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Western Chip Subsidies Will Benefit China

While China has managed to gain dominance in industries like electric vehicles, there is no need to fear an imminent Chinese takeover of the highly specialized semiconductor industry. But, as the world's biggest chip importer, China will benefit from falling prices brought about by Western subsidies for chip production.

BRUSSELS – If there is one certainty about the coming year, it is that geopolitical rivalries will persist. For the European Union, this will translate largely into an effort to reduce dependence on foreign suppliers, especially of critical goods. For the United States, the focus will be on maintaining military supremacy by denying potential adversaries – namely, China – access to relevant technologies. Both approaches overlap in an important area: the chips industry.

Because advanced microchips are central to many advanced weapons systems and integral to economic security and prosperity, the industry has become a key arena in today’s geopolitical competition. To improve their chances of prevailing in the “chip war,” all large economic powers have implemented major programs to support their domestic chip makers.

The US enacted the CHIPS and Science Act in 2022. As part of the legislation, the Commerce Department will hand out $50 billion in direct funding, federal loans, and loan guarantees to support semiconductor research and development, manufacturing, and workforce training.