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Friend-shoring, Not Reshoring, Is The Answer

Friend-shoring, not reshoring, is the answer

Friend-shoring, not reshoring, is the answer

Kim Doo-sik The author is CEO of Tech & Trade Institute and a lawyer. The United States has gone all out to rebuild a chipmaking ecosystem on its home turf. The country aims to move beyond chip designing and strengthen the semiconductor manufacturing capacity it has relied on Taiwan, South Korea and others. The goal is to increase the global share of its chip production to above 20 percent by 2030 from the current 12 percent. The CHIPS and Science Act is intended to expedite the plan. U.S. triggers subsidy race However, achieving the goal may not be easy as expected. Major chip-manufacturing countries are also doing their best to develop the chip industry in their own country. It was the U.S. that triggered a global competition for chip subsidies to buttress its chip industry and capacity. Despite heavy curbs on exporting top-caliber semiconductors to China, Beijing’s chip ambition has not humbled. China is injecting more subsidies to accelerate its chip self-sufficiency than before. The European Union plans to spend 43 billion euros ($49 billion) under its own version of the U.S. CHIPS Act to raise its share of global chip production to 20 percent from less than 9 percent today. In South Korea, memory giants Samsung Electronics and SK hynix will spend multi-billion dollars to create a massive chip cluster of foundries and fabs, backed by government incentives and tax breaks. Japan, which commanded the chip sector until the mid-1990s, is out to restore its past glory by focusing on systems on chips. Rapidus, an international chipmaking consortium based in Japan, is aiming to turn out 2-nanometer chips in a next-gen chip plant in Hokkaido. Tokyo effectively persuaded Taiwan Semiconductor Manufacturing Company, the foundry leader, to build two chip facilities in Kumamoto to meet the increasing demand for chips for image sensors and vehicle automation. Given such a heated contest, it won’t be easy for America to outpace others and reemerge as a chip powerhouse. Many hurdles await the ascension. The $52.7 billion subsidy and 25-percent tax credit alone cannot rebuild the chip manufacturing ecosystem in the U.S. A competitive chip habitat cannot be sustained unless its production cost falls as low as competitors’ and skilled workers continue to meet the demand for the workforce. That’s why it is essential for the U.S. to create an ecosystem in which highly competitive chipmakers from Korea and elsewhere can participate. Going gainst market principles The U.S. needs to reexamine its chip support program to raise the potential for the success of its ambitious policy. First of all, it must reconsider the provision of excessive demand for data from applicants for subsidies and tax credits. According to the latest Notice of Funding Opportunity by the Department of Commerce to spell out the requirements for subsidy under the CHIPS Act, all applicants are required to hand over detailed descriptions of their core technology, including on materials and expendables for their chip production, as well as their manufacturing capability — for instance, their production yield per wafer of different sizes, operation rate, annual output and changes in sale prices — plus financial details such as their projected cash flow. Such demands are overbearing for a “business review.” A bigger problem is that foreign companies must regularly submit the data to the Commerce Department. If the U.S. really wants foreign players to join its ecosystem, their trade and manufacturing secrets should be protected. The unreasonable demand for their confidential materials should be withdrawn. Second, the provision on profit-sharing also should be removed. The U.S. government says it will collect a portion of the chipmakers’ excess profits beyond their projection and use the money to rebuild a chip manufacturing habitat in the U.S. But the idea of setting a threshold based on their profit projection and collecting the surplus is nonsensical. Projecting profit in the rapidly fluctuating chip industry is difficult. Moreover, any excess profit needs to go to facility investments for chipmakers to keep ahead of the competition. A government claiming a share in profit as if it were a dividend for a shareholder — just because it provided a subsidy or tax break — goes against market principles or corporate laws. The U.S. government is treating foreign companies as if they were nationalized. The U.S. must chuck away the profit-sharing condition, as it can only dampen their investment will. The best partner for chips Third, the U.S. must pivot chip policy toward “friends-shoring” by leveraging on the strengths of its allies instead of […]

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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