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11. United States–China semiconductor standoff: A supply chain under stress

Author:
Jeremy Mark and Dexter Tiff Roberts
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
In August 2022, the US Congress passed the CHIPS and Science Act, a law that approves subsidies and tax breaks to help jump-start the renewed production on American soil of advanced semiconductors.1 Just two months later, the Joe Biden administration issued wide-ranging restrictions on the export to China of chips and chip-making technology to undercut that country’s ability to manufacture the same class of integrated circuits.2 Taken together with a steady stream of Biden administration prohibitions on technology sales to key Chinese companies, the US initiatives represent a profound turn toward competition with China in the high-tech realm.3 They also highlight an effort to restructure the complex, multinational supply chains centered on East Asia that manufacture hundreds of billions of dollars of semiconductors a year. As such, the Biden administration has set in motion a process that could alter the business strategies—and fortunes—of homegrown and foreign-invested semiconductor companies based in China, world-leading chipmakers in Taiwan and South Korea, and suppliers around the world that provide the industry with the machinery and myriad inputs that fuel chip production. The Biden administration insists that its restrictions on sales to China are intended only to limit China’s ability to produce the cutting-edge chips that can feed into the development of weapons and other strategically important technologies—and not to cripple its semiconductor industry. But the current state of play of sanctions and support for US-based semiconductor production, including by Taiwanese and Korean chipmakers, is not the endpoint in this process. Rather, the momentum to constrain Beijing’s semiconductor program is likely to continue in the coming months, at the very least with additional restrictions on Chinese companies and government-linked entities, and unprecedented bureaucratic scrutiny of American venture-capital and equity-financing flows to China. That amounts to more bad news for corporate leaders in Asia, North America, and Europe who have spent the past generation building a globe-spanning semiconductor industry that has faced few barriers to expansion. As US restrictions mount, and sales of certain technologies to China flag, the once-unimaginable process of reorienting semiconductor supply chains will become an ever-present reality. The CHIPS and Science Act already is becoming an important factor in corporate strategy, providing incentives for Taiwanese, Korean, and American companies to make big bets on new factories in places like New York, Ohio, Texas, and Arizona—witness Taiwan Semiconductor Manufacturing Company’s (TSMC’s) recent decision to build a second factory in Phoenix.4 This paper explores the potential implications of US semiconductor policy for the global semiconductor supply chains and the competition for primacy in an industry that is constantly changing the face of the global economy and one that has implications for global security in all its dimensions. It begins by examining the policies put in place by the Biden administration, and then discusses the changes taking place across the industry, with a focus on Asia.
Topic:
Economy, Business, Supply Chains, Semiconductors, and Economic Competition
Political Geography:
China, Asia, North America, and United States of America

12. China’s Semiconductors Reflections on Sources and Solutions to an Expensive Problem

Author:
Jonathan Liebenau
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
LSE IDEAS
Abstract:
The semiconductor industry has been a renewed topic of political debate for over three years. Due to recent US sanctions on the most advanced semiconductors, the industry has quickly become another flashpoint in the competition between the US and China to dominate the 21st century’s strategic technologies. In this Strategic Update, Dr Jonathan Liebenau explains the development of the semiconductor industry in the context of China’s rise to become an increasingly capable technology power. China’s sustained efforts in industrial policy to cultivate a domestic innovation system coincided with Western firms’ offshoring strategies since the 1990s, transforming China into a large producer and consumer of semiconductors. While Taiwan and the West retained cutting edge chip design capabilities, Chinese firms such as Huawei and Hikvision have become competitive providers of mobile phones, surveillance equipment and related infrastructure services. Despite Washington and its partners’ conviction to constrain in China’s technological prowess, industrial policy initiatives such as the CHIPS Act will face an uphill battle when it comes to bringing manufacturing capacity back to Western economies. In this context, the UK must combine short term incentives with a longer-term strategic vision to remain competitive in one of the 21st century’s key strategic arenas.
Topic:
Science and Technology, Sanctions, Strategic Competition, Production, and Semiconductors
Political Geography:
China, Asia, North America, and United States of America

13. How to Curb Investments in Chinese Technology: Initiatives and Debates in the United States

Author:
Mathilde Velliet
Publication Date:
08-2023
Content Type:
Policy Brief
Institution:
Institut français des relations internationales (IFRI)
Abstract:
In a continuation of U.S. efforts to slow China's development and acquisition of strategic technologies, Washington has imposed new restrictions on American investment in Chinese technology sectors such as artificial intelligence (AI), quantum, and semiconductors. On August 9, 2023, President Biden issued an unprecedented executive order, announcing notification requirements and prohibitions for U.S. tech investments in China. Three sectors are targeted: semiconductors, quantum information technology, and artificial intelligence. Washington’s main concern is that these investments are accompanied by technology transfers and “intangible benefits” contributing to the development of Chinese military capabilities. This concern, first voiced in the 1980s, has received a heightened political response since 2018. Considering the emerging consensus in Congress and the multiplication of bills, further measures are likely to be adopted in the coming months. The European Union and certain Member States are beginning to reflect on the consequences of U.S. measures, and on the relevance of adopting their own tools to control investment in China.
Topic:
Science and Technology, European Union, Investment, Artificial Intelligence, Quantum Computers, and Semiconductors
Political Geography:
China, Europe, Asia, and United States of America

14. Despite disruptions, US-China trade is likely to grow

Author:
Megan Hogan and Gary Clyde Hufbauer
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The United States and China hit record trade levels in 2022, despite a prickly relationship, suggesting that calls for severe or even total economic decoupling between the world’s two economic superpowers may be ill-advised, say Hogan and Hufbauer. The dollar value of US-China trade grew significantly between 2019 and 2022, notwithstanding declines in trade flows of certain products such as semiconductors and aircraft due to the trade war. The persistence and even growth of the two countries’ total trade despite political and economic disputes reflects the mutual benefit that private firms see in this commercial relationship. The authors conclude that partial decoupling between the United States and China has not, so far, redrawn the world trade map. Nor does it seem likely to do so on an aggregate trade basis between now and 2025.
Topic:
Foreign Policy, Bilateral Relations, Trade Policy, and Semiconductors
Political Geography:
China, Asia, North America, and United States of America

15. Semiconductors Are Not a Reason to Defend Taiwan

Author:
Christopher McCallion
Publication Date:
10-2022
Content Type:
Commentary and Analysis
Institution:
Defense Priorities
Abstract:
Taiwan’s dominance in advanced semiconductor manufacturing and rising U.S.-China tensions have produced alarm that a Chinese invasion or blockade of Taiwan could cause a major disruption of the global semiconductor supply chain. This has led some to claim that the U.S. should defend Taiwan in order to maintain its supply of advanced chips. Fears that China could seize Taiwan’s chip-manufacturing capacity and leapfrog the U.S. technologically are overblown. Interdependence cuts both ways; if China invaded Taiwan, it would be cut off from the vital inputs controlled by the U.S. or its allies, and therefore unable to resume chip production under new management. Others fear Taiwanese chips could be disrupted during a Chinese blockade or a protracted conflict and tend to recommend bolstering U.S. capabilities to deter China. However, there are strong reasons to doubt the U.S. can ultimately deter Beijing if it feels that force is its only option for national reunification. Further efforts by the U.S. to deter China may only present Beijing with a closing window, encouraging it to use force before its prospects worsen, and precipitating the very conflict the U.S. seeks to prevent; a war between the U.S. and China would be exponentially costlier than any potential semiconductor supply shock resulting from a cross-strait invasion. Instead, the U.S. should seek to dial down the temperature with Beijing in order to maintain the political and territorial status quo and buy the time needed to diversify its own semiconductor supplies by onshoring or “allyshoring” chip manufacturing. The U.S. should therefore avoid provoking Beijing unnecessarily, and reaffirm the substance of the One China Policy while seeking to develop a longer-term settlement with Beijing over the future of the region.
Topic:
Foreign Policy, Defense Policy, Manufacturing, and Semiconductors
Political Geography:
China, Taiwan, Asia, and United States of America

16. When the Chips Are Down: Gaming the Global Semiconductor Competition

Author:
Becca Wasser, Martijn Rasser, and Hannah Kelley
Publication Date:
01-2022
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
The United States is in a strategic competition with a well-resourced and capable opponent. China seeks a global role that is broadly at odds with the strategic interests and values of America and fellow democracies. Technology, a key enabler of political, economic, and military power, is at the center of this competition. Within this competition, semiconductors loom large. Chips are a driving force for breakthroughs in a range of critical technology areas, from AI to synthetic biology to quantum computing. Semiconductors are essential to the military systems used by the United States and its allies and partners to defend themselves and their interests. At a fundamental level, the day-to-day functioning of modern society hinges on dependable access to chips; critical infrastructure, transportation networks, and digital communication cannot function without them. Semiconductor supply chains form an intricate global web, with several countries and companies serving as important nodes. Some of these nodes have such outsized importance that any disruption would have significant and detrimental cascading effects for U.S. national and economic security. Taiwan is the central node in the semiconductor supply chain. Home to the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chip foundry, more than half of the world’s outsourced semiconductor manufacturing and nearly all leading-edge manufacturing capacity is in Taiwan. Secure access to the output of Taiwan’s semiconductor industry is therefore a strategic necessity. Yet, while policymakers understand the critical importance of Taiwan’s semiconductor industry, the myriad of factors and nuances essential to developing policies and plans that protect its integrity, mitigate risk, and reduce second-order consequences are insufficiently studied.
Topic:
Science and Technology, Strategic Competition, Industry, and Semiconductors
Political Geography:
China, Taiwan, Asia, North America, and United States of America

17. Microchips and Semiconductors: The U.S. Seeks Autonomy

Author:
Andrzej Dąbrowski
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
The Polish Institute of International Affairs
Abstract:
The United States has turned to support of the domestic microchip industry in response to the increased risk of Chinese aggression against Taiwan, one of the leading producers, as well as to address disruptions in supply chains caused by the COVID-19 pandemic. A law on this passed with bipartisan consent and is intended to help finance a more resilient American sector towards global changes in manufacturing these components. Thanks to the CHIPS Act, the U.S. can reduce its dependence on microchip imports and undermine China’s ability to dominate the market.
Topic:
Markets, Science and Technology, Autonomy, Industry, Supply Chains, Semiconductors, and Microchips
Political Geography:
China, Asia, North America, and United States of America

18. The U.S.-China Battle for Semiconductor Supremacy and Reshaping of Global Supply Chain

Author:
Hyung-gon Jeong
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The realization of digital transformation (DX) and the Fourth Industrial Revolution (4IR) has led to the development of new technologies in areas such as AI, big data, metaverse, autonomous vehicles, digital currency, and blockchain technology. While these sectors are expected to continue to grow, major countries including the United States and China are fiercely competing to secure a global supply chain for the semiconductor industry. Built on free trade, the global division of production in the semiconductor industry has driven corporate innovation and technology development. However, the trend of technological nationalism and countries’ efforts to build a value chain within their territory are expected to hurt the global semiconductor industry. The ever-deepening hegemony competition between the U.S. and China in the semiconductor industry could have a profound impact not only on the Korean economy but also on a restructuring of the global semiconductor supply chain. This study analyzes the supply chain structure and risks of the Korean semiconductor industry, along with U.S. and Chinese policies to foster the semiconductor industry, going on to explore corresponding countermeasures.
Topic:
Science and Technology, Supply Chains, Semiconductors, and Competition
Political Geography:
China, Asia, North America, and United States of America

19. A Seismic Shift: The New U.S. Semiconductor Export Controls and the Implications for U.S. Firms, Allies, and the Innovation Ecosystem

Author:
Sujai Shivakumar, Charles Wessner, and Thomas Howell
Publication Date:
11-2022
Content Type:
Special Report
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
On October 7, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) announced sweeping revisions to its export controls, which are aimed at restricting China’s ability to obtain certain high-end semiconductor devices with potential military applications, develop and maintain supercomputers, and manufacture advanced semiconductor devices. This announcement, the most expansive export control action in decades, represents a fundamental shift in the traditional strategy underlying the U.S. and allied export control regime. As National Security Advisor Jake Sullivan put it , until now, “we previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.” In effect, the new measures are intended to dramatically slow, if not freeze Chinese developmental capability.
Topic:
Science and Technology, Innovation, Rivalry, and Semiconductors
Political Geography:
China, Asia, North America, and United States of America

20. CHIPS Act will spur US production but not foreclose China

Author:
Gary Clyde Hufbauer and Megan Hogan
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The CHIPS and Science Act, export controls, and agreements with allied countries will accomplish many of their multiple objectives. More US semiconductor fabrication plants will be built, US R&D will be accelerated, and advanced chips and chip-making machines will be denied to China, Russia, and other adversaries. However, the Act will not make a material difference to US chip supplies in the next two or three years. Slower economic growth has already tipped the chips market in favor of ample supplies. While collective measures have inflicted considerable short-term pain on China, causing a sharp drop in the fortunes of its high-tech firms, China will respond by redoubling its self-sufficiency programs. The United States, however, should not mimic China in pursuing self-sufficiency, as US self-sufficiency is an illusion. The United States currently exports high-value chips and imports low-value chips, so increasing self-sufficiency would require the United States to prioritize basic chip production at the same time it is supposed to be competing with China in advanced chip production. Continuing to prioritize advanced chip production—where the United States has a clear advantage—is the most efficient course of action.
Topic:
Economics, Legislation, Exports, Production, and Semiconductors
Political Geography:
China, Asia, and United States of America