The US Senate is expected to pass a bill this week to invest billions of dollars in the American semiconductor industry to boost competition with China, but an expert is concerned that it could lead to higher costs and reduced profits for the global market.
The Senate voted for passage of the funding bill, known as the CHIPS Act last week in a procedural vote and is expected to hold a formal vote this week.
The bill would provide around $52 billion in subsidies and tax breaks to domestic chip manufacturers to incentivize them to build new factories and bolster production in the country.
"Before the US decided to suppress China's access to semiconductor technology, it was a globalized market where each supplier competed based on the comparative advantages that it enjoyed," George Koo, a retired international business adviser in Silicon Valley, told China Daily.
"It was an efficient market where the best manufacturer with the lowest cost won. By artificially creating one US-centric market that excludes China's participation, everybody loses," he said.
"Chipmakers that are forced to abide by US restrictions will not be able to sell to China, the largest market in the world. China will be forced into developing their own advanced chips that they have been buying from the US suppliers. Each semiconductor camp will serve a smaller market with higher cost and reduced profit margin," he continued.
Supporters of the bill said the subsidies would help address the chip shortages, insulate the country from future supply chain disruptions in East Asia and counter China's tech rise.
But Koo said, "There are indications that the chip shortage may already be coming to an end, and a glut could be around the corner.
"The industry has a history of quick shortfall-to-glut cycles. By the time the CHIPS Act-funded new capacity comes on stream, it could be three to five years away, and who knows which cycle it would be," he said.
"Being denied access is only a temporary obstacle for China," said Koo.
"There are already reports in Asia Times and Bloomberg that China has already found ways to work around the critical technology that they can't have because of the American embargo," he said. "The net effect is that China will become a formidable competitor in due course."
If the bill is approved by the Senate, it would head to the House for passage and then to President Joe Biden for his signature. The Biden administration has been pushing for the legislation to advance, saying it would address the global chip shortage and create new jobs for Americans.
But negotiations in Congress have dragged, though both Democrats and Republicans are united in seeking to constrain China's economy. The Senate last year passed a bill to strengthen the semiconductor industry and US research and development, but the House had its own legislation.
"The CHIPS Act, even if approved, would provide $52 billion in subsidy. And it's by no means certain that the subsidy would be allocated effectively and lead to desired technical advances," said Koo. "The US may no longer have the technical skills needed.
"Whether it becomes law or not will not have much effect on the world's semiconductor industry. By exercising strict export control on China, the US has successfully divided the chips market into two," he said.
"The sum of the two halves will not be as large as the one original global market. Everyone will take a hit in profitability," he added.