US-China Relations Updates

According to Bloomberg’s report on the 3rd, the Semiconductor Industry Association of the United States stated that despite the US government’s concerns over “national security,” American semiconductor companies still hope to enter the Chinese market.

“(China) is our largest market, and we are not the only industry advocating for this,” John Neuffer, President and CEO of the Semiconductor Industry Association of the United States, said in an interview with Bloomberg. “Our view is that we cannot be absent from the Chinese market.”

According to the US “Chip and Science Act of 2022,” Washington will provide over $50 billion in industry subsidies to chip companies and invite them to build factories in the United States. Washington will also offer investment tax breaks for these companies. The US not only aims to create at least two advanced-process chip manufacturing clusters before 2030 through the subsidy plan but also hopes to curb the development of the mainland Chinese chip industry and economy. The relevant subsidy program stipulates that companies receiving US subsidies must not increase their advanced semiconductor production capacity in mainland China by more than 5% in the next ten years, and their existing general semiconductor production capacity must not increase by more than 10%. If companies conduct joint research or share technology licenses with “concerned countries” such as China, they must return all subsidy funds.

Regarding the US “Chip and Science Act,” John Neuffer expressed optimism in an interview with Bloomberg, saying that he believes the US government will pragmatically address such obstacles to ensure the success of the chip plan and that related companies can obtain funding.

In addition, according to the report, Greg Slater, Vice President of Global Policy at the Semiconductor Industry Association of the United States, also stated that “We just want clear ‘traffic rules.’ The US government should have a clear definition of what is a national security issue and be transparent and predictable.” He complained, “To be frank, in the past two administrations, we have been a bit like riding a roller coaster in terms of national security and trade restrictions.” “For semiconductor companies trying to formulate a five-year plan, not knowing what might happen in the next six months will bring a lot of uncertainty and challenges.”

Earlier reports stated that Biden signed the “Chip and Science Act” into law on August 9 last year, and he mentioned China several times in his speech at the signing ceremony. The law provides huge subsidies to chip manufacturing companies in the United States, requiring these companies to agree to “not develop precision chip manufacturing in China.”

In response, Chinese Foreign Ministry spokesperson Wang Wenbin criticized the US law on August 10 last year, stating that this law was purportedly aimed at improving US technology and chip industry competitiveness but provided huge subsidies to the US domestic chip industry and implemented differentiated industrial support policies, including some clauses that restricted relevant companies’ normal investment and economic and trade activities in China and normal Sino-US scientific and technological cooperation. This will distort the global semiconductor supply chain and disrupt international trade, and China firmly opposes this. The so-called “protective measures” of this law have a strong geopolitical color and are another example of the US’s economic coercion.

On August 18 last year, Chinese Ministry of Commerce spokesperson Shu Jueting stated that the US’s introduction of the “Chip and Science Act” provided huge subsidies and tax preferences to the US domestic chip industry, which is a typical differentiated industrial support policy. Some of the provisions restrict relevant companies’ normal economic, trade, and investment activities in China and are discriminatory, seriously violating market laws and international economic and trade rules, distorting the global semiconductor supply chain, and disrupting international trade. China firmly opposes this. The implementation of the US law should comply with the relevant rules of the World Trade Organization, adhere to the principles of openness, transparency, and non-discrimination, and benefit the security and stability of the global industry and supply chain, avoiding fragmentation. China will continue to follow the implementation of the law and take necessary measures to safeguard its legitimate rights and interests.

What are the potential consequences of the US’s “Chip and Science Act” on the US-China trade relationship?

The US’s “Chip and Science Act” has the potential to further strain the US-China trade relationship. The law’s provisions, such as the restrictions on companies receiving US subsidies from increasing their advanced semiconductor production capacity in mainland China and returning all subsidy funds if they conduct joint research or share technology licenses with “concerned countries” such as China, may be viewed by China as discriminatory and infringing on its economic and trade interests.

China has expressed strong opposition to the law, and its implementation may lead to retaliatory measures from China, such as imposing tariffs or restrictions on US companies operating in China. This could escalate into a trade war between the two countries, further damaging their economic ties.

Moreover, the law may lead to a fragmentation of the global semiconductor supply chain, as companies may be forced to choose between the US and China markets, potentially reducing efficiency and increasing costs for the industry as a whole. This could have negative consequences for both US and Chinese chip companies, as well as for companies in other countries that rely on the global semiconductor supply chain.

Overall, the US’s “Chip and Science Act” has the potential to exacerbate tensions between the US and China in the semiconductor industry and beyond, with potentially far-reaching consequences for the global economy.