The US imposes new rules requiring that CHIPS Act beneficiaries agree not to expand manufacturing capacity in “countries of concern”, like China, for 10 years
Demetri Sevastopulo / Financial Times :
Context & Ripple Effects
This is the opening move in what becomes an escalating sequence: Washington starts with a broad 10-year no-expansion pledge from CHIPS Act beneficiaries, then within weeks proposes hard numeric caps — 5% for advanced chips and 10% for legacy chips — before codifying the restrictions in final rules that tie subsidy eligibility to limits on foreign fab expansion.
The significance is that subsidy money is being converted into a geopolitical alignment tool: any company accepting US funds must now choose between federal support and its existing China footprint. By early 2025 the same logic extends downstream to product flows, with new rules curbing advanced chips produced by TSMC and others reaching China alongside sanctions on 16 Chinese firms building out the domestic industry.
First-order effects
- CHIPS Act applicants must sign a 10-year commitment not to expand manufacturing capacity in countries of concern like China, making every beneficiary — including multinationals with existing Chinese fabs — weigh US money against their China business.
Second-order effects
- Beijing pushes self-sufficiency harder: related coverage reports a requirement that chipmakers use at least 50% domestically made equipment when adding capacity, plus state venture-capital funds of over $7.1 billion each backing early-stage hard-tech startups.
- Export controls push China toward workarounds rather than abstinence — sources report retrofitting older ASML DUV lithography machines for advanced smartphone and AI chip production, exposing cracks in the US-led control regime.
Third-order effects
- If the pattern holds, global semiconductor capacity splits along subsidy blocs: US-aligned fabrication funded on condition of China disengagement, and a Chinese stack built on domestic equipment mandates — raising costs for chipmakers caught serving both markets and inviting further rounds of rule-tightening, as the October 2023 AI-chip parameter changes already foreshadow.
The trend: Industrial policy is fusing with export control: governments increasingly attach market-access conditions to subsidies, forcing chipmakers to geographically segregate their capacity strategies.