America’s “friend-shoring” is friendly in name only in eyes of many allies

Posted on : 2022-12-09 16:43 KST Modified on : 2022-12-09 17:10 KST
The lure of lucrative subsidies and tax credits is draining allies of their cutting-edge sectors
US President Joe Biden speaks at an event for TSMC’s chip plant in Arizona on Dec. 6. (Reuters/Yonhap)
US President Joe Biden speaks at an event for TSMC’s chip plant in Arizona on Dec. 6. (Reuters/Yonhap)

“American manufacturing is back, folks,” declared US President Joe Biden at an event celebrating the arrival of equipment for a factory being made by the Taiwan Semiconductor Manufacturing Company in Phoenix, Arizona, on Tuesday. Biden was welcoming TSMC’s decision to increase its investment in the area to US$40 billion.

“We’re having difficulties with companies which are starting to consider offshoring their production or making future investment outside Europe,” said a French government official prior to a dinner between French President Emmanuel Macron and a group of CEOs on Nov. 21 at the Elysee Palace. Macron reportedly appealed to the CEOs of European companies such as BMW, Volvo, AstraZeneca and Ericsson not to go to the US.

The announcement by TSMC — the world’s largest semiconductor foundry — that it will make its biggest-ever investment in the US shows that massive subsidies are beginning to attract high-tech industry to the US.

The Biden administration’s plan to achieve dominance and shake off Chinese pursuit in the cutting-edge manufacturing areas of semiconductors and electric vehicles is bearing fruit, but discontent among US allies in Europe and Asia who are losing production facilities and high-quality jobs is reaching the boiling point.

In the semiconductor sector, a series of leading companies have been expressing their intention to make large-scale investments in the US. Samsung Electronics plans to invest US$200 billion in Texas over the next 20 years, and SK Chairman Chey Tae-won announced US$22 billion in new investments in the US in late July.

The same is true of American companies: Micron Technology has announced that it will invest US$100 billion over the next two decades, and Intel is also spending US$20 billion on new factories. IBM has also released plans to invest US$20 billion.

In the area of electric vehicles, BMW has announced it will spend US$1.7 billion to build an electric vehicle production line and a battery manufacturing plant.

This investment boom in the US is being driven, at least in part, by the industrial subsidies offered under the CHIPS and Science Act and the Inflation Reduction Act, both of which took effect in August.

The CHIPS and Science Act allocates US$52.7 billion in subsidies for building semiconductor production facilities and also provides tax credits. The Inflation Reduction Act provides up to US$7,500 in tax credits for the purchase of each electric vehicle made in North America.

The US has justified these industrial policies under the name of “economic security” against China. US Treasury Secretary Janet Yellen has said the US is practicing “friend-shoring,” which refers to building stable supply chains among US allies and partners.

But in actuality, this is becoming a zero-sum game in which high-tech production facilities and high-quality jobs are being concentrated in the US while its major allies are feeling the squeeze.

That’s aptly illustrated by Northvolt, a Swedish company that manufactures electric vehicle batteries. Northvolt had initially planned to build a factory in Germany, but it recently said it’s considering going to the US, which can provide US$800 million in subsidies, four times the amount provided by Germany.

That has led to more tangible discontent in the EU, which has asked the US to halt its “Chinese-style industrial policy.” On Nov. 30, Macron himself objected to American policy, which he said would destroy many jobs in Europe and would divide the West.

While South Korea has refrained from objecting overtly, it has asked the US to delay the tax credit measure for three years, until the electric vehicle plant that the Hyundai Motor Company is building in Georgia can begin operations.

The US has said it understands Korean concerns and has called for finding a solution, but it hasn’t proposed anything specific. A senior official at the White House recently opined that US policy is “growing the pie” for companies in allied countries.

The EU is planning to combat the US’ “Buy American” policy with a “Buy European” policy. That suggests a willingness to wage a trade war. European countries are reportedly mulling the options of imposing retaliatory tariffs or lodging complaints with the World Trade Organization.

“The position adopted by the US amounts to protectionism and national chauvinism, and there’s a trend toward more unilateralism. A clear-eyed understanding of the situation is needed,” said Kim Han-jung, a lawmaker with the Democratic Party, in a meeting with foreign correspondents in Washington on Tuesday.

Kim was part of a government and parliamentary delegation that visited the US to discuss the issue of discrimination against Korean-made electric vehicles.

By Lee Bon-young, Washington correspondent

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