President Joe Biden on Tuesday signed new legislation aimed at boosting the U.S. semiconductor industry, addressing a long-running shortage of computer chips and reducing its reliance on manufacturing in other countries such as China. Dubbed the CHIPS and SCIENCE Act, it provides incentives for domestic semiconductor manufacturing and research and development, with more than $50 billion in funding and funding through the National Science Foundation, the Commerce Department and the National Institute of Standards and Technology.
China has long been a dominant force in technology production, such as companies Apple (APL), Google (GOOG) And Microsoft (MSFT) Relying heavily on the country to make their equipment and parts. China also quickly gained ground. 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 led to global chip supply shortages, exacerbated this year by China’s strict lockdowns, which have grounded factories and disrupted supply chains. Many regions are now rethinking their approach to the industry to become self-sufficient and reduce exposure to Chinese manufacturing.
US Treasury Secretary Janet Yellen has reiterated the need for “buddy-shoring”, or moving supply chains through US partners such as South Korea and Japan, to further protect the tech industry. From China. European lawmakers have proposed tens of billions of dollars worth of investments over the coming years to boost the continent’s semiconductor industry.
China, on the other hand, continues to try to develop its semiconductor industry according to the five-year plan announced last year.
“There is a growing global recognition that these technologies are the technologies that will determine who ‘wins’ in the future global economy,” Kenton Thibout, China resident at the Atlantic Council’s Digital Forensic Research Laboratory in Washington, DC, told CNN Business. However, she added, complete self-sufficiency in chip manufacturing is easier said than done due to the level of technology and expertise. “In general, it is impossible to get a high position in the semiconductor supply chain.”
Complicating matters further, Taiwan, a self-governing island off the coast of China, has become a diplomatic and military flashpoint between Washington and Beijing. Tensions around Taiwan, which China’s Communist Party has never taken control of but regards as its territory, escalated quickly after US House Speaker Nancy Pelosi’s visit last week.
Taiwan is vital to the global semiconductor industry, with the world’s largest manufacturers headquartered there, including Apple suppliers Foxconn and Pegatron. The largest of those chipmakers, Taiwan Semiconductor Manufacturing Company, or TSMC, makes 90% of the world’s super-advanced computer chips.
The company’s chairman, Mark Liu, said in a recent interview with CNN, “No one can control TSMC by force.” “If they take military action or an invasion, they will make the TSMC factory inoperable because it is a very complex manufacturing facility. [that] It depends on real-time communication with the outside world – with Europe, Japan, America.
A push to strengthen American production
TSMC has committed at least $12 billion to build a semiconductor manufacturing plant in Arizona. Production is expected to begin in 2024. Another Taiwanese manufacturer, Global Wafers, recently pledged $5 billion to build a silicon wafer factory in Texas, and South Korean companies Samsung and SK Group earlier this year announced plans to spend tens of billions of dollars to boost their U.S. technology manufacturing capabilities.
TSMC’s investment predates the CHIPS and SCIENCE Act, but the law could prompt more companies to bring factories to the United States, said Zachary Collier, an assistant professor specializing in risk analysis at Radford University in Virginia.
“Building such a large manufacturing facility is a very capital intensive process and anything that offsets some of the costs will encourage the companies to bring these things offshore,” he said. The legislation allocates nearly $53 billion over the next five years to expand U.S. semiconductor manufacturing. including $1.5 billion for telecommunications companies competing with Chinese firms such as Huawei. Companies investing in semiconductor manufacturing get a 25% tax credit.
Beyond the short-term incentives, companies are looking to establish a US manufacturing presence in the country because of the country’s relative stability, security, highly educated workforce and, perhaps most importantly, high demand. Collier estimates that the United States accounts for a quarter of global semiconductor demand but only 12 percent of manufacturing. And TSMC North America accounts for 65% of revenue, while China and Japan account for 10% and 5%, respectively.
“Companies try to move in quickly and satisfy demand,” Collier said. But replacing China overnight – or perhaps – will not be easy.
“China now has the advantage of having a coordinated strategy around deploying its technology and providing critical infrastructure to countries that need it.” “The United States and other democracies need to develop a strategy around technology that is not just focused on competing with China, but is proactive in providing real solutions to real needs.”
No matter how many countries try to build their domestic manufacturing bases, it may be nearly impossible to break away from global supply chains, especially for products as complex and complex as semiconductors. Chips design, manufacture, manufacturing and even raw materials are spread across different countries and regions.
“It’s a really big web,” Collier said, adding that no matter how many countries try to localize production, interdependence is inevitable. “One way or another it’s global.”
