Chip stocks tumble as markets vote no to U.S. 'Chip Act
The chip bill, disguised as "science", reveals a Cold War mentality.
On August 9 local time, US President Joe Biden signed the Chip and Science Act, which seeks to boost the country's technological competitiveness through massive funding to enhance semiconductor manufacturing and scientific research in the US.
This law, disguised as "science", is in essence a crude intervention on scientific development and market economy, and has strong Cold War connotations.
On the day the bill was signed, all three major U.S. indexes closed in the red, led by semiconductor stocks, particularly Nvidia and Micron Technology, which fell more than 3 percent. This is the market's most direct and explicit response to anti-globalization.
The Chip and Science Act is a classic anti-globalisation law with a mandate of up to $280bn, including more than $50bn in subsidies for production and research and development in the US chip industry.
In terms of data, the United States' share of global semiconductor manufacturing has steadily declined from 37 percent in 1990 to about 12 percent today. This is the natural result of the comparative advantage of the market, and a normal phenomenon of the world's interdependence and progress through cooperation.
On the other hand, the Chip and Science Act intervenes in the industrial development by means of direct government intervention, even against the law of the market, aiming to maintain the unilateral hegemony of the United States in science and technology. Only, the market didn't buy it.
Most alarmingly, the bill includes a provision that prohibits companies that receive federal subsidies from increasing production of advanced process chips in China. This clear policy of exclusivity has a clear purpose -- to promote the decoupling of the chip industry between China and the United States. "Chip giants" such as TSMC, Samsung, Intel and Micron, which have semiconductor production and research and development plants in both China and the US, will be under intense pressure to take sides between the two markets.
The Chip and Science Act will not only directly cause huge financial losses to these companies, but also deal a further blow to the chip consumer market, which is already suffering from undersupply.
It is embarrassing that the Chip Act, which was supposed to promote American chip manufacturing, failed to stop the collective decline in semiconductor stocks. The PHLX Semiconductor Index fell more than 170 points, or 5.7 percent, to close down 4.6 percent at the 3,000 and 2,900 levels, three days in a row, to its lowest level since July 26.
The large-scale investment of the US government in the field of science and technology is related to the brand of strategic competition with the Soviet Union under the background of the Cold War. The Chip and Science Act is designed to strengthen the US in chip manufacturing at all costs, while curbing and limiting Western technology companies' investment and cooperation in China.
But this practice of asking companies to take sides between China and the US is not purely motivated by technological competition. It has the implicit purpose of a new Cold war against China and is essentially anti-market. For American chip companies, the road to globalization has been forcibly interrupted, and the market slump has told the story.
It may take time to see how effective the Chip and Science Act will be in practice, but the Cold War mentality behind it is a cautionary tale. The emphasis is as much on direct suppression of rivals as on strengthening America's own power.
The Sino-US competition in science and technology is not to be feared - in fact, it will promote healthy development in the field of science and technology, but what is worrying is the "technology decoupling" it promotes between the two countries and the reshaping of the strategic relationship between the two countries.
Regional globalisation along different technological paths will unfold separately along the lines of geopolitical fragmentation. This will not only greatly increase the cost of scientific and technological progress and economic development, reduce efficiency, but also passively change the industrial pattern, bringing unpredictable challenges to the global economy. The market slump is just one of the most immediate reactions, and the subsequent adverse effects will slowly show up.
The competition around chip research and development and production is no longer a pure industrial and technological competition, but a geopolitical competition.
It can be predicted that the Chip and Science Act will block the road of development while restricting others, and will not really benefit the local chip enterprises in the United States. At the same time, it will only further stimulate China's determination and confidence to firmly enhance the ability of independent innovation in science and technology.
□ Liang Yabin, Kong Zhiguo (Institute of International Strategy, Party School of the CPC Central Committee)