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The CHIPS and Science Act, signed by President Joe Biden last year, provides $39 billion in manufacturing incentives for semiconductors, as well as $13.2 billion for research and development, and a 25% investment tax credit for computer chip production. Proposed rules from the Commerce Department would limit entities which receive the funds to develop semiconductor production in China, Russia, Iran, or North Korea.
“The innovation and technology funded in the CHIPS Act is how we plan to expand the technological and national security advantages of America and our allies,” Commerce Secretary Gina Raimondo said in a statement. “CHIPS for America is fundamentally a national security initiative and these guardrails will help ensure malign actors do not have access to the cutting-edge technology that can be used against America and our allies.”
Recipients of the funds will be unable to use them overseas, expand existing semiconductor operations abroad by more than 10% for one decade after the award, or launch research initiatives with foreign entities of concern.
Wang Wenbin, a spokesman for the Chinese Foreign Ministry, remarked at a press briefing on Wednesday that his nation’s government issued a diplomatic complaint in response to the proposed restrictions. “The so-called guardrails claimed by the U.S. are an out-and-out sci-tech blockade and protectionism,” the official said, according to a report from Bloomberg. “The hobbling and containment will not stop China from growing, and will only strengthen our decision to seek self-development.”
TSMC, a manufacturer based in Taiwan that maintains operations in China, has recently committed $40 billion toward a new semiconductor facility in Arizona. Samsung and Intel, both of which are expected to receive semiconductor funds alongside TSMC, also operate in China.
Enactment of the CHIPS and Science Act occurred in response to the fact that China, South Korea, and Japan control nearly 80% of global semiconductor manufacturing capacity, according to data from the Brookings Institution, while TSMC alone produces over 90% of the sophisticated chips used in cell phones and computers. A reliable supply of semiconductors is necessary to develop artificial intelligence and weapons technologies.
The restrictions on semiconductor investment in adversarial countries occur as American officials become suspicious of Chinese firms and their associations with the nation’s government. The Biden administration investigated Chinese telecommunications company Huawei last year over concerns that American cell towers using the company’s devices were transmitting data on military bases and missile silos to the Chinese Communist Party. A final rule published by the Federal Communications Commission prohibits Huawei, ZTE, Hikvision, and Dahua from importing and selling certain products that the agency considers a threat to national security. The new rule does not apply to technology already within American borders.
Lawmakers also commissioned an examination of the port cranes and large steel structures manufactured by ZPMC since sensors on the towers could monitor the shipment of items transported to assist American military operations. Officials are also considering a ban or forced divestiture of TikTok, which is owned by Chinese technology firm ByteDance, since members of the Chinese Communist Party can reportedly access American user data through the platform.