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America’s Bold Bet on Intel: A Key Play in Chip Competition with China

Last Updated March 21, 2024 4:17 PM
Giuseppe Ciccomascolo
Last Updated March 21, 2024 4:17 PM

Key Takeaways

  • The US government is making a massive investment in Intel to boost domestic chip production.
  • This move is driven by the fierce competition between the US and China for leadership in the semiconductor industry.
  • Experts are divided on whether the US can win the chip race against China.

The US government is set to grant  Intel a substantial $8.5 billion in grants, along with the potential for an additional $11 billion in loans, to support the expansion of its semiconductor factories. This marks the largest allocation from a program aimed at revitalizing the domestic chip industry.

This move underscores the ongoing competition between the US and China  for leadership in the semiconductor sector. Both nations are intensifying efforts to secure semiconductor intellectual property and bolster manufacturing capabilities. While the US aims to revitalize its chip production, it has also utilized sanctions to counter China’s pursuit of self-sufficiency in this crucial industry.

Supporting Intel’s $100 Billion Investment

The Commerce Department revealed  on Wednesday, March 20, 2024, that the package would facilitate over $100 billion in investments by Intel in the US, supporting endeavors to manufacture cutting-edge semiconductors at large-scale plants in Arizona and Ohio. Additionally, the funds will contribute to equipment research and development and advanced packaging projects at smaller facilities in Oregon and New Mexico.

Furthermore, Intel has expressed  intentions to utilize investment tax credits from the Treasury Department, potentially covering up to 25% of its capital expenditures, as per information provided by the Commerce Department.

During his Wednesday visit to an Intel campus in Phoenix, President Joe Biden announced a preliminary agreement with Intel for a significant award under the 2022 Chips and Science Act. Intel stands as the inaugural recipient of funding from the Chips Act for advanced chipmaking facilities.

These developments are part of Intel’s ambitious turnaround strategy under the leadership of CEO Pat Gelsinger. This initiative involves bolstering its foundry business, which manufactures chips for other companies. Notably, Intel recently secured  Microsoft as a prominent customer in this endeavor.

US Chip Act

The US Chips Act  allocated $39 billion in grants and $75 billion in loans and guarantees to encourage chip companies to build manufacturing facilities in the US, countering the trend of semiconductor production moving to Asia. Commerce Secretary, Gina Raimondo, aims for the US to produce one-fifth of the world’s advanced logic chips by the decade’s end. And Intel’s investments are pivotal to this goal.

While Intel will not receive the entire funding upfront, the disbursement will be contingent upon the company meeting production targets and other benchmarks, with Commerce officials expecting funds to begin flowing by the end of the year. They retain the authority to retract funds if Intel fails to meet these criteria.

Commerce had previously announced grants and loans totaling approximately $1.7 billion for companies producing less-advanced chips. However, specific allocation details for Intel’s projects were not disclosed, with officials characterizing the award as a comprehensive agreement.

The Commerce Department had previously awarded funds to the American subsidiary of BAE Systems, Microchip Technology, and GlobalFoundries. With over 600 companies expressing interest in the funds and advanced chipmakers alone requesting more than double the allocated amount, the competition for these resources remains fierce.

Intel’s CEO, Pat Gelsinger, acknowledged  the economic challenges of building plants in the US compared to East Asia. He also emphasized that these awards help address this disparity. He also highlighted the entrenched nature of the US chip manufacturing loss over decades, suggesting that further initiatives, such as a “Chips II,” may be necessary.

While funding focuses on commercial production, Intel will also receive approximately $3.5 billion for manufacturing military and intelligence chips. This allocation has complicated broader Chips Act negotiations, as the Pentagon withdrew from a plan to cover a significant portion of the costs.

It’s Always US vs China

The massive investment by the US in the semiconductor sector stems primarily from the growing competition with China. The semiconductor industry drives pivotal technological advancements like artificial intelligence (AI), electric vehicles, and factory automation. These sectors are crucial for both economic prosperity and national security.

Despite the US accounting for 25% of global semiconductor demand, its manufacturing capacity stands at just 12%. It marks a significant decline from 37% in the 1990s. This alarming gap raises concerns about national security, particularly in light of China’s aggressive efforts to dominate this critical industry.

The CHIPS Act represents one facet of the US response to the US-China chips rivalry. Alongside this, the US and its allies have imposed sanctions on China since 2017, exemplified by actions  against ZTE. Recent measures from the US Commerce Department have further tightened export controls on advanced semiconductor production equipment and high-performance computing chips. These restrictions have hampered China’s access to advanced chip technology, particularly for supercomputing and AI training purposes.

Additionally, non-US vendors and exporters have been affected, prompting countries like Japan and the Netherlands to limit semiconductor-related technology exports. It’s anticipated that China’s advanced semiconductor fabs may face further sanctions, as they still retain some capacity for chip production.

But China Is Winning

However, despite these efforts, some experts like Miles M. Evers from LawFare argued  that the US is losing the chip race to China. The expert highlighted the need for continued vigilance and strategic action in this crucial sector. For him, the United States is unlikely to win the tech war. There are two reasons for this conclusion.

“First, the empirical  record  consistently shows that rising powers don’t sit idly by when dominant states disrupt their access to critical resources. Typically, they respond by subsidizing industrial development, pushing their businesses to upgrade into high-value positions to become self-sufficient,” Evers said.

“Chinese President, Xi Jinping, has urged  the country to prioritize “self-reliance in science and technology.” Xi described innovation in core technologies as the key to surviving “intense international competition.” To that end, the Chinese government has supported the development of an indigenous chipmaking industry: Guangzhou City invested $30 billion  in initial funding, and Beijing has readied an additional $143 billion  in subsidies and tax credits.”

Second, the structure of GVCs makes it difficult for the dominant power to coerce the rising power without igniting business resistance at home and easier for the rising power to upgrade its industrial base in response.

“At the end of the day, businesses  will prioritize their profits over national security. However, whether business incentives align with national security depends on a firm’s location in a GVC. In past instances of economic competition, high-value businesses typically resisted the dominant state’s policies to mitigate disruptions and recover lost profits. Low-value companies, by contrast, often collaborated  with the rising state’s policies to reap the potential gains from industrial development.”

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