Semiconductor manufacturing subsidies

The United States enacted the CHIPS and Science Act of 2022 (CSA), which provides huge grants to semiconductor research and manufacturing in the country.

The CSA allocates $52.7 billion to the «CHIPS for America Fund.»

This includes $39 billion in manufacturing incentives, $11 billion in R&D and workforce development programs, and another $2.7 billion in three other funds related to semiconductor R&D or workforce growth.

Also, the CSA amended the Internal Revenue Code of 1986 to provide an investment tax credit of 25% of capital expenditures for semiconductor and related equipment manufacturing.

In addition, the CSA establishes stringent «backstops» requiring that, on or before the date the Department of Commerce grants federal financial assistance to a covered entity, the covered entity enter into an agreement with the Department of Commerce specifying that, during the 10-year period beginning on the date of the grant, the covered entity may not engage in any significant transactions, as defined in the agreement, involving the material expansion of semiconductor manufacturing capacity in China or any other «foreign country of concern.»

The primary objective of the CSA is to ensure that the covered entity does not enter into any significant transactions, as defined in the agreement, involving the material expansion of semiconductor manufacturing capacity in China or any other «foreign country of interest.»

Semiconductor Manufacturing

The primary objective of the CSA is to increase manufacturing capacity and market supply of U.S. domestic semiconductor products through the provision of substantial subsidies.

After referring to the above, the Chinese Ministry of Commerce stated that these practices may block other members’ semiconductor products from entering the U.S. market or third countries.

Moreover, the «guardrail» provisions categorically prohibit covered entities from engaging in significant transactions involving the material expansion of semiconductor manufacturing capacity with certain members, including China.

According to the Chinese Ministry of Commerce, this practice may have significant negative effects on the semiconductor trade of relevant members.