Hostility to subsidies underlying Trump CHIPS Act repeal move

By Justine Irish D. Tabile, Reporter

THE Philippine chip industry will need to contend with the new mood in Washington that has made subsidizing foreign programs less likely to pass White House scrutiny, analysts and industry officials said.

The Philippine response to President Donald J. Trump’s call to repeal the US CHIPS and Science Act should be to develop new markets if semiconductor companies are to remain viable, with US policy now weighted towards imposing tariffs on many imports, analysts said.

“The Trump administration is seeking to shift from a policy of subsidies and fiscal support to the semiconductor industry to increasing tariffs on foreign imports,” Ateneo School of Government Dean and Economics Professor Philip Arnold P. Tuaño said in an e-mail.

Last week, Mr. Trump proposed to US legislators the repeal of the CHIPS Act, which provides $52.7 billion in federal subsidies for semiconductor chip manufacturing and production, encouraging them to revive chipmaking in the US and diversify manufacturing sites away from China.

The Philippines is one of seven countries tapped to help diversify US on semiconductor supply chain.

“If this results in American semiconductor companies looking for more cost-efficient locations in terms of manufacturing and assembly, this may benefit the growth of Philippine semiconductor operations,” Mr. Tuaño said.

“But if the protectionist policies in the US result in higher tariffs, this could disrupt exports of semiconductor components assembled in this country for the US,” he added.

He said that the Philippines has been a top destination for US semiconductor investment.

“While the reversal of the CHIPS Act may result in lower investment by American manufacturers in the country … we could see this offset by the Philippines as an alternative to China, in which the US government has already erected tariff walls, in terms of semiconductor testing and assembly,” he added.

However, he said that the Philippines will need to position itself as a semiconductor testing and assembly hub.

This is through “strengthening its ties across the Southeast Asian region to increasingly leverage itself as part of the regional electronics ecosystem, improving training and education programs in engineering and assembly, and enabling stronger investments in infrastructure.”

Foreign Buyers Association of the Philippines President Robert M. Young said that he expects the Philippines to be the least affected by Mr. Trump’s America First policies.

“Somehow, if ever that will happen, the Philippines will be the least affected. I am saying this because we are the smallest player in the industry of chips. The lion’s share is in South Korea, Taiwan, and China,” he said via phone.

“There is another school of thought that perhaps this might be selective … Perhaps he will say that the Philippines is just a small player and we will just retain the chip subsidies,” he added.

However, he said that the Philippines will need to explore new markets to be able to maintain employment levels.

“We just have to look for other markets just to survive and at least continue what we are doing right now so that employment is not affected. Otherwise, it will really affect our economy,” he said.

“South Korea and Taiwan will be needing some subcontractors, and the Philippines can be one of them,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that scrapping the US CHIPS and Science Act in an effort to cut the US government’s expenditures will effectively reverse one of former US President Joe Biden’s initiatives.

“This effectively nullifies subsidies for US chipmakers to better secure the sources of semiconductors from allied countries such as the Philippines. So it is an opportunity lost for local electronic exporters to sell more to the US chipmakers,” he said in a Viber message.

Philippine Economic Zone Authority Director General Tereso O. Panga said that the reversal of the support will affect manpower training in the semiconductor industry amid a Philippine push to host front-end fabrication and advanced chip manufacturing facilities.

“The repeal of the Act may delay our vision of hosting more assembly, testing, and packaging (ATP)-based semiconductor firms and advanced wafer fabrication manufacturing facilities for lack of the skilled and knowledgeable workforce,” he said.

“The Philippines is currently recognized as a deep pool for engineering talent, which enables us to maintain a competitive edge in the global semiconductor industry,” he added.

Meanwhile, Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) President Danilo C. Lachica said that the industry remains optimistic for modest growth despite Mr. Trump’s policies, specifically his plans to impose 25% tariffs on imported chips.

“It actually caused a little scare … But as we’ve kind of waded through the noise, as you know, we have a lot of several US multinational companies here, specifically in semiconductor ATP, which export back to the US,” he said during the Money Talks with Cathy Yang program on One News Channel.

“So, it seems like at this point anyway, we haven’t been affected by any tariffs. It’s business as usual. We’re still optimistic about growth being at least flat,” he added.

He said the volatility of US policy highlights the urgency of negotiating a free trade agreement (FTA) with the US.

“What’s important really is to establish an FTA with the US, whether bilateral or multilateral. Because while today we’re not seeing any impact, it’s evident that some of our members who deal with the federal government are seeing some delay, or if not cancellation, of orders because we’re not in trade agreement compliance,” he said.

“As soon as we get those FTAs and, of course, the Department of Trade and Industry (DTI) is on the ball working on it, we’ll see (these concerns diminish),” he added.

He said that the International Technology Security and Innovation Fund of the CHIPS and Science was also frozen along with the US Agency for International Development and State Department (USAID) grants.

“We’re looking at other avenues to continue advance ATP because that’s part of the new roadmap that DTI has funded. We’re going to grow ATP, integrated circuit design, and electronic manufacturing services,” he said.

“Hopefully, we can take baby steps towards having a lab scale or wafer fab operation,” he added.