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A microchip and the Taiwanese flag in an illustration.
TSMC set to get its CHIPS money
The award marked the first finalized disbursement of the CHIPS Act since it was passed in 2022 and will go toward building TSMC's three new chip factories in Arizona — helping offset the $65 billion cost.
A total of $36 billion has been approved by Congress and directed by the Commerce Department to foreign companies such as TSMC and Samsung, as well as US companies including Intel and Texas Instruments. The delays, in addition to the normal snail’s pace of bureaucracy, stem from the fact that the Commerce Department spent much of the past two years negotiating with semiconductor companies, procuring specific commitments before finalizing the amounts they’d receive.
President Joe Biden needs to disburse the payments quickly because the future of the CHIPS Act is in question. When Donald Trump takes office in January, he may fulfill campaign promises to dismantle the Biden initiative or ask the Republican-controlled Congress to repeal it. Alternatively, the president-elect could carry on with the disbursements, which could further a bipartisan goal of beating back China’s AI ambitions.
Art made by humanoid robot sells for $1 million at auction.
Hard Numbers: Meet the robot painter, Saudi money, Japan’s billions, the CHIPS Act wrap-up, Where’s the AI-generated beef?
100 billion: A new Saudi state initiative called “Project Transcendence” will devote $100 billion to invest in data centers, startups, and infrastructure to boost the country’s domestic AI sector. It’s part of an ongoing effort to diversify the oil-rich nation’s economy while also competing with neighboring United Arab Emirates.
$65 billion: Japanese Prime Minister Shigeru Ishiba announced he’ll devote $65 billion to the country’s artificial intelligence and semiconductor sectors over the next decade. TSMC recently opened a plant in Kumamoto, and Ishiba said he wants that investment to inspire future innovation in the country.
10 million: The Biden administration is planning on finalizing the last CHIPS Act awards — the semiconductor industry spending program that’s given millions to US and foreign companies to build in America. The final awards will reportedly go to TSMC, GlobalFoundries, and one other still-unknown chipmaker, each worth $10 million or more, as Biden pushes to wrap up the program before Donald Trump and his new Congress come in and potentially repeal the CHIPS Act in favor of a tariff-focused economic plan.
$1: The $1 Frosty deal at Wendy’s is a fast-food staple. But now the company is partnering with Palantir — the AI firm known for its military and defense contracts — to improve its supply chain and inventory management. One successful use case has been making sure that when Wendy’s offers the $1 Frosty promotion it can keep pace with surging demand.Joe Biden starts to campaign on AI
On May 8, Joe Biden spoke at Gateway Technical College in Racine, Wisconsin. The president was bragging.
Six years after his predecessor, Donald Trump, visited the same city to boast of Taiwanese tech company Foxconn’s $10 billion plan to bring a LCD manufacturing plant to Racine — that never materialized — Biden chose the same site for a new high-tech manufacturing project of his own. Microsoft will invest $3.3 billion to build a new data center to support artificial intelligence, a project that the company says will bring 2,000 permanent jobs and 2,300 union construction jobs to Wisconsin.
It’s good business, and better politics. Wisconsin is an important swing state for Biden in his forthcoming election against Trump. This latest announcement seemed to mark a moment where Biden accepted that AI is going to be an important part of his presidential legacy — and that it’s a record he should run on.
Right place, right time
OpenAI ushered in the generative AI revolution with ChatGPT midway through Biden’s first term. Silicon Valley rushed to develop it, Wall Street rushed to fund it, and governments around the world rushed to regulate it. Biden was in just the right position to reap the political rewards.
The US hasn’t passed comprehensive regulation to rein in AI, lagging behind its European counterparts in that regard, because it would require Congressional action. Instead, Biden secured voluntary commitments from the top AI companies to reduce the risks of their technology and issued a sweeping executive order dictating that every federal agency and department needs to assess and mitigate the risks AI poses, and how they can safely use it.
Beyond that, AI has become a focus of Biden’s industrial policy and export control measures, both of which have major implications for foreign policy and national security. Microsoft's investment also comes mere weeks after the Biden administration helped orchestrate the PC giant’s $1.5 billion investment in the Emirati tech giant G42, which pledged to restrict ties with China in favor of working with US tech firms.
Federal dollars pour into AI
The Microsoft data center was one in a series of chest-pounding announcements from the Biden administration, which has used funds from the CHIPS and Science Act to incentivize tech infrastructure firms to build in the United States. Taiwan Semiconductor Manufacturing Company will get $6.6 billion to invest a total of $65 billion to expand its chip fabrication complex in Phoenix, Arizona. Samsung will get $6.4 billion to pour $45 billion into its Texas facilities, and Intel will be granted $8.5 billion to construct and expand facilities in Arizona, Ohio, New Mexico, and Oregon.
AI wasn’t necessarily top of mind when the CHIPS Act passed in 2022, said Scott Bade, a senior analyst in Eurasia Group’s geo-technology practice, but it’s become the focus of the government’s efforts to nationalize chips and data centers.
“If you look at the political motivations for the Chips Act, a big part of that was the auto industry not having access to chips during the pandemic,” Bade said. Most of those were so-called legacy chips, not the high-powered graphics processors needed for AI, but the investments and legislation was already in place by the time AI became the hot topic in consumer and military tech.
The US has an advantage over rival China when it comes to artificial intelligence technology, but also the chips and chip-making facilities necessary to train and run powerful AI applications. Not only are many of the most important AI chipmakers — such as Nvidia, AMD, and Intel — American firms, but important non-US infrastructure firms are subject to US export controls because they rely on small parts made in America. The Biden administration has ramped up export controls to give the US an economic and technological advantage over China. And don’t forget the military side — global powers are looking to AI to super-charge their weaponry.
The election looms
AI lets Biden make some important claims in his rematch against Trump, including:
- American companies are leading the world on AI
- Multinational firms are investing in US facilities
- They’re bringing high-tech manufacturing jobs to the US
- And the US is keeping China at bay in the AI space
Not all of those arguments will resonate in retail politics, but Arizona and Wisconsin, where new facilities are popping up, are key swing states looking for good union jobs. In Wisconsin especially, Biden will make the case that he’s delivering what Trump couldn’t.
“The fact that you have a fab in a major swing state that helped him win last time and also has an important Senate race — that's not a coincidence,” Bade noted.
Speaking in Wisconsin, Biden barely mentioned technology, let alone artificial intelligence. Instead, he focused on delivering where Trump could not.
“During the previous administration, my predecessor made promises, which he broke more than kept, left a lot of people behind in communities like Racine,” Biden said.
Artificial intelligence might not be the snazziest talking point for retail politics, but it’s bound to be a major undercurrent — even when it’s not mentioned explicitly.
US Secretary of Commerce Gina Raimondo announces a major grant at the Samsung semiconductor plant in Taylor, Texas, on Monday, April 15, 2024.
Samsung hands Biden another chip win
The Biden administration is busy courting global semiconductor manufacturers to build stateside, recently handing billions to Taiwan Semiconductor Manufacturing Company to expand its chip fabrication plant in Phoenix, Arizona.
On Monday, Commerce Secretary Gina Raimondo announced that the Biden administration is giving out another award as part of its CHIPS Act budget — this time to TSMC competitor Samsung, the South Korean electronics giant. Samsung will receive $6.4 billion to put toward its new manufacturing hub in Taylor, Texas, and expand its existing plant in Austin. In return, Samsung will pour $45 billion into its US projects and commit to producing cutting-edge two-nanometer chips.
Biden has made so-called silicon nationalism a tenet of his economic and national security-focused public policy, desperate to control the slow but crucial supply of chips used for everyday technologies as well as new artificial intelligence applications.
Semiconductor chips on a circuit board.
Crunch time for chipmakers
The Biden administration wants to supercharge US chip manufacturing, which is why the 2022 CHIPS Act allotted $280 billion for the domestic chipmaking sector. But Republicans in Congress just halted a key provision of the administration’s plan.
Under the latest iteration of the National Defense Authorization Act, Republicans blocked a line item that would have allowed semiconductor companies building new plants to bypass the typical environmental permitting process. It’s something that Commerce Secretary Gina Raimondo had pushed for as a means of streamlining and speeding up the process. “We are not in any way suggesting that we should do anything that hurts the environment,” she insisted in Senate testimony. Republican Ted Cruz and Democrat Mark Kelly championed it in the Senate, and more than 100 lawmakers signed a letter advocating for it to be included in the final version of the bill.
But House Republicans, who largely oppose the permitting process in general, weren’t so concerned over whether the plants would uproot some Gila monsters. Rather, they say they are dismayed over what they called a permitting “carve-out” for the chip industry.
This exclusion could mean a major slowdown for domestic and foreign chipmakers looking to pour money into US building projects, namely Taiwan Semiconductor Manufacturing Company, Intel, and Samsung, which are building new plants in Arizona, Ohio, and Texas respectively.
Biden enlists Japan & Netherlands to fight US-China chips war
Japan and the Netherlands have reportedly agreed to join US export controls to stop China from getting the machines to make some of the world’s most advanced semiconductors — in part, the Biden administration claims, to make high-tech weapons. It's a major milestone in the broader US push to beat China in the race to dominate global tech with "weapons" such as the $52 billion CHIPS Act, which aims to subsidize domestic chipmaking in America and make it harder for China to access the tech.
We learn more from Eurasia Group's senior analyst Nick Reiners.
Why is this a big deal?
Until this point, the US was alone on the world stage in its campaign to deny China access to key technologies. It is quite a novel thing to take this approach to geopolitical competition. There are existing multilateral export control mechanisms like the Wassenaar Arrangement, but they don't really work anymore — not least because Russia is a member. So the US went out unilaterally and took all these measures.
The US has wanted to bring on key countries like Japan and the Netherlands before. But in the end, it decided to go it alone to prove it had skin in the game, and it wasn't clear that it would gain the buy-in from other key countries. Now, finally, Washington has two very important countries to sign on to its approach of denying China access to semiconductors used for artificial intelligence and other high-tech applications.
Why are the Dutch and Japanese so crucial to the US effort, and why are they coming on board?
In particular, the Netherlands has one company, ASML, that makes something called Extreme Ultraviolet Lithography machines, or EUV machines, which churn out the world's most advanced chips, as well as Deep Ultraviolet Lithography, which are less advanced than EUV machines but still extremely complex. Japan also has important chipmaking firms, including Tokyo Electron and Nikon.
Fundamentally, the governments of the two countries agree with the principles underlying America's actions and that China is a security threat. They agree that China is a geopolitical adversary and that it's worthwhile to try to reduce its access to high tech.
At the same time, the US can threaten Japan and the Netherlands because the global chip supply chain is so complex and integrated that pretty much any product relies in some way on US technology. So, the US has the ability to deny ASML or Tokyo Electron access to key components that are required to build these machines in the first place. Under the Trump administration, the message was: If you don't sign here on the dotted line, then we might be forced to take more aggressive measures. But it’s unlikely that Biden administration officials have made an explicit threat like that.
Does this have anything to do with the CHIPS Act passed last year by the Biden administration?
There is certainly a link. The legislation contains what's called guardrails, meaning that if companies get US subsidies, they're not allowed to invest in certain types of projects in China. The overall objective is similar to ensuring that investments in the semiconductor sector are made within the US and allied countries — and certainly not in China. That's part of this broader "friend-shoring" trend that we hear a lot about.
What's all the fuss about EUV machines?
Chips are cut out of silicon wafers, big circles made of silicon. What lithography machines do is, in simple terms, use light to cut microscopic grooves in the wafers. The tech allows you to print these unbelievably tiny patterns to make circuits. The smaller the grooves, the more transistors you can cram onto each chip, and the more powerful the chip becomes. EUV machines are a piece of the most advanced tech in human existence, a triumph of human engineering. And only one company in the world makes them: ASML.
Didn’t the Dutch government ban exporting EUV machines to China in 2019?
Yes, but it's impossible to know whether the Chinese have gotten hold of one, even if they're they're not supposed to. ASML has not sold them any, but there is no doubt that China is seeking access to these machines through other means.
And can't China build its own EUV machines?
That would be an immensely complex engineering feat that requires thousands of components and human capital from all over the world. It took 20 years for ASML to build EUV machines. China will certainly try, but it'll likely take them 10 years or more — if they ever achieve it at all.
It sounds as hard as building a nuclear bomb …
I'd say it would be even harder, based on the sheer complexity and the number of components and how perfect everything has to be for it to work correctly.
Even if China is not allowed to have EUV machines anyway, Japan and the Netherlands joining US export controls still hurts Beijing. But how?
This is part of a broader strategy to make life as difficult as possible for the Chinese tech sector and to make the technological gap between the US and China as wide as possible. And because China is heavily dependent on semiconductor imports, the West in general — and the US in particular — has a point of leverage that it can exert on China very asymmetrically.
That said, I'm dubious about the US claim that China might use these semiconductors in their weapons because, for instance, Beijing doesn't need the latest chips to make most of its missiles. It can easily get hold of enough of these chips one way or another, even if it doesn’t produce them all domestically.
If it's not really about weapons, then why does America want to stop China from getting its hands on these state-of-the-art chips?
The US and China are in a race to develop the most powerful AI applications and the most powerful high-performance computers, which themselves can be used for military purposes — for example, designing advanced weapon systems. And for that, you need vast quantities of chips, so what the US and its allies are doing delays China.
Moreover, the US increasingly sees less and less of a distinction between China's military and civilian economies. This week, the Biden administration reportedly banned pretty much all US companies from selling any US-made tech to Huawei, which Washington sees as an agent of Beijing. Crippling Huawei's civilian business is a way to hurt China because the company also works for the military.
How might China respond?
In general, they haven't tended to respond in a symmetrical way. To a certain degree, the export controls are kind of convenient to Xi Jinping because they reinforce the need for China to become self-sufficient. China is also trying to present itself around the world as being a more responsible global stakeholder compared to the US by not weaponizing interdependencies and so on, which is, of course, very dubious. But that's their public-facing rhetoric.
China can retaliate in other ways that maybe aren't directly linked. For example, they could stop cooperating with the US on things like climate change. They could downgrade diplomatic relations in other ways, and they can also make life difficult for US companies and Western companies by not approving corporate mergers. Or they can encourage Chinese consumers not to buy Western goods. That might sound kind of soft and nudging, but the effects can still be very damaging to Western companies trying to do business in China.
Would any other countries sign up, too? Perhaps South Korea?
Right now, South Korea is the other big one because it has Samsung, but the South Koreans are also a bit of a special case because they are much more exposed to China and its companies, as well as the North Korean issue. South Korea is just generally more vulnerable to China and Chinese pressure. That's partly why the so-called Chip4 Alliance — which was supposed to include the US, Japan, Taiwan, and South Korea — hasn’t yet really gotten off the ground. I wouldn't bet on South Korea joining anytime soon.A researcher wearing cleanroom suit displaying a wafer in the lab of Shanghai Microsemi Semiconductor Co., Ltd. in Shanghai, China.
Who’s winning the war over chips?
When it comes to semiconductor production, there’s just one superpower: Taiwan. The self-governing island produces more than two-thirds of the world’s chips, and almost all of the advanced ones.
But with Taiwan’s geopolitical fate uncertain, both Washington and Beijing are racing to build their own dominance and self-sufficiency in the chip industry.
We sat down with Eurasia Group geo-technology expert Xiaomeng Lu to learn more about where this battle is heading. The interview has been edited for length and clarity.
GZERO: When did this global war over chips really get started, and what’s driving it?
Xiaomeng Lu: Before 2017 and 2018, Beijing generally had this view that China was a big digital economy power. “We're the home to the biggest platform companies in the world” and so on.
But when the US placed severe sanctions on Huawei [in 2019], it kneecapped Huawei's 5G flagship business portfolio. Huawei is one of the poster children of China's highly advanced technology system, and Beijing suddenly realized that it was heavily reliant on just a couple suppliers of semiconductors, some of which are American.
China saw it had basically no near-term leverage against US technology dominance in this area, and that they needed to address the vulnerability. So that's why China started using this term "technology self-reliance.”
That generated a sense of competition in the US and increased the focus on Taiwan [the leading chip producer overall]. Those two things are, I think, the top drivers of the US-China race in semiconductor development.
What are the US and China doing to gain their own advantage in semiconductors?
Xiaomeng Lu: China a few years ago established a national fund to support semiconductor companies [domestically], and I think the clearest number on all of it is somewhere near $50 billion for two rounds of national investment in the domestic semiconductor industry.
The US recently passed the CHIPS Act, which includes broad financial support for science and technology. But the part that's most significant is basically a lot of tax breaks for the domestic high-end manufacturing part of the semiconductor industry. That's somewhere around $52 billion dollars.
So there's definitely a race of government sponsorship in this industry to ensure they get the competitive edge. For the US, their goal is to maintain a large, existing competitive advantage over China. For China, their goal is just to catch up.
So, is China in fact catching up?
Xiaomeng Lu: There's a lot of problems with how they're spending their money. Some factories got a lot of government funding and then didn't produce much technology, and a few years later went bankrupt or were bought by industry players. There's also quite a bit of corruption in the process of allocating those funds to various national champions.
But at the same time, it’s generated some constructive results, including, for example, companies like SMIC, a national champion in manufacturing midrange semiconductors. So there's a handful of successful cases and maybe a dozen failures. It's a mixed outcome so far.
Will the CHIPS Act keep the US ahead in the chip race?
Xiaomeng Lu: It’s too early to tell. There is a detailed implementation guide for companies that want to apply for this $52 billion fund, but that guideline won’t be issued by the Department of Commerce until next February. So we don't even know who is qualified for this funding yet.
The US has recently imposed export controls that prevent American companies from sending key technologies to China. Will those measures be effective in curtailing China's tech sector strategy?
Xiaomeng Lu: In the near term, I think they're quite effective. They focus on the high-end chips used for high-performance computers and super-computers, an area where China has so far done well. So the US restrictions create an upstream crisis for Beijing that will slow down China's supercomputing industry development. Until now, some Chinese supercomputers have outperformed their American and Japanese counterparts, and I think that competitive edge will be, if not eliminated, undermined significantly in the coming years.
Some people say Taiwan’s status as a semiconductor superpower actually protects the island from invasion by China – the idea being that the risk of the Taiwanese chip factories being damaged in a war is something that worries Beijing since its own tech companies rely on Taiwanese chips. Do you believe in this “Silicon Shield”?
Xiaomeng Lu: A lot of mainland Chinese factories still rely on those [Taiwanese] components. That's a big part of China's global electronics trade flows. I think between the technology exposure and the trade element, they will try not to take drastic actions around those chip factories until the political drivers really escalate the conflict.
But I think it's a temporary shield. If a real war starts, then the Silicon Shield is not going to do anything. Right now it's kind of a very thin layer of protection when the political environment is not that dire.
If TSMC [the main Taiwanese semiconductor company] were not on the island, do you believe China would have already invaded?
Xiaomeng Lu: It's not a driving factor, it's a secondary element. The red line is always sovereignty. If Taiwan publicly declares independence, then it doesn't matter if TSMC is there or not.
Would warnings of an impending invasion lead to a brain drain that could threaten Taiwan’s semiconductor industry?
Xiaomeng Lu: I think if the tension escalates further, you will see China try to poach talent from Taiwan by offering them jobs and careers and generous financial packages, and the US would probably do the same. If those engineers are concerned about their own safety, their families’ safety, there is a scenario for at least some of them to move away from the island. And that's one of the worst-case scenarios for the Taiwanese government. They want to keep their Silicon Shield, they want to keep their high-end technology, they want to keep their talent on the ground.
House Speaker Nancy Pelosi has encouraged TSMC to move some of its production to the US, to take advantage of CHIPs act money. Is that likely to happen?
Xiaomeng Lu: I think they're considering it but if you’re TSMC, it depends on how high you think the geopolitical risk is. If [an attack] is going to happen in five years, they probably want to move. But the risk of moving the most advanced technology and their people over to the US is that if the conflict doesn't happen or doesn't escalate to a very severe level, you are wasting your resources and irking the Taiwanese government.This comes to you from the Signal newsletter team of GZERO Media. Sign up today.