An investigation into the US-Philippines semiconductor partnership reveals promise, friction, and an infrastructure crisis that could doom the whole enterprise
By Gerald Lacuarta for PhilReport.com
The United States has chosen the Philippines as one of just seven countries to receive funding under the CHIPS Act’s International Technology Security and Innovation Fund. It’s a $500 million vote of confidence spread across five years, with the Philippines competing alongside Vietnam, Mexico, Panama, Costa Rica, Indonesia, and Puerto Rico for a share of America’s semiconductor security strategy.
On paper, it’s a perfect match. The Philippines already ranks ninth globally in semiconductor exports, with 60 percent of total investments in the semiconductor sector coming from US companies. The country’s electronics industry generates over ₱719 billion ($38 billion) in revenue, making it the largest medium and high-tech manufacturing industry in the Philippine economy. More than three million Filipinos work directly or indirectly in the sector.
But beneath the diplomatic pronouncements and photo opportunities at economic summits, there’s a harder reality: the Philippines is trying to build a high-tech future on a power grid that can barely handle the present.
The US semiconductor strategy
The US semiconductor strategy is straightforward. America wants to dominate the high-value front end of the chip supply chain—the fabrication of cutting-edge processors in Arizona, Ohio, and Texas. For the back end—assembly, testing, and packaging (ATP)—it’s looking to trusted allies.
Enter the Philippines, which has been doing ATP work for decades. US officials have identified ATP as the current priority for the Philippines, noting that the country has been a significant player in assembly, testing, and packaging with semiconductor demand poised to continue growing.
The complementarity seems obvious. America builds the advanced chips. The Philippines packages and tests them. Everyone wins.
US Secretary of State for Economic and Business Affairs Ramin Toloui framed it clearly during his April 2024 visit to Manila. The US wants to make small, targeted investments with the ITSI fund that help catalyze larger, more important investments from the private sector, he explained. The focus areas? Workforce development and energy infrastructure—the exact weak points in the Philippine ecosystem.
Through Arizona State University, the US has awarded $13.8 million to implement programs under the ITSI Fund targeting the Philippines and five other countries. The goal is ambitious: train around 6,000 Filipino students over two years in semiconductor packaging, processing, and testing, with credentials from ASU and other US universities like Illinois and Purdue.
US Commerce Secretary Gina Raimondo went further during her March 2024 visit, saying the US wants to help the Philippines double its semiconductor facilities.
It’s heady stuff. The kind of partnership that gets announced at trilateral summits alongside Japan. The kind that gets written into G7 Partnership for Global Infrastructure and Investment initiatives like the Luzon Economic Corridor.
But there’s a problem that nobody wants to talk about publicly: you can’t double semiconductor facilities in a country where the lights keep going out.
Power Grid on Life Support
Here’s what semiconductor manufacturing requires: a large semiconductor fabrication lab consumes as much as 100 megawatt hours per hour and can account for up to 30 percent of fabrication operating costs. Even ATP facilities, which are less power-intensive than front-end fabs, need stable, uninterrupted electricity. A momentary voltage fluctuation can ruin an entire production run.
Now consider the Philippine power situation.
On March 6, 2025, Luzon’s peak demand hit 12,467 MW, a 5% increase from the Department of Energy’s approved forecast of 11,870 MW. The next day, hot weather caused a demand spike, but the unavailability of one plant with 668 megawatts capacity among 11 other plants totaling 1,639.3 MW led to a yellow alert from 5:00 PM to 7:00 PM.
Yellow alerts are warnings. They mean reserves are critically low. They mean rotating brownouts could be hours away.
And it gets worse. The Malampaya gas field accounts for at least 40% of electricity needs in the capital region, and economists have warned its depletion by 2027 might result in 12- to 15-hour rotational brownouts across the main island of Luzon.
Let that sink in. The Philippines is trying to attract billions in semiconductor investment while facing the prospect of half-day blackouts in its industrial heartland within two years.
The grid problems aren’t just about supply. The Philippines’ archipelagic geography and mountainous terrain make power transmission challenging, increasing susceptibility to risks such as power grid failure and grid overloads. During the 2024 Panay Island and Negros outages, businesses lost ₱400 million to ₱500 million daily.
For data centers and semiconductor facilities, even momentary power fluctuations can trigger massive data loss and operational downtime.
And then there’s cost. The Philippines has some of the highest electricity rates in Southeast Asia. Since President Marcos took office in July 2022, the generation charge nearly doubled, from 6.78 pesos ($0.12) per kilowatt-hour to 12.06 pesos per kWh by June 2024.
Operating a wafer fabrication lab in a country with high electricity rates and power supply issues would be challenging to lure these kinds of investments, Toloui acknowledged during his Manila visit.
That’s diplomatic speak for: this might not work.
Energy isn’t the only challenge. The Philippines needs to produce engineers at scale.
The Board of Investments announced plans to produce 128,000 engineers for the semiconductor industry. The ITSI-funded Arizona State University program aims to help, but the Advanced Manufacturing Workforce Development Alliance has so far trained 5,478 individuals as of September 2024.
That’s 4.3% of the target. And we’re already two years into the CHIPS Act timeline.
The Organization for Economic Cooperation and Development, conducting ecosystem reviews for the US State Department, released a comprehensive assessment in December 2024 that didn’t pull punches. The OECD found that while the Philippines has a vibrant ecosystem of firms active in electronics and semiconductors manufacturing, ranking ninth globally by chip exports, there is room to improve labor productivity and address infrastructural and regulatory bottlenecks.
The report noted the limited role played by young firms and few recent greenfield investments from foreign firms—a polite way of saying the sector has stagnated.
On the positive side, the Philippines has institutional infrastructure that could be leveraged. The Centre for Integrated Circuit Design and Device Research (CIDR) exists as a network of government-funded facilities to serve as a research platform between industry and academia. But it currently only focuses on developing the integrated circuit design landscape, while most of the existing ecosystem and workforce is in back-end semiconductor manufacturing.
It’s like building a training center for Formula 1 drivers when what you actually need is mechanics.
Despite these challenges, the US isn’t backing away. It can’t afford to.
The CHIPS Act was born from a recognition that America’s semiconductor supply chain had become dangerously concentrated in Taiwan and South Korea—both within striking distance of Chinese military power. Diversification isn’t optional. It’s existential.
The Philippines offers geographic positioning, a massive English-speaking workforce, decades of ATP experience, and political alignment with Washington. The alternative—continuing to rely entirely on East Asian manufacturing—is strategically untenable.
During a September 2025 panel at the Center for Strategic and International Studies in Manila, panelists tried to do something unusually practical for geopolitics: match the Philippines’ industrial ambitions to America’s strategic angst. The consensus was clear: textbook complementarity exists if Washington’s trade machinery doesn’t chew it up, if Manila locks in firm clean power for fabs and AI campuses, and if both sides co-fund a leap from legacy to advanced packaging.
That’s a lot of ifs.
The China Factor
There’s an elephant in the room that shapes everything: China.
The Philippines’ energy crisis is partly tied to geopolitical paralysis. Plans to develop offshore reserves such as the Reed Bank remain stalled due to legal and geopolitical disputes with China. These are Philippine territorial waters under international law, but China claims them under its nine-dash line doctrine.
The Philippines has been seeking to explore oil and gas within its exclusive economic zone in the South China Sea, but doing so risks military confrontation with Beijing. So instead, the Philippines is ramping up investments in liquefied natural gas infrastructure, positioning itself as a potential regional LNG hub, though LNG’s long-term viability remains contested with concerns over sustainability, high costs, and environmental risks.
It’s a bitter irony: the US-Philippines semiconductor partnership, designed to reduce dependence on Chinese-threatened supply chains, is itself threatened by Chinese territorial aggression that prevents the Philippines from accessing its own energy resources.
So what does $500 million over five years actually buy?
Based on current programming, the focus is on ecosystem enablers rather than factories. Workforce development and resilient energy supply are the potential priority areas for funding, according to Toloui. The thinking is that small, targeted investments with this fund help catalyze the larger, more important investments from the private sector.
The OECD recommendations are more specific. They suggest greater funding in areas supporting the ecosystem including material sciences and electronic engineering, strong commitments to continued support for pivotal programs like ADMATEL and CIDR, and targeted R&D grants to complement existing CREATE Act R&D tax incentives.
On regulatory reform, the OECD identified bottlenecks that could be addressed through the ITSI-funded reviews. The program has a goal of workforce development and reducing regulations that hinder ATP expansion, according to US Embassy officials.
The timeline is aggressive. Programming of specific funding allocations informed by the OECD study should be available in the next couple of months, Toloui said in April 2024. In 2025, ITSI will review new grant proposals from the Philippines and other countries, determine where to build new programs, and assess what is missing in terms of policies and regulatory reforms.
But here’s the catch: support for the entire effort from the Trump administration remains a potential challenge, though given bipartisan support for the CHIPS Act and funding to red states, it is likely the Trump administration will continue support for CHIPS programs including ITSI.
Translation: there could be disruption, rebranding, or reprioritization when the new administration takes over.
The Luzon Economic Corridor
In April 2024, the US, Philippines, and Japan announced the Luzon Economic Corridor as the first economic corridor in the Indo-Pacific region under the Partnership for Global Infrastructure and Investment. The corridor will support connectivity between Subic Bay, Clark, Manila and Batangas, with investments in transportation, clean energy supply chains, and information and communications technology.
The initial commitment: $14.75 million to support project preparation and technical assistance for infrastructure and other strategic investments. The LEC announcement mentioned energy only in the context of clean energy and semiconductor supply chains and deployments, one of four target investment areas.
Fourteen million dollars for project preparation. That’s not building infrastructure. That’s paying consultants to figure out what infrastructure to build.
Meanwhile, actual US energy assistance to the Philippines consists primarily of Energy Secure Philippines, a five-year, $34 million USAID project running from 2020 to 2025 focused on digitization of distribution and utilities, development of financing platforms for utility resiliency investments, and implementation of cybersecurity standards.
These are important programs. But they’re not solving the fundamental problem: the Philippines needs baseload power generation capacity measured in gigawatts, not megabytes of grid digitization.
The scale mismatch is stunning. The US committed $128 million in 2025 for Philippine military base facility improvements under the Enhanced Defense Cooperation Agreement. For security infrastructure, real money flows. For economic infrastructure that would actually enable semiconductor investments? Project preparation funds.
The Philippines is exploring nuclear power as a solution to its energy crisis. The Department of Energy has issued a draft Department Circular outlining the framework for incorporating nuclear energy into the Philippines’ power generation mix, with plans contemplating roughly 4.8 GW by 2050.
Nuclear isn’t just steel and steam; it’s a century-long partnership choice, with fuel cycles, maintenance, and geopolitics baked in, one analyst noted at the CSIS panel. US firms see an opening in small modular reactors, firm renewables plus storage, and next-gen geothermal.
But 4.8 GW by 2050 doesn’t solve the 2027 Malampaya depletion crisis. And small modular reactors, despite decades of hype, still haven’t achieved commercial viability anywhere in the world.
There’s another dimension to the US-Philippines tech relationship that creates both opportunity and tension: the IT-Business Process Management sector.
The Philippines’ IT-BPM sector employs about 1.9 million Filipinos and is gunning for $59 billion in revenue by 2028. But it’s staring down a bipartisan “keep callers in America” bill in Washington.
From 2014 to 2023, the Philippines benefited from nearly $5.2 billion worth of foreign direct investment from the United States in general professional, scientific, and technical services. US-owned companies like American Express, Synchrony, and Accenture rank among the top employers.
The awkward reality: the US wants the Philippines to be a semiconductor manufacturing hub while simultaneously considering legislation that would undermine its largest services export to America. It’s the kind of policy incoherence that happens when different government departments and Congressional committees pursue conflicting agendas.
What Success Would Look Like
Strip away the diplomatic language and ask: what would actual success look like for this partnership?
First, the Philippines would need to solve its energy crisis. That means either accelerating nuclear deployment by a decade, massively expanding renewable capacity with grid-scale storage, or—most likely—accepting increased LNG dependence as a bridge solution despite environmental concerns.
Second, regulatory streamlining would need to happen. The Philippines has 419 different special economic zones throughout the country, ranging from manufacturing zones to IT parks, each with its own incentive structure. Rationalizing this fragmented system could unlock investment, but it requires political will that transcends local patronage networks.
Third, workforce development would need to accelerate dramatically. Going from 5,478 trained workers to 128,000 semiconductor engineers in a few years requires transforming the entire technical education system.
Fourth, the US would need to ensure its trade and immigration policies don’t undermine the partnership. If Filipino engineers trained with ITSI funds can’t get US work visas, or if Section 232 tariffs hit Philippine semiconductor exports, the whole effort collapses.
And fifth—perhaps most importantly—both countries would need to acknowledge that this isn’t just about chips. It’s about building Philippine industrial capacity to a level where the country can be a reliable manufacturing partner for strategic goods. That’s a 20-year project, not a five-year fund.
Here’s what nobody in Washington or Manila wants to say out loud: the Philippines might not be ready for this partnership.
Not because of lack of talent—Filipino engineers are world-class. Not because of lack of experience—the country has been doing ATP work for decades. And not because of lack of political will—the Marcos administration clearly wants this.
The Philippines might not be ready because the foundational infrastructure—reliable electricity, efficient logistics, modernized education systems, streamlined regulations—simply isn’t there yet. And building that infrastructure requires the kind of sustained, decade-long investment in unsexy baseload capacity and grid modernization that doesn’t generate ribbon-cutting photo ops.
The US, meanwhile, is trying to rush a strategic diversification that should take a generation into a five-year funding cycle because Taiwan could be under Chinese blockade within that timeframe.
The result is a partnership built on mutual need and genuine goodwill, but potentially doomed by mismatched timelines and inadequate resources.
The Alternative Nobody Wants
There’s an uncomfortable alternative scenario worth considering: what if the US-Philippines semiconductor partnership remains aspirational, the infrastructure gaps never close, and private sector investment never materializes at scale?
The Philippines continues doing the ATP work it already does, possibly with some marginal improvement from ITSI-funded training programs. The US continues relying primarily on Taiwan, South Korea, and increasingly Vietnam for semiconductor manufacturing. And the strategic vulnerability that the CHIPS Act was designed to address remains essentially unchanged.
Meanwhile, China continues building its own semiconductor capacity, continues pressuring Philippine territorial waters, and continues offering Belt and Road infrastructure investments that the Philippines desperately needs but views with geopolitical suspicion.
This isn’t the timeline either government wants. But it might be the timeline we’re on.
If the US-Philippines semiconductor partnership is going to work—really work, not just exist on paper—several things need to change quickly.
The US needs to dramatically increase infrastructure funding. $500 million over five years for seven countries means roughly $70 million for the Philippines. That’s not remotely sufficient. The Luzon Economic Corridor needs to move from $14.75 million in “project preparation” to billions in actual construction financing.
The Philippines needs to make hard choices on energy. That probably means accepting natural gas as a transition fuel despite climate concerns, fast-tracking nuclear regulatory frameworks even if the technology isn’t commercially proven, and potentially revising constitutional restrictions on foreign ownership in energy infrastructure.
Both countries need to coordinate trade policy. The CHIPS Act creates subsidies for US manufacturing; fine. But it can’t simultaneously erect tariff barriers against allied manufacturing. And Congress can’t undermine Philippine services exports while expecting Manila to anchor semiconductor supply chains.
The Philippine education system needs emergency intervention. Training 6,000 workers over two years isn’t enough. The target should be 60,000. That requires mobilizing every technical college, every state university, every private engineering school in the country with US funding and curriculum support.
And both governments need to communicate honestly with their publics about timelines. This is a 2035 or 2040 play, not a 2027 solution. The infrastructure, training, and ecosystem development required can’t be rushed. Managing expectations is essential for maintaining political support through multiple election cycles.
There’s a cynical reading of this entire enterprise: the US gets to claim it’s diversifying semiconductor supply chains without making the investments necessary for that diversification to succeed. The Philippines gets to claim partnership with a great power without addressing the structural weaknesses that prevent industrialization.
Everyone gets ribbon cuttings and joint statements. Nobody gets actual factories or reliable power grids.
I hope that’s wrong. But hope isn’t a strategy.
The Choice Ahead
The Philippines stands at an inflection point. The US is offering a genuine partnership on a strategic industry. The question is whether we have the state capacity, infrastructure foundation, and political will to actually capitalize on it.
This isn’t about Filipino capability—our engineers are as good as anyone’s. This is about infrastructure, institutions, and investment. Those are the hard, unsexy foundations that determine whether countries succeed or fail at industrialization.
We’ve been a low-cost ATP provider for decades. The CHIPS Act offers a pathway to something more: advanced packaging, possibly IC design, integration into cutting-edge supply chains for AI and high-performance computing.
But that pathway runs through a power plant that hasn’t been built, a grid that needs $50 billion in upgrades, a regulatory system that needs root-and-branch reform, and an education system that needs to triple its engineering output.
The US bet $500 million that we can do it. Whether that bet pays off depends on what happens in the next 18 months. Because if we can’t show credible progress on energy infrastructure and workforce development by mid-2026, the private sector won’t follow the ITSI money in.
And then this becomes just another case study in how geopolitical ambitions run into infrastructure reality—and reality wins.
I’m watching closely. Because if this works, it transforms the Philippine economy. And if it doesn’t, it reveals exactly why we’ve been stuck in the middle-income trap for half a century.
The chips are on the table. Let’s see if we can keep the lights on long enough to play the hand