Set multiple thresholds, dissatisfied voices, will the US chip subsidy application be in trouble?

The impact of the $39 billion financial subsidy program thrown out by the United States on February 28 continues to ferment. The Biden administration's purpose is to attract global chip giants to build factories in the United States, and impose harsh restrictions on the business of applicant companies in China, which is very obvious for China. In the past few days, according to the analysis of the subsidy plan details by the US media, it is not easy for companies to get these subsidies. At the same time, various voices of concern and dissatisfaction continue to come out. Industry experts said that the US government has a past of preferential policies for foreign-funded enterprises in the high-tech field. At the same time, in the face of the high cost of the high-end semiconductor industry, US subsidies are "a drop in the bucket" compared with its industrial hegemonic ambitions. Compared with the propaganda battle in advance, the various problems that may be encountered in the implementation of this policy are the real test of the United States, and will its industrial plan, which is full of geopolitical calculations, end up in a mess?

Subsidy applications will last for several months

According to the Wall Street Journal, the U.S. Department of Commerce subsidy applications will last for several months, opening February 28 for applications for chip manufacturing and packaging, opening subsidy applications for materials and equipment related to chip manufacturing later this spring, and opening the application process for chip research and development projects in the fall. The subsidies will be distributed in batches based on the progress of project construction and operation, rather than upfront one-time support, and the Commerce Department will set up a panel of financial professionals to review applications and negotiate with those applicants. Reuters, citing data from the Semiconductor Industry Association (SIA), reported that U.S. and foreign manufacturers have launched more than 40 projects in the United States, with a total investment of nearly $200 billion.

With the U.S. federal government piling up debt, the U.S. Department of Commerce has set a number of thresholds for companies to receive subsidies. Under the Commerce Department's application rules released this week, companies receiving subsidies will be required to share part of their profits with the government, and share buybacks and dividends will also face restrictions. In addition, the U.S. government requires these companies to use union labor, as well as U.S.-made steel, to build production facilities while providing affordable childcare for employees. More notably, the U.S. government has also imposed strict restrictions on subsidized companies doing business in China.

The Wall Street Journal reported that the extensive list of requirements has also raised questions in the economics community. The New York Times believes in its analysis that the US Department of Commerce's requirement that companies receiving subsidized programs need to share profits with the government may be unpleasant for some companies, and because the company's finances may be opaque, this rule will be difficult to implement.

How much money can you get by investing in the chip field by following the industrial policy of the United States? The South Korean media recently calculated an account. Yonhap News Agency reported on March 1 that according to the subsidy implementation rules announced by the US Department of Commerce, Samsung Electronics invested US$17 billion to set up a factory in Texas, USA, and can receive direct subsidies from the US government between US$850 million and US$2.55 billion, and if credit and guarantee support is included, the final amount of support may be as much as US$5.95 billion.

However, in the face of "real money" subsidies, South Korean semiconductor companies are very cautious in applying for subsidies, a very important reason is that the conditions are unimaginably harsh. The U.S. Department of Commerce requires companies submitting grant applications to submit a 30-page report on how they can contribute to U.S. economic security and national security. The U.S. government has also proposed onerous conditions for banning investment in China for the next 10 years after receiving the subsidy.

Investing in the US chip industry, TSMC has "lessons from the past"

Liu Jianli, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences, recently wrote that at present, most of the subsidies promised by the United States (estimated by the industry to be about 80%) will enter the pockets of US companies. Liu Jianli believes that if the United States continues to "pay lip service" to foreign-funded enterprises in follow-up policies, the long-term investment willingness of these enterprises in the United States will inevitably decline.

Taiwan enterprises may have the deepest experience of the US government's consistent practice of attracting foreign investment. Taiwan media said that after TSMC's investment in the United States, Intel and other American chip companies continued to lobby the government, repeatedly questioning the government's "subsidy of taxpayers' money to overseas competitors may damage the innovation ability and financial resources of the United States", and strive to obtain higher subsidies than TSMC and other overseas companies.

TSMC faces various difficulties in advancing the project in the United States. The New York Times recently quoted TSMC employees as saying that they were worried about the integration of employees in the Arizona plant. Some TSMC engineers said that Taiwanese engineers work long hours and weekend shifts, which Americans may not want to do. The engineer who left TSMC last year revealed that he had considered joining TSMC's overseas expansion plans, but realized that it was possible to take care of the aftermath for American employees, so he was not interested. He admitted: "The most difficult thing in wafer manufacturing is not technology, but personnel management, but Americans are the most difficult to manage." Some employees complained that after the Taiwan employees were assigned tasks, they had to make it even at 11 p.m., and Americans left work as soon as they arrived at 5:30 p.m.

Guo Zhengliang, a former "legislator", also reminded, "Don't think that TSMC's engineers go to the United States is only a very small minority, TSMC has more than 56,000 employees worldwide, but only about 8,000 people who are really high-level engineers and can make chips below 7 nanometers, and the senior engineers who go to the United States this time account for about 6%-7% of 8,000 people, and it may increase to 12% in another 3 years." He believes that TSMC's US factory may become Intel's "talent training center", and when the three-year contract of senior engineers arrives, I am afraid that many employees will jump to Intel in order to get US green cards.

Can the United States stand this "gold-swallowing beast"?

Given the huge cost of building high-end semiconductor facilities, the largest federal investment in a single industry in decades, involving more than $50 billion, could soon run out, according to a March 1 report by The New York Times.

Under the Chips and Science Act, the largest portion of the $39 billion will be used for new construction and expansion of manufacturing equipment, with the remaining $11 billion set aside later in 2023 to support research into new chip technologies.

The New York Times said most of the money spent on manufacturing is likely to go to a few companies that make the world's most advanced chips, some to older chipmakers, and some to the industry's raw material suppliers and companies that package chips into final products. But the U.S. government doesn't plan to fund the entire project. Under the Chips and Science Act, these subsidies only fund a project that accounts for 5 to 15 percent of a company's capital expenditure, and is not expected to exceed 35 percent of the project's cost. These companies can also claim tax credits, but can only reimburse 25% of the cost of project construction.

Liu Jianli believes that more than $50 billion in financial subsidies is a lot of money for the US federal government, but it may only be a drop in the bucket for the chip industry, a "gold-swallowing beast".

For example, Liu Jianli said that TSMC's investment in chip manufacturing will exceed $40 billion in 2022, and Intel's construction of two new chip manufacturing plants in Ohio in January 2022 will cost $20 billion. The U.S. chip fund allocated $24 billion in the first year, and even if it can be implemented, it is only equivalent to the annual investment of a large company like Intel Corp. Therefore, it is unrealistic for the United States to try to make up for and strengthen the shortcomings of chip manufacturing in the short term through financial subsidies.

According to a recent MIT report, the amount of investment in the bill is not enough to stop competitors like China from overtaking the United States. Neil Thompson, director and head of research at MIT's Future Technologies Research Program, said, "If we don't have a competitive advantage, then American companies will lose contracts, bids, and other things they want, and American companies will not be stronger, and America will not be more prosperous." ”