Editor's note: Daryl Guppy is an international financial technical analysis expert. He has provided a weekly Shanghai Index analysis for media for the Chinese mainland for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a national board member of the Australia China Business Council. The article reflects the author's opinions and not necessarily those of CGTN.

U.S. President Biden's newly signed CHIPS and Science Act doesn't promote competition; it kills it. The bill unilaterally imposes the equivalent of sanctions on the global semiconductor industry through its poison pill attachment.

Supporters of the chips bill say the funding is needed to sharpen America's technological edge and reinvigorate its lagging chip industry. And that's fine if the competitive edge is sharpened in an open market place. Although the benefits of state protectionism of industries are often doubtful, it is a path well-trodden by many countries.

The bill begs an important question: why has America lost its technical edge? The answers to that go well beyond issues that can be resolved by any short-term funding solution. The answers are more likely to be found in exploitative working conditions, a slowdown in the recruitment of international talent, and generally declining academic and research standards to the extent that now China produces more research papers than the U.S.

Few of these issues are addressed by erecting a chips barrier behind which industry can work in a protected environment. It remains an open question as to whether the bill will encourage innovation because protected industries have a tendency to grow fat and lazy when there is no competition to spur them on.

Former U.S. President Donald Trump revised the classic rules of U.S. capitalist competition. Hailing from the same generation, President Biden has continued this tradition of what some describe as "mafia" capitalism where the competition is "snuffed" out, in this case through the addition of a poison pill.

The pill is disguised as "guardrail provisions" to prevent companies which benefit from U.S. subsidies and incentives from building advanced semiconductor plants in China. Private companies that receive financial assistance will be restricted from expanding certain chip manufacturing in China for 10 years, well beyond the proposed funding end date.

The reasoning is that if U.S. companies are making more chips in the United States instead of buying from friendly foreign manufacturers, then foreign chips manufacturers, particularly China, will suffer from decrease of demand. That's a traditional application of state-backed competition policy, and although it runs counter to the objectives of the World Trade Organization (WTO), it's not an overly egregious breach.

However, the anti-competition provisions suggest that this latest iteration of "America First" policy will have a bigger impact on friendly foreign chips manufacturers than Chinese mainland chips manufacturers.

Korean chip makers Samsung and SK Hynix, for instance, report that chips complicate their China and European investment strategy. This poison pill will leave the Chinese chip market to Chinese companies and force Samsung to compete more fiercely with Intel on the U.S. home turf.  

While top tech executives say a consistent supply of chips is crucial for technology advances like 5G and in medicine, not all are convinced that domestic manufacturing is critical to their business. Many say supply continuity rather than U.S.-based manufacturing is the most critical for companies.

The semiconductor chip market is much broader than just the United States. It includes much of the rest of the world, and includes developing economies where the demand for products is expanding more rapidly than the rate of demand in the U.S. Global growth markets are outstripping consumer growth demand in the United States so "guardrail exclusion" from these markets as a result of the chips bill is a penalty that major non-U.S. manufacturers may be unwilling to pay.

Bill supporters talk of having to defeat the advances made by the Chinese. These advances in chips manufacturing and the chips bill suggest that the only way the U.S. can be competitive is by snuffing out the competition. This is not out-competing, this is not out-innovating. This is "mafia" capitalism at its best where the competition is destroyed by other means. Of course, the inevitable result is a decline in innovation because competition has disappeared. It is an increase in cost because competition has been removed. It is the production of an inferior product because competitors are banned from competing.

It is well recognized that these types of anti-competitive policies destroy economies and yet these outdated solutions are being pursued with vigor by elderly leaders.

The chips bill is the worst type of protectionism because it seeks not just to lock out competitors, but to destroy competitors. This ambition of destruction is what makes this "mafia" capitalism, rather than just protectionism.

The WTO and other trade bodies are set up to tackle protectionism through trade barriers beyond the border barriers and other restrictions on trade. Nonetheless, none of these organizations have the ability to effectively tackle "mafia" capitalism. This battle requires political solutions based on a change in the way people think about the value of competition and what constitutes genuine competition because these chips will come back to bite them.

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