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The country emerging as the winner in the “chip war” between the US and China

The high-tech war between the US and China is currently at a tipping point.

In the past two months alone, Washington first passed a massive injection to boost the key semiconductor industry and then issued a ban on tech companies receiving federal funding from opening branches in China.

When US President Joe Biden signed the congressionally-approved $52.7 billion investment in semiconductor manufacturing and research, as well as a 25% tax credit for investment in chip factories, on August 9, the ceremony was attended by Pat Gelsinger – the CEO of Intel.

The company is a leading global player in the creation of semiconductors (also known as integrated circuits or more commonly as chips), and Gelsinger’s presence at the White House ceremony signaled that the technology sector is behind the US government in this new effort.

However, on the same date, it is scheduled to be more than 3,000 km to the south in Costa Rica. There, on Aug. 9, Intel opened new facilities at its only semiconductor chip assembly facility and test operations in the Western Hemisphere.

The company has spent the past few years trying to balance the weight of its Asian operations as the Biden administration promotes domestic semiconductor manufacturing as a key element of the U.S. economy and security.

Intel is a key trump card for America amid rising tensions with China as the tech giants battle for resources and chips. And in the general scheme of this confrontation, the small Central American country would find itself in a very advantageous position.

Keeping Intel manufacturing is nothing new for Costa Rica. The company opened its first plant there in 1997, and until 2014 it was where the company’s bulk semiconductors came from. However, operations have since moved almost entirely to Asia due to lower costs.

With that, Costa Rica lost about 20% of all its foreign exports, but strained relations between the US and China have made the country a desirable destination for US technology investors again.

First, in 2020, the Intel plant was reactivated, with an investment of $350 million announced at the time. In the years since, that investment has grown to $1 billion, including a 60 percent increase in staff to nearly 4,000 workers in 2022.

According to Timothy Scott, Intel’s manager of government relations for Costa Rica, the company still has plans to expand its operation in the Central American country.

In his words, although the initiative signed by Biden to allocate large-scale federal funding for the creation of chips mainly affects plants on the territory of the United States, the geographical proximity of Costa Rica and the presence of already built production facilities “could guarantee an expansionary wave.”

Currently, whether there will be an expansion of Intel’s capacity in Costa Rica depends on the company’s Ohio plant, where silicon wafers are manufactured.

According to optimistic forecasts, the situation will stabilize in 2022, but not everyone is optimistic

If it is developed with the help of federal and state grants, the next logical step is to also increase the capacity for complete semiconductor assembly and testing. And the closest point to that is Costa Rica, as Scott points out.

The company’s other facilities are located in Malaysia, Vietnam and the southwestern Chinese city of Chengdu, but restrictions due to the coronavirus pandemic, disruptions in global logistics and strained relations between Washington and Beijing have prioritized establishing shorter supply chains .

Meanwhile, the battle between the US and China for chips is intensifying. Last Friday, the US government announced that domestic companies would be banned from supplying certain categories of semiconductors made with US technology to Chinese customers.

The move aims to strike at China’s weapons and supercomputer development.

China is trying hard to catch up in high-tech, but faces increasing blockades from the US aimed at limiting the country’s access to American chip design and manufacturing equipment.

Relations between the two countries further soured after US House Speaker Nancy Pelosi’s surprise visit to Taiwan, the world’s leading semiconductor producer. This visit was taken by Beijing as a provocation in its own backyard.

Delayed deliveries lead to less production

This tightening of relations leads to the strengthening of the presence of American companies in countries such as Costa Rica. For now, the country’s authorities are looking at every move with caution, but also with optimism, said Minister of Science and Technology Carlos Enrique Alvarado.

According to data from the local Ministry of Foreign Trade, chips generated $518 million in exported products in 2021 – effectively $1 in $20 of Costa Rica’s exports came from semiconductors.

These numbers continue to still be down from Costa Rica’s technology export boom between 2005 and 2015, but the country is nevertheless seeing a rapid recovery hand in hand with other dynamic sectors such as medical devices, which are currently one of Costa Rica’s leading exports.

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