How the US and allies, which long pressed China to stop subsidies for favored industries, are now embracing subsidies of their own to fund chip manufacturers
Greg Ip / Wall Street Journal : Tweets: @chadbown , @timaeppel , and @jchengwsj Tweets: Chad P. Bown / @chadbown : The United States and its allies have long pressed China to stop helping favored industries with subsidies, government preferences and other interventions. Now they are beginning to copy it. Excellent long read from @Greg_Ip https://www.wsj.com/... Timothy Aeppel / @timaeppel : Support for industrial policy now is broadening, straddling the Trump and Biden administrations, driven by pandemic-driven disruptions to supply chains and the rise of China. https://www.wsj.com/... via @WSJ Jonathan Cheng / @jchengwsj : The U.S. and its allies have long pressed China to stop helping favored industries with subsidies, government preferences and other interventions. Now they are now beginning to copy it. @greg_ip https://www.wsj.com/...
Context & Ripple Effects
For two decades the US and its allies treated China's subsidized champion industries as a trade grievance to be litigated away. Greg Ip's piece marks the turn in that posture: pandemic supply-chain disruptions and China's rise pushed Washington from pressuring Beijing to imitating it, with support for chip industrial policy spanning both the Trump-to-Biden subsidy wave that chipmakers raced to capture.
The reversal has since compounded rather than faded. By early 2023 the SIA counted 40+ proposed US fab projects worth roughly $200B since 2020, and by mid-year the US, EU, Japan, and India together had committed over $100B — while China answered with plans to de-Americanize its own chip industry using billions from Beijing.
First-order effects
- Chipmakers are the immediate beneficiaries: subsidy programs across the US and allied capitals shift fab siting decisions toward whoever offers the largest public check, turning plant locations into negotiated deals with governments.
- Washington's own export-control leverage weakens at home — every new domestic fab deepens the constituency arguing that cutting off China's market costs American producers revenue.
Second-order effects
- China accelerates import substitution in response: Chinese orders for chipmaking equipment jumped 58% YoY in 2021 as Beijing pushes domestic tools, and undocumented rules reportedly require 50% domestically made equipment on any capacity expansion.
- Allied cohesion frays at the edges — Japanese suppliers stepped in to fill Huawei's supply gap after US sanctions, showing that when one ally restricts, another's vendors absorb the demand.
Third-order effects
- If the pattern holds, the WTO-era norm against industrial subsidies effectively dissolves: chips become the template for state-funded strategic sectors generally, with subsidy size becoming a permanent input to corporate capex planning.
- The endgame is a bifurcated semiconductor economy — Western-subsidized capacity versus China's self-sufficiency push — where each bloc's security policy sets the other's industrial policy.
The trend: Industrial policy is going global again: the US-led free-trade consensus against subsidies has flipped into a subsidy race among allies and China alike, with semiconductors as the proving ground.