Semiconductors: the next frontier in the technological battle between the United States and China

President Joe Biden on Tuesday signed new legislation aimed at boosting the U.S. semiconductor industry, in a bid to address a longstanding shortage of computer chips and reduce dependence on other countries, like China, for manufacturing. nicknamed the CHIPS and scientific lawit provides incentives for domestic semiconductor manufacturing and research and development, including more than $50 billion in additional funding and investment in the National Science Foundation, the Department of Commerce, and the National Institute of Standards and Technology.
China has long been a dominant force in technology manufacturing, with companies such as Apple (AAPL), Google (GOOG) and Microsoft (MSFT) relying significantly on the country to manufacture their devices and the parts that go into them. China has also quickly gain territory in the semiconductor market, ranking first in the world for assembly, packaging and testing and fourth – ahead of the United States – for wafer manufacturing, according to a recent analysis by the Center for Strategic and International Studies.
But the Covid-19 pandemic has caused a global shortage of chip supplies, with the situation made worse this year by China’s strict lockdowns, which have blocked factories and damaged supply chains. Several regions are currently rethinking their approach to the industry in order to become more self-sufficient and reduce their exposure to Chinese manufacturing.
US Treasury Secretary Janet Yellen has repeatedly touted the importance of “friend-shoringor move supply chains through US allies such as South Korea and Japan to further isolate the tech industry from China. European legislators, for their part, have proposed investments worth tens of billions of dollars in the coming years to boost the continent’s semiconductor industry.
China, for its part, continues to try to develop its semiconductor industry as part of a five year plan announced last year.

“There is growing global recognition that technologies will determine who will ‘win’ in the future global economy,” Kenton Thibaut, resident China researcher at the Atlantic Council’s Digital Forensic Research Lab in Washington DC, told CNNBusiness. However, she added, being completely self-sufficient in chipmaking is easier said than done because of the layers of technology and specialized expertise involved. “It’s not really possible to get a top spot in the semiconductor supply chain as a whole.”

China has emerged as a global hub for electronics manufacturing over the past decade.
To complicate matters further, Taiwan, the self-governing island off China’s coast, has become a diplomatic and military flashpoint between Washington and Beijing. Tensions around Taiwan, which the Chinese Communist Party considers its own territory although it has never controlled the island, escalated rapidly after the visit of US House Speaker Nancy Pelosi last week.
east taiwan critical for the global semiconductor industry, with many of the world’s largest manufacturers headquartered there, including Apple suppliers Foxconn and Pegatron. The largest of these chipmakers, Taiwan Semiconductor Manufacturing Company or TSMC, accounts for about 90% of the world’s super advanced computer chips.
“No one can control TSMC by force,” company chairman Mark Liu said in a recent interview with CNN. “If you take a military force or an invasion, you will render the TSMC factory unusable, because it is such a sophisticated manufacturing plant [that] it depends on the real-time connection with the outside world – with Europe, with Japan, with the United States.”

A boost to strengthen American production

TSMC has already committed at least $12 billion build a semiconductor fab in Arizona, with production expected to begin in 2024. Another Taiwanese manufacturer, GlobalWafers, recently promised 5 billion dollars to build a silicon wafer factory in Texas, and South Korean conglomerates Samsung and SK Group proposed earlier this year plans spend tens of billions dollars to increase their presence in the technology manufacturing sector in the United States.

TSMC’s investment predates the CHIPS and Science Act, but the legislation will likely encourage more companies to locate factories in 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 the bipartisan 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 is a strong incentive for companies to bring those things ashore,” he said. The legislation provides nearly $53 billion over the next five years to expand semiconductor manufacturing in the United States, including $1.5 billion for telecommunications companies that compete with Chinese companies such as Huawei. Companies that invest in semiconductor manufacturing will also benefit from a 25% tax credit.

Even beyond short-term incentives, companies may be keen to establish a manufacturing presence in the United States because of the country’s relative stability, security, highly skilled working class, and, perhaps more. importantly, from the simple request. Collier estimates that the United States accounts for a quarter of global semiconductor demand but only 12% of manufacturing. And TSMC says North America, broadly defined, accounts for 65% of its revenue, with China and Japan accounting for 10% and 5%, respectively.

Companies “would try to rush in and meet that demand,” Collier said. But replacing China overnight — or perhaps not at all — won’t be easy.

“Right now, China has an advantage in that it has a concerted strategy around showcasing its technologies and providing critical infrastructure to countries that need it,” Thibaut said. “The United States and other democracies must also develop a strategy around technology that not only focuses on competing with China, but is also proactive in providing real solutions to real needs.”

No matter how hard countries try to strengthen their local manufacturing bases, decoupling from the global supply chain is likely to be nearly impossible, especially for such integral and complex products as semiconductors. The design, manufacturing, fabrication and even raw materials of chips are spread across several different countries and regions.

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

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