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US Semiconductor Companies Restricted from Expanding Production Capacity in China Under CHIPS Act

Recent reports indicate that American semiconductor companies intending to benefit from the $39 billion semiconductor manufacturing subsidy program established by the CHIPS Act are prohibited from expanding their production capacity in China. These chip manufacturers will be required to sign various agreements and legal documents that commit them to refraining from expanding their chip production facilities in China.

The CHIPS Act, which stands for Creating Helpful Incentives to Produce Semiconductors, is a program that was passed in the United States in July 2022, to support the domestic semiconductor industry. The program will provide $39 billion in subsidies to American chip manufacturers, with the goal of increasing domestic production and reducing the country’s reliance on foreign-made semiconductors.

As per Financial Times, Commerce Secretary Gina Raimondo has informed the press that companies availing themselves of programs under the CHIPS Act will be obligated to sign an agreement that limits their capability to expand their semiconductor manufacturing capacity in countries of concern for a 10-year duration after receiving the funds. Although the Biden administration did not explicitly name China as the country of concern, the prevailing political and economic circumstances suggest that the administration is specifically targeting China.

Speaker of the House Nancy Pelosi stands among members of Congress after signing the CHIPS and Science Act at the Capitol
Speaker of the House Nancy Pelosi stands among members of Congress after signing the CHIPS and Science Act at the Capitol in Washington, D.C. Saul Loeb / AFP via Getty Images

The Commerce Secretary has further clarified that companies receiving funds under the CHIPS Act must not engage in joint research or technology licensing efforts with foreign entities of concern, involving sensitive technologies or products. This stipulation is aimed at deterring domestic companies from entering into agreements like the one recently announced by Ford with China’s CATL. Along with Ford, US semiconductor companies such as Intel, Qualcomm, Broadcom, Micron Technology, and Texas Instruments have either had or still maintain business ties with China in the semiconductor industry.

“I also want to be clear that no CHIPS dollars can be spent on stock buybacks,” Raimondo said. “This is about investing in our national security, not enabling these companies to use our money to increase their profits.”
As part of the funding conditions under the CHIPS Act, United States Commerce Department will also require American companies applying for more than $150 million will be required to outline their plans for providing affordable childcare to their workers. The condition is a reflection of the current labor market and aims to support workers and families.
The CHIPS Act is a response to the ongoing semiconductor shortage, which has disrupted supply chains in several industries, including automotive and electronics. By increasing domestic production, the program aims to ensure a stable supply of semiconductors for critical industries and strengthen the country’s national security.