Recently, the U.S. Chip and Science Act of 2022 (hereinafter referred to as the "Chip Act") was formally signed into law by President Joe Biden. The 1,000-plus-page bill gained notoriety from the very beginning of its drafting and was called by US politicians and the media "the United States' sharp weapon to win economic competition in the 21st century" and "the most significant government intervention in industrial policy in decades." It is clear that this bill is largely directed against China. Let's see in more detail.

First.

There is a historical and practical reason why the US is in a hurry to spend so much money on the chip industry: in the 1990s, the US chip manufacturing capacity accounted for 37% of the world market, but now it has fallen to 12%. The Chip Act is intended to encourage chip companies to return to the US to install new production lines, expand manufacturing capacity, and restart US chip manufacturing growth.

According to a White House statement, the bill would provide $52.7 billion in subsidies for U.S. chip manufacturing, R&D and training, a 25% investment tax break for companies that open U.S. chip factories, and over the next 10 years, about $200 billion has been allocated to the development of American research in the field of artificial intelligence, quantum computing and other areas. The total amount of funds provided by this Law is more than 280 billion US dollars.

The plan is grandiose, but its implementation implies a "carrot and stick" strategy.

The "carrot" is to receive money, which in the amount of 52.7 billion US dollars will be channeled through the "four major funds" to respectively stimulate the production of microcircuits, security development and innovation of microcircuit production, development and education of personnel in the field of microcircuit production , as well as to create special chips for national defense. The "whip" is directly aimed at China.

For example, the bill prohibits companies receiving US subsidies from significantly increasing production of advanced process chips in China for 10 years, and those who violate the ban could be required to return the entire amount of subsidies paid; the bill also prohibits recipients of federal stimulus funds from expanding semiconductor manufacturing capacity in "certain countries that pose a threat to US national security."

Simply put, receiving this subsidy means you will not be able to invest in higher-tier chips in mainland China for 10 years. A White House spokesman said the Chip Act is intended to encourage semiconductor manufacturers to invest more in the United States rather than China.

The problem is that chip production is an international industry, and all the leaders in this field are multinational companies. Many foreign media believe that the main purpose of the Chip Law is to force TSMC, Samsung, Intel and other multinational chip companies to "choose sides" between the US and China. Mainland China is the world's largest chip market. At present, TSMC has 16nm and 28nm chip factories in mainland China, Samsung has a memory chip factory in Xi'an, and SK Hynix, Intel, Micron and other companies have chip packaging and testing factories in China. In addition, many projects are planned in the country for the production of high-level chips according to the standards of 7 nm and 5 nm.

Once the law goes into effect, if these companies continue to expand their operations in China, they could lose out on huge US subsidies and be at a disadvantage compared to other US chip makers, and even face harassment by US law enforcement all along the manufacturing chain. . But if companies really listen and move their manufacturing facilities to the US, that would again be tantamount to giving up China's huge market opportunity. After all, this high-tech, high-value-added industry has always followed the cycle of "high investment in R&D - broad application in the market - investment in R&D".

Second.

Even before the bill was signed, all US chipmakers received letters from the US Department of Commerce demanding that they stop supplying China with equipment to produce 14nm and higher chips, according to the BBC. According to an analysis by China's semiconductor think tank Chip Research, the "Chip Law" is only a "pre-snack". The main goal is to form a "four-way chip manufacturing alliance" by including Japan, South Korea and Taiwan, which will be the key to curbing the development of the Chinese chip industry.

The transformation of the industry into a geopolitical weapon is clearly contrary to the laws of economics.

Over the past few decades, the chip industry has been largely globalized. Some advanced chips require over 1,000 processes such as etching, diffusion, and packaging to produce, requiring an average of over 70 cross-border interactions.

For example, one "specialized and new" enterprise was built in Shandong province. This company mainly manufactures high-temperature graphite containers, which are used for the production and purification of semiconductor materials. According to the head of the company, the more accurate the required characteristics of the product, the higher the requirements for the uniformity of container heating during high-temperature processing. After many years of research, the company has successfully produced ultra-high temperature high-purity vacuum gas furnace with independent intellectual property rights, which has achieved unique advantages in the market.

But acquiring technological advantage is not a solitary job. Now the company still has to import raw materials from its Japanese partners. Why? The chip manufacturing chain is very long, and it is not easy for one company to make improvements in its area without the cooperation of previous links in the chain. Only when all parties cooperate, realizing their comparative advantages and characteristics, can maximum efficiency be achieved.

The same goes for the international chip market. The United States is the world's number one supplier of semiconductor equipment, and EDA chip design software is also largely monopolized by the three American giants (Synopsys, Cadence, Mentor). At the same time, in raw material supply, manufacturing and other aspects, Taiwan, China, Japan, South Korea and Europe have their strengths.

The founder of TSMC recently made it clear that the production cost of the same chip in the US is about 50% higher than in Taiwan. If you develop the production of chips in the United States, then it will be "useless, wasteful and expensive."

Thus, the Chip Act, through "non-traditional safeguards", is forcing the expansion of US chip manufacturing capacity, not primarily for profit, but to ensure that they are not "caught up" and that they maintain an absolute advantage in development over China. To achieve this goal, the stability of global production and supply chains, including the United States itself, is being sacrificed.

In response to this "hegemonic concern," US companies, the media, and think tanks have raised many objections. During the drafting of the Chip Law, Intel actively lobbied for the US not to curb investment by chip companies in mainland China, fearing that "the bill would undermine the global competitiveness of subsidized companies." Bloomberg criticized the bill as "a huge waste of money." Some US scientists warn that no matter how hard the US tries to strengthen its manufacturing sector, it cannot be separated from the global supply chain.

Third.

Can the US win this brutal and selfish "chip war"? At present, virtually no international mainstream voice is optimistic about this "great gamble".

There are no free lunches. The Chip Act proposes $280 billion, but where will the money come from?

Continue to build up debt? Earlier this year, US government debt topped $30 trillion for the first time, the government deficit continues to widen, and re-borrowing could increase the risk of default on US government debt. Run a money printing press? The irresponsible policy of "financial easing" in the US has already led to serious inflation, the Fed has raised interest rates four times this year. How can money be printed again?

How about "digesting" this money by restoring our own economy? US Department of Commerce data shows that in the second quarter of this year, US GDP fell 0.9% year on year, declining for two consecutive quarters and falling into a technical recession. Although Pelosi has called the Chip Act "a major victory for American families and the American economy," in its current form, the massive $280 billion spending will place a heavy burden on the government and taxpayers, potentially exacerbating internal conflicts even further.

Astute people point out that industrial policies that are inconsistent with costs and benefits not only fail to spur entrepreneurial innovation, but tend to encourage arbitrage. Some opponents of the "Chip Act" in the United States predict that highly profitable local chip companies are more likely to use government subsidies to buy back shares and increase their value, rather than invest in R&D and building factories.

If the US insists on a hard technological break with China, it could cost US chip companies 18% of global market share, 37% of revenue and a cut of 15,000 to 40,000 high-skill jobs, Boston Consulting Group predicts, as subsidies, under the Chip Act do not cover the costs for companies to move factories from China to the US.

A few years ago, the Trump administration launched a trade war with China, turning a blind eye to the laws of the market, which in the end did not "make America strong again", but, on the contrary, harmed American businesses and ordinary people. There is nothing wrong with competition between countries in the field of science and technology, but this path must be the right one. Hoping to use the "new cold war in industry" to suppress other countries will only backfire.

According to today's BLS report, inflation in the US formally declined and amounted to "only" 8.5% in July versus 9.1% in June.

Parts of economy are now struggling to survive, and are trying to keep prices down, hoping that competitors will die first (which keeps inflation in check), while the other part is tied to the cost of resources and follows them. In general, everything is very uneven, and therefore the detailing is interesting.

If inflation in the service sector remains below headline inflation (6.25%), i.e. so far it is holding it back (at the expense, obviously, of the wages of the unfortunate workers in the sector), but at the same time, albeit slowly, it has been growing for 11 months in a row, and has now reached its maximum level since 1982.

It is curious that in certain segments of the service sector, prices are rising much faster than general inflation:

• health insurance: +20.6% per year
• shipping: +14.0%
• air travel: +27.7%

In terms of product group, the champion, of course, is energy:

• gasoline: +44.0% per year
• gas: +30.5%
• electricity: +15.2%

But many other product groups also entered double-digit figures:

• food at home : +13.1% per year and this is a record since 1979
• cereals and grain products: +15%
• bird: +16.6%
• eggs: +38%
• milk: +14.9%
• juices: +12.9%
• fats and oils: +20.8%
• children's snack: +15%

The cost of new housing increased by 19.7% over the year, new cars by 10.4%, furniture by 10.8%.

According to preliminary results, commercial slaughter companies in Germany produced almost 3.5 million tons of meat in the first half of 2022. The Federal Statistical Office (Destatis) reports that this is 7.9% less than the same period last year. In total, 25.8 million pigs, cattle, sheep, goats and horses, as well as 353.2 million chickens, turkeys and ducks were slaughtered in slaughterhouses in the first half of 2022. 10.1% less pork than in H1 2021

In the first six months of the year, German farms slaughtered 23.8 million pigs. This corresponds to a year-on-year decrease of approximately 2.3 million animals slaughtered or 8.9%. The volume of pork produced in the first half of 2022 amounted to 2.3 million tons, which is 10.1% lower than in the same period of the previous year (-253.8 thousand tons). The average carcass weight of pigs also decreased by just over one kilogram to 96.31 kilograms. One of the reasons for the decline in pork production is the reduction in the number of pigs in Germany.

Beef production is 9.1% lower than the same period last year

In total, farms in Germany slaughtered about 1.4 million cattle in the first half of 2022. Compared to the previous year, this represents a decrease of 8.1% (-127,200 animals). The volume of beef produced for the reporting period decreased by 9.1% to 476,100 tons (-47,500 tons) compared to 2021. With a weight of 329.53 kilograms, the average weight of cattle was about 3.6 kilograms lower than the weight of the same period last year.

Poultry meat production is largely constant

Much less than the production of pork and beef, the amount of poultry meat produced decreased in the 1st half of 2022. At the level of about 771.6 thousand tons, 0.2% less poultry meat was produced than in the same period of the previous year (-1,800 tons).