Both Singapore and Malaysia produce a disproportionately large amount of the world’s semiconductors.

Singapore is worried that the massive subsidies Washington and Brussels are about to spend on new microchip projects will upset a “finely balanced” global market.

“When we start doing these things, then I would say it functions almost like a tax,” David Koh, chief executive of Singapore’s Cyber Security Agency, said during a panel at POLITICO’s Global Tech Day in London on Thursday. Koh warned that planned chip subsidies from the United States and Europe could impose “false barriers” that “end up driving up costs.”

“These costs will then feed into the global economic system,” Koh said.

Despite its small size, Singapore produces 5 percent of the world’s semiconductor wafers.

Last year, Congress passed the CHIPS and Science Act, a law that pumps $52 billion into domestic chipmaking facilities and research labs. And in April the EU advanced its own Chips Act, which will funnel roughly $47 billion in subsidies to semiconductor firms that set up shop in Europe.

Koh suggested that neither the U.S. nor the EU possess the “complex ecosystems” required to support large-scale semiconductor operations.

“There’s a challenge of whether you have the competence, you have the trained personnel, et cetera,” he said. Koh cautioned that the subsidies could cause the world to “lose some of the benefits of economic scale and the digital revolution.”

Fahmi Fadzil, Malaysia’s communications and digital minister, broadly agreed with Koh’s assessment of Western chip subsidies. Malaysia also has an outsized footprint on global semiconductor production.

Both Singapore and Malaysia subsidize semiconductor companies that operate in their countries. Singapore, in particular, offers a wide range of incentives to chip firms. The southeast Asian city-state is reportedly trying to lure the Taiwan Semiconductor Manufacturing Company to its shores through substantial new subsidies.

Source: Politico