The chip wars are heating up and becoming very expensive.

On Monday, the world’s biggest semiconductor producer, Taiwan Semiconductor Manufacturing Co (TSMC), announced it would build a plant to make its most advanced chips – cutting edge 2-nanometre (2 nm) chips – in a new factory to be built in Phoenix, Arizona.

China is playing a long game for very high stakes and will inevitably subsidise its semiconductor sector indefinitely.Credit: Bloomberg

The plant would be its second in the US, with the first, announced in 2020, to start production next year. It already has plans to build a third, with 2 nm or even more advanced technology, and has lifted its planned investment in the US from $US40 billion ($60 billion) to $US65 billion ($98 billion).

The second factory, or “fab” as they are called, will be financed with $US6.6 billion of US government grants and up to a further $US5 billion of loans flowing from the Biden administration’s 2022 Chips Act, which provided $US53 billion of funds to subsidise domestic semiconductor manufacturing and research.

Last month the administration gave Intel $US8.5 billion of direct funding and $US11 billion of loans to manufacture bits cutting-edge chips. Other smaller grants have been made to other US companies in a program that the administration says has already led to more than $US200 billion of new investment.

The US is targeting a global market share of 20 per cent in the manufacturing of the most advanced chips by the end of this decade, doubling its current market share.

The European Union, partly in response to the Chips Act, has a target of doubling its share of the market and similar legislated funding to achieve it. Last year TSMC announced it would build a plant in Germany, with a total investment of more than 10 billion euros (more than $16 billion), which would include some government funding.

Germany had previously announced it would contribute €10 billion towards a €30 billion investment by Intel in two new plants in eastern Germany.