US-China chip battle heats up

A new phase of US-China competition in semiconductor manufacturing is beginning that threatens to turn a lucrative market into a liability for Western companies. [View in browser]( [Bloomberg]( Welcome to Balance of Power, bringing you the latest in global politics. If you haven’t yet, sign up [here](. US President Joe Biden’s big bet to secure more of the semiconductor supply chain is paying off. The Chips and Science Act, backed by more than $100 billion in grants, loans and guarantees for semiconductor firms to build plants in America, unleashed an avalanche of investment that will help [reverse a downward trend]( of domestic chip production, according to the Semiconductor Industry Association. But America isn’t alone in building out its chip capacity: China is constructing about 30 new facilities for parts of the supply chain, more than in the US, the Washington-based lobby group said Wednesday. It’s a reminder that for all the Biden administration’s efforts to curtail Beijing’s chipmaking ability — including [further squeezing Huawei]( this week — China retains a hold on certain key sectors. That includes so-called legacy chips. They’re not at the cutting edge and so avoid US export controls but remain ubiquitous in applications like consumer electronics, military systems and cars. While China is the largest global supplier of such chips, the country is also an important revenue source for US, Japanese and especially European companies that supply the automotive industry there. China is the world’s biggest market for electric vehicles, which need growing numbers of chips for sensors, power management and braking systems — and it relies on foreign chipmakers like Infineon of Germany and Texas Instruments to meet that demand. They are more than happy to do so. Just this week Infineon announced a deal to supply chips for Xiaomi’s new EVs. Beijing, though, has issued a call to increase domestic production of legacy chips, including automotive semiconductors. Biden, meanwhile, is [preparing tariffs]( on industries including electric vehicles. All the signs point to a new phase of competition that threatens to turn a lucrative market into a liability for Western companies — and another headache for Biden.— [Alan Crawford]( Biden holds a silicon wafer at an Intel facility in Arizona in March. Photographer: Brendan Smialowski/Getty Images Global Must Reads Striking a defiant tone, Prime Minister Benjamin Netanyahu said Israel “will stand alone” if it has to after the US withheld [a shipment of bombs]( over Washington’s opposition to a ground operation in the southern Gaza city of Rafah. He later took a more conciliatory stance on an American talk show, saying he hoped the two allies could resolve their differences. Barely two years ago, the European Greens were riding high, helping to negotiate a package to create the first climate-neutral continent by 2050. Russia’s invasion of Ukraine and the ensuing energy crisis exacerbated a cost-of-living crunch for Europe’s citizens and the fallout has [put the Greens on course]( to lose a third of their seats at next month’s European parliamentary elections. Pedro Sanchez’s Socialist Party looks to be heading for first place in Sunday’s Catalan elections, yet the vote [presents a complex test]( for the Spanish prime minister. His fragile national coalition relies on support from both the main Catalan separatist groups, and if the Socialists enter the regional government with one of them, the other could pull its backing for Sanchez's government in Madrid. Before becoming Senegal’s youngest-ever president, Bassirou Diomaye Faye spent much of the previous year in jail on charges of spreading fake news. Yet his [surprise victory last month]( showed how government attempts to use laws against alleged misinformation to consolidate power can backfire. Faye’s inauguration ceremony in Diamniadio on April 2. Photographer: Annika Hammerschlag/Bloomberg UK opposition Labour Party leader Keir Starmer will pledge millions of pounds for border enforcement [in a speech today]( as part of a plan to help tackle a surge in migrants and disrupt people-smuggling gangs. The proposals are an incursion into territory that’s traditionally a Conservative strength, and comes after Starmer, whose party is leading in the polls ahead of a general election expected this year, also promised to ramp up defense spending. As India’s general election nears the halfway mark, falling turnout is [prompting concerns about voter disengagement]( in the world’s largest democratic exercise. Thailand’s move to reclassify cannabis as a narcotic [threatens to trigger street protests]( and class-action suits by owners of thousands of dispensaries which sprouted across the country following decriminalization two years ago. Chad’s military ruler, Mahamat Déby, won the country’s presidential elections, [cementing his power]( over one of the last remaining military allies of the US and its European partners in the Sahel region. Washington Dispatch The Federal Aviation Administration’s reauthorization by Congress remains a work in progress today. The Senate last night passed a measure that would keep the agency in business for five years. But it still awaits action by the House, which left town after voting for a one-week extension. So the senators then approved the prolongation, the fourth since September, to beat a deadline of midnight tonight. Even [a brief lapse of the FAA’s powers]( would prohibit the agency from collecting ticket and fuel taxes and lead to the immediate furlough of several thousand workers. “If we let funding for the FAA lapse, it would be disastrous for the safety of our skies and the efficiency of our airports,” Senate Majority Leader Chuck Schumer warned. The reauthorization includes a contentious provision to add five additional roundtrip flights at Ronald Reagan Washington National Airport, which is in Virginia, just across the Potomac from the District of Columbia. Virginia’s two senators, Tim Kaine and Mark Warner, oppose that expansion, calling it a safety risk. But they were thwarted by Senator Ted Cruz, a Texas Republican. His state could get a direct roundtrip flight between Reagan and San Antonio. The House is widely expected to pass the five-year reauthorization when it returns next week. One thing to watch today: The University of Michigan’s preliminary consumer sentiment index for May is expected to show a deterioration, as elevated inflation and a cooling labor market stoke households’ concerns about their finances. [Sign up for the Washington Edition newsletter]( for more from the US capital and watch Balance of Power at 1 and 5 p.m. ET weekdays on Bloomberg Television. Chart of the Day China is losing its appeal for European Union firms as a top destination for investment as executives seek to skirt geopolitical risk and turn to Southeast Asia and Europe, according to a new survey by the EU Chamber of Commerce in China. Only 13% of firms polled see the country as a top market, the [lowest since records began]( in 2010 and down from 27% in 2021. And Finally Svalbard is one of the northernmost settlements in the world, about halfway between the Scandinavian mainland and the North Pole. About 60% is covered with glaciers, and it’s home to polar bears and arctic foxes. It’s popular with adventure-seeking travelers and the site of the famous “Doomsday” Vault of seeds. Now, a Manhattan-size piece of land there — which a lawyer for the sellers say is the last privately held plot in the nine-island Norwegian archipelago — [has hit the market]( for $323 million. The land for sale includes mountainous terrain and fjords. Source: Knight Frank Pop quiz (no cheating!) Which country’s president publicly apologized over his wife receiving a luxury handbag under questionable circumstances, citing her “unwise behavior?” Send your answers to balancepower@bloomberg.net. 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