The Microchip Mirage: How Semiconductor Subsidies Are Rewiring Global Inequality

By Isabella Chen Aug. 2, 2025

The race to dominate semiconductor production has become the defining industrial contest of the 21st century. From Washington to Seoul to Brussels, governments are funneling billions into “chip acts” designed to secure domestic supply chains and reduce dependence on East Asian foundries. The logic appears sound: semiconductors are the backbone of artificial intelligence, defense systems, and digital infrastructure. Yet, beneath the rhetoric of resilience and innovation lies a less discussed consequence—one of global inequality and economic displacement. Subsidies meant to secure technological sovereignty are deepening structural divides between advanced and emerging economies, distorting markets, and inflating public debt. The semiconductor boom, rather than flattening global opportunity, is increasingly creating a dual economy: one of subsidized silicon haves, and unsubsidized have-nots.

A New Industrial Policy Arms Race

Since 2020, more than US$320 billion in public funds have been pledged globally to the semiconductor industry. The U.S. CHIPS and Science Act, enacted in 2022, allocates US$52.7 billion in direct subsidies and tax incentives to chipmakers, aiming to raise the U.S. share of global fabrication capacity from 12% to 20% by 2030. The EU Chips Act promises €43 billion, while South Korea’s K-Semiconductor Belt plans exceed US$450 billion in combined public and private investment. Even Japan, which once dominated the industry in the 1980s, has reentered the race with US$13 billion to rebuild domestic foundries such as Rapidus.

But these programs share a common flaw: they rely on the false premise that semiconductor self-sufficiency is economically and ecologically sustainable. A 2024 McKinsey Global Institute study found that duplicating global chip capacity to achieve “strategic autonomy” could increase total semiconductor production costs by 35% and global CO₂ emissions by 25 million tons annually due to redundant infrastructure. These costs will be borne not only by taxpayers in subsidizing countries but by emerging economies excluded from the subsidy ecosystem.

The Geography of Subsidies

Subsidy geography mirrors geopolitical alignment. The largest beneficiaries of industrial support are firms already concentrated in the United States, Taiwan, South Korea, and parts of Europe. According to IC Insights, the top ten semiconductor firms accounted for 77% of global revenue in 2023. When subsidies flow into already dominant companies like TSMC, Intel, or Samsung, it amplifies existing concentration.

Meanwhile, developing countries—such as Vietnam, Malaysia, or Mexico—that form the lower tiers of the semiconductor supply chain receive a fraction of the benefits. These nations specialize in packaging, testing, and low-margin assembly. Yet, their dependence on imported high-end wafers and lithography machines makes them vulnerable to price shocks triggered by subsidy-fueled competition. The World Semiconductor Trade Statistics (WSTS) group estimates that the price of advanced lithography equipment rose by 62% between 2021 and 2024, a surge driven by parallel subsidization in competing economies bidding for scarce tools.

This imbalance reflects a structural paradox: while advanced economies subsidize capital intensity, emerging economies subsidize labor. The outcome is a “two-speed” semiconductor world—where one bloc builds fabs and the other builds components—perpetuating the same asymmetries that globalization once promised to dissolve.

The Opportunity Cost of Security

National security has become the moral shield for semiconductor protectionism. In the United States, the CHIPS Act is framed as a bulwark against Chinese dependence. Yet, as Brookings Institution economist Eswar Prasad notes, only 11% of CHIPS Act funding directly targets security-critical nodes such as defense-grade or radiation-hardened chips. The rest flows into commercial sectors like automotive and consumer electronics. Similarly, the EU’s framework designates all chips as “strategic,” diluting focus and creating lobbying races between industries vying for “critical” status.

This misalignment carries steep opportunity costs. Public funds that could have supported decarbonization, education, or healthcare are diverted toward industries already posting record profits. The Semiconductor Industry Association (SIA) reported combined global profits of US$155 billion in 2023, a 54% increase from pre-pandemic averages. In effect, taxpayer money is underwriting profit margins rather than public security.

Environmental Contradictions

The environmental toll of semiconductor production further undermines its green branding. Chip fabrication is one of the most water- and energy-intensive manufacturing processes on Earth. A single five-nanometer fab consumes roughly 15 million gallons of ultrapure water per day—as much as a city of 60,000 people. In Arizona, where TSMC is constructing its US$40 billion facility, local reservoirs have dropped by 22% in the past decade. Ironically, this is subsidized by public funds from the same state’s drought-relief budget.

Globally, the semiconductor industry emitted 102 million tons of CO₂ equivalent in 2022, exceeding the aviation sector of some small nations. A report by Carbon Disclosure Project (CDP) reveals that if all planned fabs under the CHIPS, EU, and K-Semiconductor programs come online, cumulative emissions could rise by 80% by 2035. Environmental policy, therefore, collides with industrial ambition, revealing another paradox of the subsidy era: “green” chips built on brown foundations.

The Emerging South’s Displacement

Perhaps the least discussed consequence of the subsidy surge is the displacement of emerging economies. Nations such as Malaysia, Thailand, and Vietnam—historically crucial in back-end assembly—are witnessing a relocation of production back to subsidizing nations. When the U.S. and EU finance domestic onshoring, it reduces foreign direct investment (FDI) elsewhere. The Asian Development Bank recorded a 21% decline in electronics FDI inflows to Southeast Asia in 2023, the sharpest drop since 2009.

For countries like Malaysia, where semiconductors represent 37% of exports, this is not merely economic—it is existential. The reconfiguration of chip supply chains is stripping them of comparative advantage while offering no path to technological upgrading. As a result, the “Global South of Silicon” faces deindustrialization before industrialization has even matured.

Subsidy Contagion and Fiscal Risks

Once initiated, industrial subsidies are difficult to unwind. Politicians across democracies view them as symbols of national renewal. But fiscally, they are unsustainable. The International Monetary Fund (IMF) warns that global semiconductor subsidies could widen advanced economies’ fiscal deficits by 0.5–0.8% of GDP annually over the next decade. Moreover, the political economy of subsidies breeds moral hazard: companies threaten to relocate unless governments provide additional support. Intel’s decision to delay its Ohio fab until further U.S. funding was guaranteed exemplifies this pattern. The subsidy state becomes hostage to its own industrial champions.

Toward Cooperative Technological Governance

The alternative is not the absence of policy but its coordination. Semiconductor production is too globally interdependent for autarky to succeed. No single nation can monopolize lithography (ASML), wafer production (SUMCO), and advanced packaging (ASE). A 2024 World Economic Forum white paper proposed a “Multilateral Semiconductor Coordination Mechanism” modeled on the International Energy Agency, where member states share supply chain data, allocate production incentives, and harmonize export controls. This model, though politically ambitious, offers a framework to replace subsidy races with synchronized resilience.

Similarly, regional compacts such as the U.S.–Korea Semiconductor Alliance and EU–Japan Partnership could evolve into open-access consortia that include Southeast Asian economies. By extending technical training and capital support downstream, advanced nations can mitigate displacement while preserving global efficiency. As long as subsidies remain zero-sum, global inequality in technology will deepen.

Conclusion

The microchip has become both symbol and symptom of our geopolitical anxieties. Governments are betting trillions on reclaiming control over the silicon spine of modern life. Yet, what began as a pursuit of resilience risks mutating into exclusionary industrial nationalism. The world cannot decarbonize, digitize, or democratize if each bloc builds walls of silicon around its own borders. The challenge for the coming decade is not to build more fabs, but to build more fairness—ensuring that the benefits of the digital age are manufactured not just in cleanrooms, but in shared institutions.

Works Cited

“CHIPS and Science Act Funding Breakdown.” U.S. Department of Commerce, 2023. https://www.commerce.gov/chipsact

 “European Chips Act: Legislative Proposal.” European Commission, 2024. https://digital-strategy.ec.europa.eu/en/policies/european-chips-act

 “Global Semiconductor Outlook.” McKinsey Global Institute, 2024. https://www.mckinsey.com/industries/semiconductors

 “Semiconductor Market Data 2023.” World Semiconductor Trade Statistics (WSTS), 2024. https://wsts.org

 “Water and Energy Use in Chip Fabrication.” Carbon Disclosure Project (CDP), 2023. https://www.cdp.net/en

 “Electronics FDI Data 2023.” Asian Development Bank Statistics, 2024. https://data.adb.org

 “Fiscal Impact of Industrial Subsidies.” International Monetary Fund (IMF), 2024. https://www.imf.org

 “Semiconductor Industry Profitability Report.” Semiconductor Industry Association (SIA), 2023. https://www.semiconductors.org

 “Industrial Policy and Geopolitical Rivalry.” Brookings Institution, 2024. https://www.brookings.edu

 “World Economic Forum White Paper on Semiconductor Coordination.” WEF Publications, 2024. https://www.weforum.org