Red tape slows down chip investement

Taiwanese chip producer TSMC is set to open its first fabrication plant in Japan on 24 February, marking a significant milestone in the country’s industrial policy. TSMC also has plans for a second plant nearby. According to the Economist, this expansion in Japan contrasts with TSMC’s experiences in the United States, where its expansion plans have encountered delays and challenges.

One of the main differences between TSMC’s experiences in Japan and the United States lies in labour relations. In Japan, union activism is comparatively rare, resulting in smoother operations for TSMC. On the other hand, TSMC faced a prolonged dispute with the Arizona Building and Construction Trades Council in the US over the use of Taiwanese workers to build the plants. The dispute was eventually resolved in December, with TSMC making a commitment to hire and train local workers.

Another factor contributing to TSMC’s smoother experience in Japan is the presence of helpful local partners. Japanese companies such as Denso, Sony, and Toyota have taken minority stakes in TSMC’s subsidiary in Japan. These companies have extensive experience in completing large projects in their country, which has benefited TSMC’s ventures. Furthermore, these companies are major customers for the chips produced by TSMC’s plants in Japan. This close relationship between TSMC and its partners has created a synergistic ecosystem, aiding the success of its operations.

Subsidies play a crucial role in attracting foreign firms, and both the Japanese and American governments have offered grants to chipmakers. TSMC has already received financial support from the Japanese government, which agreed to cover half of the capital spending for its Kumamoto project. However, TSMC has faced delays in receiving funds under the CHIPS Act passed in the US in 2022. Negotiations over conditions, including the government’s entitlement to profits, have slowed down the disbursement process. Uncertainty about incentives has also affected TSMC’s plans for its second Arizona plant, with its technology depending on the incentives offered.

The delays and challenges faced by TSMC in the United States are compounded by environmental reviews required for federal funding, which can significantly slow down projects.

Lessons can be learned from TSMC’s experiences in both countries. Subsidies need to be effectively provided to support the growth of chipmakers, and excessive environmental regulations and red tape should be addressed to facilitate smoother operations.

Source: The Economist