US bans ‘advanced tech’ firms from building facilities in China for 10 Years

US technology firms that receive government funding will be banned from building “advanced technology facilities” in China for a decade, the Biden administration has announced, as it outlined plans to increase domestic production of semiconductors.

The requirements come under the US government’s near-$53bn (£46bn) plan to scale up manufacturing of semiconductor chips – the “brain” in every electronic device from cars to household appliances – which are predominantly produced in Asia.

The US Chips and Science Act (Chips), approved by Congress in August, is part of the American response to a long-running technological dispute between Washington and Beijing, as US firms demand more government support to reduce reliance on components produced in Chinese factories.

The US Department of Commerce said it hoped to begin seeking applications by next February for $39bn in government semiconductor subsidies to build new production facilities in the US. The plan will also give a 25% investment tax credit for chip plants, where construction begins from 2023.

“We’re also going to be implementing the guardrails to ensure those who receive Chips funds cannot compromise national security,” the US commerce secretary, Gina Raimondo, said. “They’re not allowed to use this money to invest in China; they can’t develop leading-edge technologies in China; they can’t send latest technology overseas.”

The US currently only produces about 10% of the world’s supply of semiconductors; most chips are manufactured in factories in Taiwan and South Korea.

Global shortages of computer chips, prompted by the coronavirus pandemic, have caused large production delays for carmakers in the UK and beyond, as well as for technology companies and other manufacturers.

In addition, the industry has gained increased geopolitical prominence as China has begun asserting itself on the world stage under its president, Xi Jinping, including threatening Taiwan.

This has led to investment in and expansion of semiconductor production in the US, as well as in Japan and the EU.

“These funds are intended to help companies maximise the scale of their projects. We’re going to be pushing companies to go bigger and be bolder,” Raimondo said. “We’re going to negotiate these deals one at a time,” she added, saying the companies receiving government funds would need to “prove to us the money is absolutely necessary to make these investments”.

The Chips Act commits a total of $280bn to hi-tech manufacturing and research, and is designed to increase the US’s competitiveness with China.