s a carrot for the industry’s biggest companies, meant to counterbalance the stick of ever-stricter export controls that prevent many of them from selling their products to China. 

Indeed, U.S.-China competition is driving much of this. Containing China’s technological advance—particularly in semiconductors and the artificial intelligence applications they power—has been one of the Biden administration’s biggest policy priorities. 

But the competition with China is merely accelerating a transition that was already underway, sparked by semiconductor shortages during the COVID-19 pandemic. “You saw kind of a fundamental inflection point where global manufacturers said, ‘This is not anti-China, but we need to build resiliency, and we can’t be overly dependent on one country, frankly even one region,’” said Bruce Andrews, Intel’s corporate vice president and chief government affairs officer who previously served as deputy secretary of commerce in the Obama administration. 

Companies have enthusiastically answered the call. At least 70 new projects have been announced since the CHIPS and Science Act was first introduced in 2020, with planned investments totaling $220 billion, according to figures from the Semiconductor Industry Association. 

But nearly four years on, a few cracks are starting to show. Some of the highest-profile projects—including a new $40 billion complex in Arizona by industry leader Taiwan Semiconductor Manufacturing Company (TSMC) and a $20 billion expansion in Ohio by Intel—have reportedly been delayed due to a combination of workforce shortages, slowing market demand, and protracted negotiations for CHIPS Act funding, which Raimondo said the Biden administration expects to award in the coming weeks.

The United States isn’t the only game in town, though. The European Union has its own Chips Act, with over $46 billion in funding up for grabs; Japan plans to dole out $13 billion in semiconductor subsidies; and India has launched a “Semiconductor Mission” to try to establish its own chipmaking ecosystem. 

“This is all driven by geopolitical movements,” Peter Wennink, the CEO of Dutch semiconductor equipment manufacturer ASML, said in a recent earnings presentation. ASML—whose ultraviolet lithography machines are indispensable to the production of the most advanced chips—has been barred from selling some machines to China by the Dutch government, but Wennink estimates the company will see a boost from more than 20 new fabs being built elsewhere in the world. “We look at 2024-25 as a transition period into new areas of growth.” 

Many of the companies building fabs on U.S. soil are also building them elsewhere. TSMC, which accounts for 90 percent of the world’s most advanced chips, is setting up new factories in Germany and Japan in addition to its Arizona investment. Samsung, which is building a new $17 billion fab in Texas set to start operations this year, is spending several times that amount to expand semiconductor manufacturing in its home country of South Korea. Idaho-based Micron Technology was one of the flag-bearers of India-U.S. tech ties during Indian Prime Minister Narendra Modi’s state visit to Washington last year, announcing a new chip facility in India costing nearly $3 billion. The company also expanded its existing manufacturing capabilities in Japan with monetary support from the Japanese government. 

“India was really more about matching up long-term need to the business with an exciting opportunity in a vibrant economy that’s growing, and an area where the government was willing to invest with significant incentives,” Manish Bhatia, Micron’s executive vice president of global operations, told Foreign Policy in an interview last October. “All countries are really starting to increase their level of focus and their level of support,” he said, because they see “that semiconductors are important for their continuity of supply for their own economies.” 

For companies, that means a smorgasbord of semiconductor subsidies. “If you want to have fabs on your continent or your country, you have got to engage in incentives, and for a fab to be globally competitive, you’ve got to close the cost gap,” Andrews said. “So I think what you’ve seen in the CHIPS Act [and] the EU Chips Act is the Europeans and the Americans finally saying we want to be serious about this, and the only way to be competitive is to engage in the same practices, because otherwise you’re just never going to get manufacturing back to your shores.”

Intel has been on a European expansion spree, starting production at a new factory in Ireland last year and announcing another one in Poland along with a $33 billion investment in Germany. “The big reason we’re in Europe is there’s really not any advanced semiconductor manufacturing in Europe,” Andrews said. Post-Covid, he said, the company recognized “that each continent was going to want to have its own hub.”

Despite its own desire to dominate semiconductor manufacturing again, the United States is actively encouraging and in some cases even enabling its allies and partners to strengthen their own capabilities. Much of the discussion around the U.S.-EU Trade and Technology Council (TTC), which met in Washington late last month, is about aligning those incentives and heading off a potentially damaging subsidy race. 

“We have to work with each other. We shouldn’t compete against each other,” Raimondo said at an event on the sidelines of last month’s TTC meetings. “We can’t allow companies to play us off one another.” 

Raimondo’s counterpart, Margrethe Vestager, the European Commission’s executive vice president in charge of competition and the digital economy, echoed that sentiment, telling the audience at a Washington think tank event the following day that the goal is for the United States and Europe to collectively account for around 50 percent of global chip production. 

“This is not an act of protectionism; this is not trying to be self-sufficient,” she said. “This is to have a much stronger weight in the global ecosystem of semiconductors.” 

The Biden administration is also looking farther afield—$500 million of the CHIPS Act funding has been allocated to the State Department to fund semiconductor fab expansions in seven countries, including Vietnam, the Philippines, Indonesia, Costa Rica, and Panama. “What we’ve done in the last few months since the enactment of the CHIPS Act, since we received this allocation, is to look at several countries as potential partners to work with us in this diversification of semiconductor supply chains,” Jose Fernandez, the State Department’s undersecretary for economic growth, energy, and the environment, told reporters earlier this month following a trip to Southeast Asia.

“Aside from China, which is trying to create its own ecosystem, I don’t think anyone else is,” said Chris Miller, a professor of international history at Tufts University and author of the book Chip War: The Fight for the World’s Most Critical Technology. “What you find is that there’s not a single person in a position of power in any of the G-7 countries that believe self-sufficiency is either possible or desirable.”

Andrews also believes building resilient supply chains is critical. “This is too important not to,” he said. “The way that the oil reserves defined the economics and geopolitics of the last 50 years, semiconductors are going to do that for the next 50.”