Japan’s Answer to the CHIPS Act: A $9.9B Tech Investment

Key Takeaways

• Japan was once the world’s leading producer of semiconductors, but the industry today is a shadow of its former glory.
• Hoping to kickstart a chip renaissance, the government is investing billions of dollars to boost research and manufacturing.
• The latest $9.9 billion commitment echoes the U.S. CHIPS Act subsidy package.

Passed by Congress in 2022, the CHIPS Act forms the centerpiece of the U.S. government’s efforts to boost the domestic semiconductor industry. The $280 billion package of subsidies, tax breaks and research investment has helped entice major chipmakers from around the world. But the U.S. isn’t the only country trying to court the industry.

In the last week alone, South Korea unveiled plans to allocate 14 trillion won ($10 billion) of low-interest loans next year to support chip makers and the Japanese government allocated an additional 1.472 trillion yen ($9.9 billion) in its budget to fund semiconductor research and advance ongoing manufacturing initiatives.

Japan’s $66 Billion Semiconductor Package

While Japan was once the world’s leading computer chip manufacturer, the industry experienced a significant decline in the 1990s and 2000s due to trade friction with the U.S. and new competition from South Korea and Taiwan.

But in recent years, the government has sought to re-establish Japan as a semiconductor powerhouse.

The latest budget allocation is part of these ongoing efforts, which, once private sector contributions are taken into account, could channel 10 trillion yen  ($66 billion) into the Japanese chip sector by 2030.

The crown jewel of the project is  Rapidus Corp, a newly set up foundry that hopes to produce two-nanometer logic chips by 2027, a feat that would place it at the cutting edge of global semiconductor innovation.

While there is a sense that these efforts are a response to the U.S. CHIPS Act, Japan also has other reasons to invest in domestic production.

Semiconductors and the US-China Trade War

At a time of rising trade protectionism, it is worth remembering that, for the semiconductor industry, the Trump-era U.S.-China trade war never really ended.

While Biden reverted to neoliberal orthodoxy on raw materials and basic consumer goods, his administration imposed more restrictions on a greater range of chips, manufacturing equipment and other high-tech electronics that cover both exports to and imports from China.

With Donald Trump expected to escalate simmering tensions between the two superpowers when he enters the White House next year, more stringent restrictions on Chinese goods could pose a threat to Japanese electronics manufacturers. At the same time, with U.S. allies looking to reduce their reliance on Chinese chips, now could be the best time for other countries to ramp up production.

Japan and the U.S. aren’t the only countries subsidizing chip manufacturing. The EU has its own version  of the CHIPS Act. And this week, South Korea announced a major new stimulus for the industry too.

South Korea Unveils $10 Billion Loan Package

Between American and Japanese subsidies, South Korea faced the prospect of its domestic industry losing out to the competition and has responded with its own package for the sector.

As reported by Reuters on Tuesday, Nov. 26, the government plans  to dish out 14 trillion won ($10 billion) of low-interest loans next year to support chip makers in the country and ensure they don’t offshore production at the cost of local jobs.

The country’s finance ministry highlighted the growing threat from Chinese manufacturers and uncertainty around the future direction of American trade policy.

“In response, the government plans to mobilize all available resources and actively support companies in overcoming the industry’s crisis and achieving a renewed leap forward,” it said in a statement.