US, EU Subsidies and Regulation Key to Lure Chip Manufacturers 

Global supply chain disruptions have hit most of the industries in the United States and Europe, but one industry that has been particularly affected and has raised sovereign concerns is the chips industry.  

Policymakers in the U.S. and Europe have warned about their dependency on sought-after semiconductors coming from factories built in China and Taiwan. For that reason, over the past two years, the U.S. and Europe have raced to strengthen their domestic chip-making abilities. 

The main instrument to achieve this goal has been the promise of new legislation that would provide incentives and subsidies to build more factories in the U.S. and in Europe. 

The U.S. proposed in June 2020 the CHIPS Act, a legislation with strong bipartisan support that pledged to give $52 billion in subsidies, tax breaks and other incentives to chip companies investing in America. Numerous semiconductor projects have been announced in the U.S. since the law was proposed. However, the U.S. Congress hasn’t been able yet to reach an agreement to pass the bill, and it is threating the implementation of several projects.  

For instance, Intel has blamed the act’s delay for its decision to postpone a $20 billion chip facility in Ohio. Taiwan Semiconductor Manufacturing Co. (TSMC) has started construction of a $12 billion chip plan in Arizona, but its completion also depends on the U.S. subsidies. 

Policymakers and companies are hoping for a breakthrough in July because according to some experts, if Congress heads into its August recess without achieving this, the road will become even tougher.  

Commerce Secretary Gina Raimondo said in a TV interview on Monday that the legislation will be passed. “Yes, it will happen — it’s taking much too long,” she said. 

But other countries are not waiting for the U.S. to pass the CHIPS Act and are also taking steps. In Europe, the European Commission proposed in February 2022, the European Chips Act; similar to the U.S. counterpart, it plans to make available about $49 billion (with public and private contributions) to boost European chip research and production. The EU has pledged $12.6 billion of public money to build state-of the art facilities in Europe. 

Read more: European Chips Act Brings $12.6B to Companies Producing in EU 

The proposal is currently being studied by the EU Parliament and the EU member states, and it may still take a few months before the institutions reach an agreement and eventually an approval. However, this legislation was included in the priority list of the new president of the EU council that started on July 1, and he may seek to reach a political agreement by the end of the year. 

This promise of EU public money also encouraged Intel to announced plans to build a $36 billion advanced chip factory in Germany in 2023 as long as the public support is still available. GlobalFoundries and STMicroelectronics, which are based in Switzerland, also announced on July 11 that they are planning to build a semiconductor factory in France, using local and EU subsidies.  

But public money is not the only measure that the U.S. and EU have offered to boost production of chips in their territories. Both countries have adopted laws to protect their industries from foreign competition. In Europe, the parliament and the council reached an agreement on June 30 to approve new rules on foreign subsidies. The new rules will make the acquisition of EU companies by overseas firms lengthier — and in some cases, more difficult. Additionally, the proposed law will extend the European State aid rules to firms outside the EU. Companies who receive subsidies that could provide them with an undue advantage will be investigated, and if an acquisition process has started, it will be halted until the review is completed. The new rules are aimed at Chinese companies who very often rely on state support to finance their expansion in Europe. 

Read further: EU Lawmakers Backed Tighter M&A Rules to Protect EU Targets 

The U.S. is also seeking to grant powers to the president to block U.S. investment in certain countries like China. Congress is pressing ahead with legislation that would propose the screening of investments in countries seen as adversaries, like China, to protect U.S. technology and rebuild critical supply chains. One of the sectors covered by this legislation is semiconductors. The bill aims to limit the transfer of technology and knowledge to China, and it would cover greenfield investments such as the construction of new plants, joint ventures that involve transfer of knowledge or intellectual property, venture capital and private equity transactions. 

See also: US Lawmakers Push Bill That Could Block FinTech, AI Investments in China 

For all PYMNTS TechREG and EMEA coverage, subscribe to the daily TechREG and EMEA Newsletters.