US and EU want to avoid 'subsidy race' over chip manufacturing
Coordinated efforts by the U.S. government and EU could increase focus on fixing the global chip shortage.
What you need to know
- The U.S. government and EU will announce a joint effort to prevent a "subsidy race" in the semiconductor industry.
- The move could help prevent countries from competing in semiconductor manufacturing rather than addressing the global chip shortage.
- The governments aim to ensure a supply of semiconductors in a "coordinated fashion," according to an official.
The U.S. government and the European Union will take steps to avoid a "subsidy race," according to a report by Reuters. The outlet stated that the U.S. and EU will announce a joint effort at the second meeting of the U.S.-EU Trade and Technology Council, which will occur on Monday, May 16, 2022.
"You'll see us announce... a transatlantic approach to semiconductor investments aimed at ensuring security of supply" said a senior administration official.
The joint effort will be made to prevent a subsidy race that would see countries compete for chip manufacturing.
The ongoing global chip shortage has caused supply issues across a range of industries. Several governments and large companies have committed to investing millions of dollars to alleviate the shortage. Without cooperation, however, countries could end up competing rather than focusing on fixing a global issue.
An official told Reuters and other reports that the EU and the U.S. government want to promote chip investment in a "coordinated fashion" and that they don't want to "encourage a subsidy race."
The U.S. government is considering a $52 billion funding bill for chip manufacturing, but it has not passed through Congress. The proposed European Chips Act could also see significant funding put toward chip production.
At the same meeting, the governments will announce an early warning system to identify and address supply chain disruptions in the semiconductor industry, according to the report.
Secretary of State Antony Blinken, Commerce Department Secretary Gina Raimondo, and U.S. Trade Representative Katherine Tai will headline the event. An official also told Reuters that EU trade chief Valdis Dombrovskis and EU antitrust chief Margrethe Vestager will participate.
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It's how the next wave of winners and losers will be determined. It is already late in the game: smart players were reworking their supply chains since before the pandemic. They got first dibs at the cheaper nearshore locations and workers. If you don't buy the demographics, how about transportation costs? Oil prices will not be getting any cheaper any time soon. (Years, not months.) Those costs are already offsetting any gains from east asian labor, which is no longer as cheap as it used to be, anyway. And shrinking in most of the more prominent countries. Take CPUs: the wafers are made in Taiwan or South Korea, shipped to Malaysia to package the chips, shipped to China to assemble the device, to ship the computer or console to Europe. That is neither fast nor cheap at today's container and shipping prices. Now, will the new semiconductor foundries in the US and Europe be sending their output to Malaysia or China to be assembled to come back as finished products? Or will tbey stay closer to where they'll sell? If you look at the Euro EV market, Hungary is getting billion euro investmdnts from VW, Daimler, BMW for new battery and car plants. Slovakia and Poland and other Eastern countries. Tesla moved first and their (heavily automated) plant is in Berlin. Less workers needed, higher production, right next to a train station. First mover advantage. Look west and you'll find American market factories in Mexico and the southeast states. And where are the US foundries going up? Arizona and Ohio. Just hundreds of miles by rail to Mexico, Texas, and the south. Where is Tesla? Texas. Ford? Mexico. Same story for other industries. Big pharma has Puerto Rico. Microsoft has been in Mexico since tbe 360 era. And the contract manufacturers like FOXCONN are setting up shop in Mexico and Brazil. And the US. Globalism was built around cheap labor and shipping; the latter is gone and the former is fading and less relevant. If you're building new production sites to be closer to the customers, you have more and cheaper automation ootions than previous decades. The economies of manufacturing are shifting in favor of building where you sell. Whole new era for manufacturing.