The semiconductor alliance between the US and Asia can contain China

Top chip-producing nations including the United States are forming alliances, analysts told CNBC, in part to secure their semiconductor supply chains and prevent China from rising to the cutting edge of technology. branch.

Places including the United States, South Korea, Japan and Taiwan, countries with strong semiconductor industries, have sought to establish partnerships around the key technology.

“The immediate reason for all of this is undoubtedly China,” said Pranay Kotasthane, chair of the High-Tech Geopolitics Program at the Takshashila Institute.

The working group highlighted the importance of chips to economies and national security, and highlighted the countries’ desire to halt China’s advancement in key technology.

Why are chips becoming the focus of geopolitics?

Semiconductors are important technology because they go into so many of the products we use – from smartphones to cars and refrigerators. And they are also crucial for artificial intelligence applications and even weapons.

The importance of the chip has been in the spotlight for a while the ongoing shortage of these ingredients, caused by the Covid pandemicamid rising demand for consumer electronics and supply chain disruptions.

That has alerted governments around the world of the need to secure chip supplies. The United States, under President Joe Biden, has ramped up domestic manufacturing.

But the semiconductor supply chain is complex – it covers areas from design to packaging to manufacturing and the tools needed to make it happen.

For example, ASMLbased in the Netherlands, is The only company in the world capable of build the highly complex machines needed to manufacture the most advanced chips.

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The United States, while strong in many areas of the market, has lost its dominant position in the manufacturing sector. Over the past 15 years, Taiwan TSMC and Korea SAMSUNG has dominated the production of the world’s most advanced semiconductors. IntelAmerica’s largest chipmaker, has fallen far behind.

Taiwan and South Korea account for about 80% of the global foundry market. Foundries are chip manufacturing facilities designed by other companies.

The concentration of critical tools and manufacturing in a handful of companies and geographies has put governments around the world in competition, as well as pushing semiconductors into the geopolitical arena.

“What’s happened is that there are so many companies all over the world that are doing a small part of it, which means there’s a geopolitical angle to it, right? What if one What if, you know, Kotasthane said, one of the countries arranges everything about espionage through chips?

The concentration of power in the hands of a few economies and companies, Kotasthane said, puts business continuity at risk, especially in disputed areas like Taiwan. Beijing considers Taiwan a renegade province and has promised an island “unification” with mainland China.

“The other geopolitical significance is only related to Taiwan’s central role in the semiconductor supply chain. And because of the rising China-Taiwan tensions, you know, because of a lot of manufacturing activity. happening in Taiwan, what if the Chinese let it occupy or even just have tension between the two countries?” Kotasthane said.

Alliances are being built to exclude China

Because of the complexity of the chip supply chain, no country can do it alone.

Countries have increasingly sought chip partnerships over the past two years. During a trip to Korea in May, Biden visits Samsung’s semiconductor factory. Around the same time, US Commerce Secretary Gina Raimondo met her then Japanese counterpart Koichi Hagiuda in Tokyo and discussed “cooperation in areas such as semiconductors and export control.”

Last month, Taiwan President Tsai Ing-wen told Arizona Governor Doug Ducey that she desire to produce “democracy chips” with America. Taiwan is home to the world’s most advanced chip maker TSMC.

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And semiconductors are an important part of the partnership between the United States, India, Japan and Australia, group of democracies collectively known as the Quartet.

The US has also proposed a “Chip 4” alliance with South Korea, Japan and Taiwan, all powerhouses in the semiconductor supply chain. However, details on this are yet to be finalized.

There are several reasons behind these partnerships.

One is about bringing together countries, each with a “comparative advantage,” to “link together alliances that can develop secure chips,” Kotasthane said. “It doesn’t make sense to go it alone,” he added, given the complexity of supply chains and the strengths of different countries and companies.

US President Joe Biden met South Korean President Yoon Suk-yeol in May 2022 during a visit to the Samsung Electronics Pyeongtaek campus. The US and South Korea, along with other countries, are seeking to form alliances around semiconductors with the aim of cutting off China.

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The promotion of such partnerships has one common feature – China does not participate. In effect, these alliances are designed to cut China off from global supply chains.

“In my view, I think in the short term, China’s development in this area will be severely limited. [as a result of these alliances]’ said Kotasthane.

China and the US see each other as technology rivals in areas ranging from semiconductors to artificial intelligence. As part of that battle, the US sought to sever China important semiconductor and tools to do them through export restrictions.

“The goal of all this effort is to prevent China from developing advanced semiconductor manufacturing capabilities domestically,” Paul Triolo, technology policy lead at consulting firm Albright Stonebridge, told CNBC.

China’s ‘advanced’ chips in doubt

In the long run, I think they [China] will be able to overcome some of the current challenges … but they will not be able to reach the level of superiority like many other countries.

Pranay Kotasthane

Takshashila Institute

According to Kotasthane, manufacturing is China’s “Achilles heel”. China’s largest contract chip maker is SMIC. But the company’s technology is still significantly behind TSMC and Samsung.

“It requires a lot of international cooperation … which I think is a big problem for China right now because of the way China is hostile towards its neighbors,” Kotasthane said.

“What China could do, three, four years ago in terms of international cooperation would not have been possible.”

That casts doubt on China’s ability to achieve a leadership position in chip production, especially as the US and other major semiconductor powers form alliances, Kotasthane said.

“In the long run, I think they [China] will be able to overcome some of the current challenges … but they will not be able to reach the level of superiority like many other countries,” said Kotasthane.

Tension in alliances

However, some rifts have begun to appear between some partners, especially South Korea and the United States.

In an interview with Financial TimesAhn Duk-geun, South Korea’s Trade Minister, said there are disagreements between Seoul and Washington over further restrictions on exports of semiconductor tools to China.

“Our semiconductor industry has a lot of concerns about what the US government is doing these days,” Ahn told the FT.

The strategist said it will take a long time for the US to be able to match Asia in the field of chip production

China, the world’s largest chip importer, is an important market for chipmakers globally, from US giants like Qualcomm to Samsung in South Korea. With the intertwining of politics and business, the stage could cause more tension among the nations of these high-tech alliances.

“Not all of America’s allies are eager to sign up for these alliances or expand their control over China-bound technology, as they have large stakes in both manufacturing in China and selling into the Chinese market. Most don’t want to bother Beijing with these problems,” said Triolo.

“A major risk is that the effort to coordinate parts of the global semiconductor supply chain development undermines the market-driven nature of the industry and causes great damage to innovation, increasing costs. and slow the development of new technology.”

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