America's chip bill moves to Reverse course
After more than half a year of brewing, the Chip and Science Act subsidy application process officially opened. Today, the U.S. Department of Commerce's National Institute of Standards and Technology (NIST) issued a "Notice of Funding Opportunities (NOFO)" - applications for funding for projects at frontier, current generation, mature nodes, and back-end production facilities - marking a new phase in the implementation of the Chip Act.
In this regard, in the view of the US government, the "starting gun has sounded" in the competition to restore the global leading position of US semiconductor manufacturing, and these investments will bring many returns, and are regarded as a key turning point in the revitalization of the US semiconductor manufacturing ecology. However, the industry believes that the application conditions of the chip bill are "surprising", while the requirements of prohibiting share buybacks, sharing excess profits with the government and using local materials have also caused more controversy, and even some chip company executives "feel heartache".
At a time when the international geopolitical situation is heating up and the semiconductor industry is entering a new cycle, the implementation of the US chip Act has gradually fallen into a series of contradictions such as subsidy competition, stringent conditions, decoupling from China and counter market laws, which is bound to inevitably become more complicated, unbalanced and ineffective. On the surface, the chip bill is an important way and symbol to promote the United States to regain the dominance of the industrial chain, but the deep layer is actually a "reverse action" that destroys the past global efficient division of labor value chain.
Competing interests and unity break down
As an institution of the National Institute of Standards and Technology, the CHIPS Program Office (CPO) recently officially launched the Chip Act's first round of funding opportunities, and will begin accepting pre-applications and complete applications for cutting-edge facilities from March 31. Pre-applications for current generation, mature nodes and back-end production facilities will be accepted from May 1, and full applications will be accepted from June 26. That kicked off a scramble for $39 billion in manufacturing incentives and $11 billion in research and workforce development investments.
The distribution of subsidies has long been one of the most contentious issues. The Chip Act's application conditions were described by industry insiders as "surprising" and vaguely applicable, including that companies applying for grants would have to submit information about national security, financial health, project viability and other issues, and that each company would have to negotiate separate agreements with the U.S. government. "If the administration tries to go deeper into more industries at the negotiating stage, it could make it more challenging for companies to get subsidies."
Now, as the Biden administration begins to dole out money, the industry's past unity in pushing for the chip bill is fraying, with executives, lobbyists and lawmakers scrambling to make their case, publicly or secretly, for using the funds, while states, cities and universities have also taken action. "Everyone wants a piece of the action," said Willy Shih, a management professor at Harvard Business School and an expert on semiconductor supply chains. "It's not surprising that some companies are asking tough questions about their competitors."
"The fund allocation process of the chip bill will inevitably become complicated and time-consuming," Han Lijie, partner of Katten Muchin Rosenman LLP, further said in an interview with Jiwei Net that the relevant policy is still one of the main criteria for corporate strength and financial resources. It can be difficult for small businesses to get applications. In addition, American manufacturers will have some natural advantages, but some companies in the United States for many years, Japan and South Korea and other places also have the opportunity to obtain national treatment.
In response to this focus, the US Senate Commerce Committee stated in its latest "Notice of Funding Opportunities" guidelines that "priority will be given to applicants who provide substantial private investment for the project." By implication, companies that invest little risk becoming cannon fodder for the subsidy race. But for manufacturers that invest heavily, even eventually getting subsidies can be a "hot potato" because companies are subject to multiple restrictions on flexibility, transparency and compliance. This will no doubt force participants to think again about investing in U.S. factories.
Strict terms difficult landing
According to the latest document announcement, the subsidy application conditions of the US chip Act are obviously more controversial, including prohibiting the use of subsidy funds for dividends or share repurchases, and the applicant needs to provide a stock repurchase plan for the next 5 years; Applicants who receive more than $150 million in funding will have to agree to return a percentage to the government if the project's profits exceed expectations, as well as to provide "affordable, high-quality child care" for construction workers and employees near the project.
Many of the chip Act's requirements and conditions for profit sharing, share buybacks and labor have been questioned by some economists. Among them, Scott Lincicome, a trade and economics expert at the Cato Institute, a libertarian policy group, said: "This funding appears to have more restrictions or conditions than the law requires." He noted that child care regulations and requirements such as "Buy American" will increase costs for participants, as well as potentially slow down facility projects.
In general, share buybacks, such as those of Texas Instruments and Intel, tend to bring more wealth to shareholders and executives because they raise the share price. According to Han Lijie analysis, the subsidy funds of the chip bill are for special purposes, and the prohibition of share buybacks is a normal demand, which can avoid some enterprises using it to hype in the capital market. But because American public companies prefer to pay dividends, this will also dampen some of the industry's enthusiasm. Overall, some companies may prefer share buybacks to subsidies.
In addition, the most controversial part of the provisions appears to be the profit-sharing requirement. Democratic Senator Jack Reed praised the plan, saying the chip funding "is not a free handout to billion-dollar tech companies." There is no downside to participating in companies because if they do extremely well, they only need to share a portion of future profits." But Mr Henley said: "Policy measures for companies to return excess profits are a very rare requirement, and in fact may not really land."
Overall, on the one hand, the chip Bill funding application attached a number of conditions such as procurement of domestic materials, climate and environmental responsibility, and preferential treatment of talent, workers and children, which further drove up the cost of facility construction and operation. On the other hand, restrictions on share buybacks, the profit-sharing system and the requirements of the overlapping application process will inevitably make subsidy funds less attractive. For example, TSMC is breaking ground on a large plant in Arizona, but has not said whether it will apply for U.S. funding.
Obsession with disruptive industries
In the context of the Great Game between China and the United States, the US government has, as always, "added fuel" to the funding conditions, that is, prohibited the recipients of funds from making major chip manufacturing investments in "countries of concern" within 10 years; Applicants who "knowingly conduct any joint research or technology licensing work with an overseas entity that raises national security concerns" will need to return all subsidy funds. This was widely seen as a move aimed at China, and "the new U.S. subsidy rules effectively prohibit doing business with China."
In this regard, Shen Yi, a professor of international politics at Fudan University, told the Jiwei network that the entire goal of the United States is to establish a set of so-called self-sufficient supply chains, and even to achieve absolute monopoly. However, from the perspective of economic industry, the integration of the United States based on national security motives will certainly bring a product premium, because it is not the optimal solution combining marketization and production costs. "The fundamental starting point for reshaping semiconductor production capacity by replacing the role of the market with regulatory measures goes against the laws of the market and is difficult to drive on the demand side."
For semiconductor companies, accepting funds from the U.S. government also means that they will face a number of restrictions. In Shen Yi's view, "Attracting chip manufacturers to invest in the United States is similar to using government directives and seed funds that are far smaller than the real needs of the industry to guide a large scale and far-reaching industrial layout, and the companies that obtain funds may, to some extent, become enterprises that follow the instructions of the United States government for sales." So we need to look at whether it's worth giving up a larger market for these subsidies."
"From the point of view of the industrial or commercial core logic, the key to the US chip Act is equivalent to proving that industrial policy under the government's directive can achieve better solutions than the market economy's pursuit of maximum benefit layout, which is probably the most difficult challenge facing the chip Act." Shen Yi believes that if there is no accident, these plans will have some limited effects in the short term, but the long-term rebound of the market and the endogenous pursuit of benefits by enterprises will eventually have a greater probability that the subsidy policy will gradually become ineffective.
Although the "ambition" of the United States to restructure the whole semiconductor industry chain has been clearly revealed, there are still many variables due to different internal and external resistance. Great Kang, a well-known expert in the semiconductor industry, also pointed out that the priorities of the chip bill seem to be very "big", but I am afraid it is difficult to achieve the expected goals, because the semiconductor industry is not able to settle everything with money, the need for industrial chain supporting, but also the need for talent, culture and other levels of cooperation. In all three areas, the United States still has shortcomings that will take time to accumulate.
Shen Yi further said that the subsidy policy of the chip Act is more focused on interfering with the psychological and cognitive level of relevant practitioners in the short term. But in the long run, you can carefully observe the actual landing and effect of these measures, without being too blind anxiety and confusion. "Today, the strategy adopted by the US policy makers shows a certain degree of 'recklessness', and even appears to play the cards in hand, and 'fight first when there is no date', while China pays more attention to how to follow the endogenous law of economy, industry and technology, emphasizing mutual benefit and win-win and avoiding the escalation of the situation in a responsible way, which is the biggest difference between China and the US in decision-making and action on relevant issues."
In this regard, in the view of the US government, the "starting gun has sounded" in the competition to restore the global leading position of US semiconductor manufacturing, and these investments will bring many returns, and are regarded as a key turning point in the revitalization of the US semiconductor manufacturing ecology. However, the industry believes that the application conditions of the chip bill are "surprising", while the requirements of prohibiting share buybacks, sharing excess profits with the government and using local materials have also caused more controversy, and even some chip company executives "feel heartache".
At a time when the international geopolitical situation is heating up and the semiconductor industry is entering a new cycle, the implementation of the US chip Act has gradually fallen into a series of contradictions such as subsidy competition, stringent conditions, decoupling from China and counter market laws, which is bound to inevitably become more complicated, unbalanced and ineffective. On the surface, the chip bill is an important way and symbol to promote the United States to regain the dominance of the industrial chain, but the deep layer is actually a "reverse action" that destroys the past global efficient division of labor value chain.
Competing interests and unity break down
As an institution of the National Institute of Standards and Technology, the CHIPS Program Office (CPO) recently officially launched the Chip Act's first round of funding opportunities, and will begin accepting pre-applications and complete applications for cutting-edge facilities from March 31. Pre-applications for current generation, mature nodes and back-end production facilities will be accepted from May 1, and full applications will be accepted from June 26. That kicked off a scramble for $39 billion in manufacturing incentives and $11 billion in research and workforce development investments.
The distribution of subsidies has long been one of the most contentious issues. The Chip Act's application conditions were described by industry insiders as "surprising" and vaguely applicable, including that companies applying for grants would have to submit information about national security, financial health, project viability and other issues, and that each company would have to negotiate separate agreements with the U.S. government. "If the administration tries to go deeper into more industries at the negotiating stage, it could make it more challenging for companies to get subsidies."
Now, as the Biden administration begins to dole out money, the industry's past unity in pushing for the chip bill is fraying, with executives, lobbyists and lawmakers scrambling to make their case, publicly or secretly, for using the funds, while states, cities and universities have also taken action. "Everyone wants a piece of the action," said Willy Shih, a management professor at Harvard Business School and an expert on semiconductor supply chains. "It's not surprising that some companies are asking tough questions about their competitors."
"The fund allocation process of the chip bill will inevitably become complicated and time-consuming," Han Lijie, partner of Katten Muchin Rosenman LLP, further said in an interview with Jiwei Net that the relevant policy is still one of the main criteria for corporate strength and financial resources. It can be difficult for small businesses to get applications. In addition, American manufacturers will have some natural advantages, but some companies in the United States for many years, Japan and South Korea and other places also have the opportunity to obtain national treatment.
In response to this focus, the US Senate Commerce Committee stated in its latest "Notice of Funding Opportunities" guidelines that "priority will be given to applicants who provide substantial private investment for the project." By implication, companies that invest little risk becoming cannon fodder for the subsidy race. But for manufacturers that invest heavily, even eventually getting subsidies can be a "hot potato" because companies are subject to multiple restrictions on flexibility, transparency and compliance. This will no doubt force participants to think again about investing in U.S. factories.
Strict terms difficult landing
According to the latest document announcement, the subsidy application conditions of the US chip Act are obviously more controversial, including prohibiting the use of subsidy funds for dividends or share repurchases, and the applicant needs to provide a stock repurchase plan for the next 5 years; Applicants who receive more than $150 million in funding will have to agree to return a percentage to the government if the project's profits exceed expectations, as well as to provide "affordable, high-quality child care" for construction workers and employees near the project.
Many of the chip Act's requirements and conditions for profit sharing, share buybacks and labor have been questioned by some economists. Among them, Scott Lincicome, a trade and economics expert at the Cato Institute, a libertarian policy group, said: "This funding appears to have more restrictions or conditions than the law requires." He noted that child care regulations and requirements such as "Buy American" will increase costs for participants, as well as potentially slow down facility projects.
In general, share buybacks, such as those of Texas Instruments and Intel, tend to bring more wealth to shareholders and executives because they raise the share price. According to Han Lijie analysis, the subsidy funds of the chip bill are for special purposes, and the prohibition of share buybacks is a normal demand, which can avoid some enterprises using it to hype in the capital market. But because American public companies prefer to pay dividends, this will also dampen some of the industry's enthusiasm. Overall, some companies may prefer share buybacks to subsidies.
In addition, the most controversial part of the provisions appears to be the profit-sharing requirement. Democratic Senator Jack Reed praised the plan, saying the chip funding "is not a free handout to billion-dollar tech companies." There is no downside to participating in companies because if they do extremely well, they only need to share a portion of future profits." But Mr Henley said: "Policy measures for companies to return excess profits are a very rare requirement, and in fact may not really land."
Overall, on the one hand, the chip Bill funding application attached a number of conditions such as procurement of domestic materials, climate and environmental responsibility, and preferential treatment of talent, workers and children, which further drove up the cost of facility construction and operation. On the other hand, restrictions on share buybacks, the profit-sharing system and the requirements of the overlapping application process will inevitably make subsidy funds less attractive. For example, TSMC is breaking ground on a large plant in Arizona, but has not said whether it will apply for U.S. funding.
Obsession with disruptive industries
In the context of the Great Game between China and the United States, the US government has, as always, "added fuel" to the funding conditions, that is, prohibited the recipients of funds from making major chip manufacturing investments in "countries of concern" within 10 years; Applicants who "knowingly conduct any joint research or technology licensing work with an overseas entity that raises national security concerns" will need to return all subsidy funds. This was widely seen as a move aimed at China, and "the new U.S. subsidy rules effectively prohibit doing business with China."
In this regard, Shen Yi, a professor of international politics at Fudan University, told the Jiwei network that the entire goal of the United States is to establish a set of so-called self-sufficient supply chains, and even to achieve absolute monopoly. However, from the perspective of economic industry, the integration of the United States based on national security motives will certainly bring a product premium, because it is not the optimal solution combining marketization and production costs. "The fundamental starting point for reshaping semiconductor production capacity by replacing the role of the market with regulatory measures goes against the laws of the market and is difficult to drive on the demand side."
For semiconductor companies, accepting funds from the U.S. government also means that they will face a number of restrictions. In Shen Yi's view, "Attracting chip manufacturers to invest in the United States is similar to using government directives and seed funds that are far smaller than the real needs of the industry to guide a large scale and far-reaching industrial layout, and the companies that obtain funds may, to some extent, become enterprises that follow the instructions of the United States government for sales." So we need to look at whether it's worth giving up a larger market for these subsidies."
"From the point of view of the industrial or commercial core logic, the key to the US chip Act is equivalent to proving that industrial policy under the government's directive can achieve better solutions than the market economy's pursuit of maximum benefit layout, which is probably the most difficult challenge facing the chip Act." Shen Yi believes that if there is no accident, these plans will have some limited effects in the short term, but the long-term rebound of the market and the endogenous pursuit of benefits by enterprises will eventually have a greater probability that the subsidy policy will gradually become ineffective.
Although the "ambition" of the United States to restructure the whole semiconductor industry chain has been clearly revealed, there are still many variables due to different internal and external resistance. Great Kang, a well-known expert in the semiconductor industry, also pointed out that the priorities of the chip bill seem to be very "big", but I am afraid it is difficult to achieve the expected goals, because the semiconductor industry is not able to settle everything with money, the need for industrial chain supporting, but also the need for talent, culture and other levels of cooperation. In all three areas, the United States still has shortcomings that will take time to accumulate.
Shen Yi further said that the subsidy policy of the chip Act is more focused on interfering with the psychological and cognitive level of relevant practitioners in the short term. But in the long run, you can carefully observe the actual landing and effect of these measures, without being too blind anxiety and confusion. "Today, the strategy adopted by the US policy makers shows a certain degree of 'recklessness', and even appears to play the cards in hand, and 'fight first when there is no date', while China pays more attention to how to follow the endogenous law of economy, industry and technology, emphasizing mutual benefit and win-win and avoiding the escalation of the situation in a responsible way, which is the biggest difference between China and the US in decision-making and action on relevant issues."
