CHIPS Act threatens Taiwan’s security and hurts the US, researchers warn

Many in Taiwan view the CHIPS Act “as an attempt by the US to grab Taiwan’s technology,” writes a report signed by eight academic leaders. Instead of strengthening its domestic semiconductor manufacturing, the US could spend $52.7 billion to weaken its partner without gaining anything substantial, they warn.

America may have invented the semiconductor, but today produces only about 10 percent of the world’s supply and none of the most advanced chips.

The goal of the CHIPS and Science Act is to reverse that by boosting local semiconductor research, development, and production. The US is spending $52.7 billion on subsidies.

However, scholars warn that the plan, even if well-intentioned, may backfire – as it could weaken Taiwan’s TSMC, the dominant semiconductor manufacturer.

“The US CHIPS Act is so poorly designed that it is likely to undercut Taiwan’s TSMC, the world’s leading semiconductor manufacturer, and leave the entire industry even more vulnerable than it already is. Both Taiwan and America stand to suffer from the legislation’s unintended consequences,” the commentary on Project Syndicate, signed by eight scholars, including former TSMC Vice President Burn Lin, reads.

And it’s not only the island's most important industry and national security that’s threatened. Academics warn of three unintended consequences of the CHIPS Act.

Firstly, scholars now fear that “free money” alters TSMC‘s focus from innovation to chasing subsidies. The management is occupied with diversifying in the US and Japan, leaving less time for innovation and competitiveness. That may hurt TSMC’s customers, most of whom are US companies.

Secondly, reduced investments and capacity in Taiwan will make the whole industry less resilient to demand shocks and may halt the AI revolution.

“Lastly, TSMC may lose its way so much that another company replaces it as the leader in advanced semiconductor manufacturing,” the academics said.

After all this, the US may not even become the place where chip manufacturing flourishes.

“The fundamental problem is that while US workers are skilled in chip design, the country lacks workers with the desire or skills necessary for chip manufacturing. Yet specialized skills are critical in this domain,” the commentary reads.

Almost two years ago, the founder of TSMC, Morris Chang, explained that costs were behind the decision not to expand its operation in Portland. For 25 years, the company has had a manufacturing plant in Oregon, but the costs were 50% higher in the US compared to Taiwan.

If TSMC falls from its dominant position, the US will hurt its own national security together with Taiwan’s, researchers argue, warning of a growing sense “that the US ultimately does not care about Taiwan.”

“It would be far wiser for the US to adopt an approach that protects its own economic security and strengthens Taiwan’s at the same time,” they suggest.

This is not the first warning by experts in the field. Last year, Mary E. Lovely, the Anthony M. Solomon Senior Fellow at the Peterson Institute for International Economics, warned that the “US CHIPS Act threatens to hollow out the Asian semiconductor industry.”

The US is not the only country to subsidize semiconductor manufacturing. The EU pools resources under the European Chips Act, while Japan and the UK have also released plans to invest in domestic manufacturing. Taiwan has its own equivalent act, providing tax incentives.

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