From smartphones and cellular technology to social media and artificial intelligence, the United States and China are engaged in a technological arms race.
But a fresh front in the conflict is opening up that penetrates a level deeper: the parts that fuel our smartphones, laptops, cars, and household appliances.
To address a persistent shortage of computer chips and lessen reliance on other nations, like China, for production, President Joe Biden signed the new legislation on Tuesday targeted at supporting the US semiconductor industry.
With more than $50 billion in funding and additional investments in the National Science Foundation, the Department of Commerce, and the National Institute of Standards and Technology, the CHIPS and Science Act offers incentives for domestic semiconductor manufacturing as well as research and development.
Companies like Apple (AAPL), Google (GOOG), and Microsoft (MSFT) heavily rely on China for the production of their products and the components that go into them.
China has long been a strong force in the electronics manufacturing industry. According to a recent report by the Center for Strategic and International Studies, China has also made significant progress in the semiconductor business, taking the top three global spots in wafer fabrication, packaging, and testing, and ranking fourth overall.
Due to US limitations on some of its largest semiconductor companies, China has likely boosted its focus on domestic manufacturing.
The Semiconductor Industry Association (SIA), a trade association whose members include IBM (IBM), Intel (INTC), AMD (AMD), Qualcomm (QCOM), and Nvidia, reported that China’s semiconductor sales increased by more than 30% in 2020 to reach about $40 billion (NVDA).
However, this year’s strict Chinese lockdowns, which stopped manufacturers and damaged supply chains, made the Covid-19 pandemic-related shortage in chip supply even worse.
To increase independence and lessen reliance on Chinese manufacturing, many areas are currently reevaluating how they approach the sector.
To further shield the tech sector from China, US Treasury Secretary Janet Yellen has emphasized the value of “friend-shoring,” or routing supply chains through US allies like South Korea and Japan. Meanwhile, to support the continent’s semiconductor industry, legislators in Europe have suggested spending tens of billions of dollars over the next few years.
As part of a five-year strategy unveiled last year, China continues to make efforts to expand its semiconductor industry.
“There is growing acknowledgement on a worldwide scale that these are the technologies that will determine who ‘wins’ in the future global economy,” said Kenton Thibaut, Resident China Fellow at the Digital Forensic Research Lab at the Atlantic Council in Washington, DC, to CNN Business.
The layers of technology and specialized knowledge required, she continued, make it more difficult to be entirely self-sufficient in chipmaking. In the semiconductor supply chain as a whole, “it’s just not possible to gain a top spot.”
Taiwan, a self-governing island off the coast of China, complicates matters further by becoming a diplomatic and military flashpoint between Washington and Beijing.
Following US Speaker of the House Nancy Pelosi’s visit to Taiwan last week, tensions, which the Chinese Communist Party claims as its own territory despite never having had control of the island, have risen sharply.
With several of the biggest manufacturers in the world headquartered there, including Apple suppliers Foxconn and Pegatron, Taiwan is crucial to the world’s semiconductor sector.
90% of the most sophisticated computer chips in use today are produced by Taiwan Semiconductor Manufacturing Company, or TSMC, one of those chipmakers.
The company’s chairman, Mark Liu, recently told CNN that “nobody can manage TSMC through force.” “If you take a military force or invasion, you will make TSMC factory non-operational, since this is such a sophisticated manufacturing facility [that] depends on the real-time communication with the outside world — with Europe, with Japan, with the US.”
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With construction set to start on a semiconductor fabrication facility in Arizona in 2024, TSMC has already committed at least $12 billion to the project.
GlobalWafers, a further Taiwanese manufacturer, recently announced a $5 billion commitment to the construction of a silicon wafer plant in Texas, and earlier this year, South Korean conglomerates Samsung and SK Group announced plans to invest tens of billions of dollars to expand their US tech manufacturing presence.
Zachary Collier, an assistant professor of management at Virginia’s Radford University who specializes in risk analysis, notes that although TSMC’s investment predates the CHIPS and Science Act, the legislation is expected to encourage more businesses to bring plants to the United States.
