World’s biggest chipmaker taps $11.6bn in US subsidies

Today’s top stories

• US Treasury secretary Janet Yellen concluded a six-day trip to China by saying the two countries’ relationship was now on a “stronger footing”. Officials on both sides are set to meet next week to resolve US concerns about Chinese industrial oversupply. Separately, US President Joe Biden warned Beijing against meddling in the South China Sea, while the US, UK and Australia are considering expanding their security pact as a bulwark against China.

• JPMorgan Chase boss Jamie Dimon warned that US inflation and interest rates could remain higher than markets expect because of high government spending. Markets are pricing in two quarter-point cuts and only a 50 per cent likelihood of a third, in a dramatic turnaround from the start of the year.

• German manufacturing looks to be on the road to recovery after official data showed factory production rebounded at the start of the year, thanks to strong growth in construction and carmaking.

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Good evening.

There were further signs of a recovery in the chips market today as Taiwan Semiconductor Manufacturing Co, the world’s biggest producer, announced it would take advantage of generous US subsidies to build cutting-edge products in Arizona from 2028.

TSMC’s move, realised with $11.6bn in grants and loans available under the 2022 Chips Act, also gets the US closer to its goal of bringing 20 per cent of advanced semiconductor manufacturing onshore by 2030. The deal means that chipmakers such as Nvidia and AMD, by the end of the decade, will no longer have to rely on Asian production. 

Although tensions appear to be easing, the chip industry has for a while been at the centre of tussles between Washington and Beijing. TSMC’s move helps mitigate risks that a Chinese invasion of Taiwan could upend supply chains.

At the same time, China is also looking to replace foreign technology with homegrown solutions. It has recently blocked the use of Intel and AMD chips in government computers as well as seeking to sideline Microsoft’s Windows operating system.

The chip market is in full recovery mode after suffering a severe downturn last year. TSMC said in January that it expected a return to strong growth with revenues expected to increase by up to 25 per cent. Its bullishness was echoed last week by Samsung, which forecast a 10-fold jump in profits. 

Demand is being driven by the need for high-end chips in artificial intelligence, with dram memory chip prices up 20 per cent in the first quarter and Nand flash memory chips — used for data storage — up by as much as 28 per cent. This time last year Samsung had been among those cutting production to deal with a global glut as sector profits tumbled.

Geopolitics aside, there is another strong argument for ending Asia’s dominance in semiconductor manufacturing: the risk of earthquakes.

The smallest vibration has the ability to wreck chip production, yet nearly all advanced manufacturing takes place in the quake-prone region, particularly in Taiwan, home to the Pacific’s “Ring of Fire” line of seismic faults. Last week’s quake off the east coast led to plants being evacuated.

Listen to the latest Behind the Money podcast on how Malaysia is emerging as a surprise winner as companies look to insulate their chip supply chains from geopolitical tensions.

Need to know: UK and Europe economy

The UK Post Office Horizon public inquiry resumes tomorrow, the penultimate phase of the probe into one of the country’s biggest miscarriages of justice. It will focus on the role that company executives, government ministers and figures from Fujitsu played in handling the cases of wrongly-accused sub-postmasters.

Russia is using precision missiles to destroy Ukrainian power stations in areas less protected than Kyiv, some of which cannot be fully restored in time for next winter. Ukrainian officials said the damage was worse than in the winter of 2022-23, with the apparent aim now being permanent, irreparable damage.

Ekrem İmamoğlu’s re-election as Istanbul mayor has sent a jolt of enthusiasm through Turkey’s invigorated opposition and cemented his position as President Recep Tayyip Erdoğan’s chief adversary. İmamoğlu told the FT that Erdoğan would “shorten his political life” if he “does not get the message and continues to do the same things”.

Pro-Russia candidate Peter Pellegrini was elected president of Slovakia, consolidating the grip of Robert Fico’s ruling coalition. His narrow win followed a vitriolic campaign during which Pellegrini accused his pro-EU and pro-Nato rival Ivan Korčok of wanting to drag Slovakia into the Russia-Ukraine war.

Need to know: global economy

Gold prices continue to rise, today hitting another all-time high of $2,353.79 a troy ounce. Prices have been buoyed by the prospect of US rate cuts, fears of an escalating conflict in the Middle East and by demand from central banks and Chinese consumers.

Until recently, Japan had become an outlier in the global economy where inflation, interest rates and wage growth all remained near zero — or in some cases below it. A Big Read assesses whether the country is finally becoming a “normal economy”.

Need to know: business

Vitol, the world’s largest independent commodity trader, hit net profits of $13bn in 2023, illustrating how much the privately owned group has benefited from disruption to energy markets caused by Russia’s full-scale invasion of Ukraine.

MBDA, a European missile powerhouse originally formed from a merger of British Aerospace’s missile manufacturing division and France’s Matra, is being held up as a model for defence industry collaboration as Europe tries to bolster military output in the face of war in Ukraine.

Global stock market concentration is at its highest level in decades, increasing risk for passive investors. US equities, led by the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) now account for more than 70 per cent of global developed markets as measured by the MSCI World Index.

US regulators will investigate a new mishap involving a Boeing aircraft after a piece of engine housing fell off a Southwest Airlines plane.

Forget “shrinkflation,” the new catchphrase for companies trying to avoid public opprobrium for making products smaller but keeping their price the same is “price pack architecture,” writes Alphaville’s Louis Ashworth.

New York City’s only super-tall tower outside Manhattan, Michael Stern’s Brooklyn Tower at 9 DeKalb Street, is shrouded in gloom and uncertainty. The building goes to auction on June 10 after its lender, Silverstein Capital Partners, began foreclosure procedures because of a loan default.

The World of Work

Employers have made great strides in combating prejudice in areas such as gender and ethnicity but social class remains by far the biggest source of discrimination in the workplace, writes columnist Pilita Clark.

Why does the UK find it so hard to fix the persistent gap in numeracy skills and confidence afflicting women and girls? Evidence suggests it’s a key factor in poorer career options, financial health and general wellbeing.

Work and Careers editor Isabel Berwick outlines her five secrets of workplace success. Rule one: look in the mirror before you criticise your boss.

Some good news

Chinese scientists have come up with a device that could allow medical implants to run perpetually: an implanted battery that is driven by the body’s own oxygen.