Chips vs. Trump 2: Whose Industrial Policy Is Stronger

If we remove the propagandistic component from this statement, what remains is an acknowledgment of China’s far more effective industrial policy compared to that of the United States—and indeed the entire collective West.

Since 2014, China has spent $142 billion to support its semiconductor industry, more than three times the $39 billion allocated under the CHIPS Act of the Biden administration.

But financial generosity alone does not fully explain China’s effectiveness. China leverages its manufacturing dominance strategy to achieve its well-known supremacy in the global rare earth elements market. It controls the raw materials used to produce solar panels.

Less well known is its dominance in the markets for gallium and germanium—two metals used in specialized semiconductors. Recently, it restricted supplies of indium phosphide, a material used in the production of laser semiconductors (essential for artificial intelligence and the fiber-optic networks that power the internet). Prices for indium phosphide have risen by 250% over the past year.

China’s strategy for building advanced high-tech companies is well known: create a company for the domestic market, starting with the simplest products. Then enter the global market and move up the supply chain to produce more complex, high-tech, and higher-value goods. Use government subsidies to lower market prices and push non-Chinese competitors out of the market.

The government and the Communist Party are pursuing this same approach with regard to CXMT. Today, the company’s main clients are Alibaba, Huawei, and other Chinese manufacturers of AI and computer equipment. Only about 2% of the company’s output is used for HBM (High-Bandwidth Memory), the memory utilized by Nvidia and other computing chip manufacturers to build ultra-fast accelerator systems that form the backbone of artificial intelligence.

However, according to global analytical agencies, CXMT’s HBM production capacity could increase tenfold over the next 18 months—especially if U.S. authorities allow the company to become a major player in the global memory market.

CXMT is soon to hold a $4 billion IPO on the Shanghai Stock Exchange, providing the company with additional funds for expansion (and low pricing) and likely attracting support from American investment funds.

And what is the U.S. industrial response to China’s chip challenge?

In the United States, Micron is currently building two new memory production plants: one in Boise and another in upstate New York. Micron says it will spend $20 billion on the plant in Clay, New York, and $15 billion on the plant in Boise, ultimately reaching 40% domestic chip production.

These are very positive developments, partly thanks to the 2022 CHIPS Act, under which Micron was allocated just over $6 billion.

However, these substantial billions pale in comparison with South Korea’s recent industrial policy initiatives. The government, in partnership with the country’s two largest memory chip manufacturers (SK Hynix and Samsung), plans to spend $585 billion to double its already world-leading position in this technology.

The South Korean government has designated three industries as “national strategic industries” to support artificial intelligence: AI data centers, memory chip manufacturing plants, and the foundational software network for managing AI-powered autonomous robots.

The government has set a goal for its robotics companies (led by Hyundai and its subsidiary Boston Dynamics) to produce 30,000 humanoid robots per year and deploy them across 10 major industries.

In addition, the Korean government is encouraging (and financing) investment in renewable energy and water resources to support new AI-powered data centers.

This is what real competitive struggle in high and critical technologies looks like—precisely in line with the military strategy principle that there are never too many troops in the main direction of attack.

The largest players in the memory chip market understand that by spending tens and hundreds of billions today to develop this critical sector, they are securing the key to future strategic dominance.

And in this technological rivalry, the United States is the lagging side because, unlike Asian strategists, it cannot tame its financial leviathan.