The next frontier in the technological war between the US and China


President Joe Biden on Tuesday signed new legislation aimed at boosting the US semiconductor industry, in an effort to address chronic computer chip shortages and reduce reliance on other countries such as China for production. Named the CHIPS and SCIENCE Act, it encourages domestic semiconductor manufacturing and research and development, including more than $50 billion in funding and additional investment at the National Science Foundation, the Commerce Department and the National Institute of Standards and Technology.
China has long been a dominant force in tech manufacturing, with companies like Apple (AAPL), Google (GOOG) And Microsoft (MSFT) significantly dependent on the country to manufacture their devices and the parts that comprise them. China has also quickly found a foothold In the semiconductor market, it ranks first globally in assembly, packaging and testing and fourth — ahead of the United States — in wafer fabrication, according to a recent analysis by the Center for Strategic and International Studies.
But the Covid-19 pandemic has caused a global shortage in chip supply, matters worsened by China’s strict lockdowns this year, which have shut down factories and hurt supply chains. Many regions are now rethinking their approach to industry to become more self-sufficient and reduce exposure to Chinese manufacturing.
US Treasury Secretary Janet Yellen has repeatedly touted the importance of “friend-shoring”, or moving supply chains through US allies like South Korea and Japan, to further insulate the tech industry. From China. European lawmakers, meanwhile, have proposed tens of billions of dollars worth of investments over the coming years to boost the continent’s semiconductor industry.
China, for its part, is trying to grow its semiconductor industry as part of a five-year plan announced last year.

“There is growing global recognition that these are the technologies that will determine who ‘wins’ in the future global economy,” Kenton Thibaut, resident China Fellow at the Atlantic Council’s Digital Forensic Research Lab in Washington DC, told CNN Business. However, it is easy to say that chipmaking is completely self-sufficient because of the layers of technology and specialized expertise involved, he said. “It’s really not possible to get a top position in the semiconductor supply chain as a whole.”

China has become a global center for electronics manufacturing over the past decade.
Further complicating matters is Taiwan, a self-governing island off the coast of China that has become a diplomatic and military flashpoint between Washington and Beijing. Tensions over Taiwan, which China’s Communist Party considers its own territory even though it has never controlled the island, have escalated rapidly since US Speaker of the House Nancy Pelosi visited there last week.
Taiwan is critical to the global semiconductor industry, with several of the world’s top manufacturers headquartered there, including Apple suppliers Foxconn and Pegatron. The largest of those chipmakers, Taiwan Semiconductor Manufacturing Company, or TSMC, makes an estimated 90% of the world’s super-advanced computer chips.
“Nobody can control TSMC by force,” company chairman Mark Liu said in a recent interview with CNN. “If you take out a military force or an invasion, you’re going to put the TSMC factory out of business, because it’s such a sophisticated manufacturing facility. [that] It depends on real-time connectivity with the outside world – with Europe, with Japan, with the US.”

A push to increase US manufacturing

TSMC has already committed at least $12 billion to build a semiconductor fabrication plant in Arizona, with production expected to begin in 2024. Another Taiwanese manufacturer, GlobalWafers, recently pledged $5 billion to build a silicon wafer plant in Texas, and South Korean conglomerates Samsung and SK Group earlier this year laid out plans to spend tens of billions of dollars to grow their US tech manufacturing presence.

TSMC’s investment predates CHIPS and the Science Act, but the legislation is likely to encourage more companies to bring factories to the United States, according to Zachary Collier, an assistant professor of management at Radford University in Virginia who specializes in risk analysis.

Here's what's in a bilateral semiconductor chip manufacturing package
“It’s a very capital-intensive process to build a large manufacturing facility like this, and anything that offsets some of those costs will encourage companies to bring those things ashore,” he said. The legislation earmarks about $53 billion to expand US semiconductor manufacturing over the next five years, including $1.5 billion for telecommunications companies competing with Chinese firms such as Huawei. Companies investing in semiconductor manufacturing also get a 25% tax credit.

Beyond the short-term incentives, companies may be eager to establish a US manufacturing presence because of the country’s relative stability, security, highly educated labor force, and perhaps most importantly, sheer demand. Collier estimates that the United States accounts for a quarter of global semiconductor demand but only 12% of production. And TSMC says North America accounts for 65% of its revenue, with China and Japan accounting for 10% and 5%, respectively.

Companies will “try to break in and meet that demand,” Collier said. But changing China overnight won’t be — or ever will be — easy.

“Right now China has a concerted strategy of pitching its technologies and supplying critical infrastructure to countries that need it,” Thibaut said. “The US and other democracies need to develop a strategy around technology that doesn’t focus on competing with China, but is proactive in providing real solutions to real needs.”

No matter how much countries try to increase their local manufacturing bases, it is virtually impossible to disconnect from global supply chains, especially for products as integral and complex as semiconductors. Design, manufacturing, manufacturing and raw materials for chips are distributed across several countries and regions.

“It’s a really big web,” Collier said, adding that no matter how much countries try to localize production, a degree of interdependence is inevitable. “It’s global, one way or another.”



Source link

Leave a Comment