The Geostrategic Battle Over Semiconductor Chips Just Got Bigger

Semiconductor design and production technology is a big issue in the battle between the US and China for for electronic supremacy. Indeed, Semiconductors have become a critical point of contention in the trade war between the world's two largest economies. 

Now, President Trump says he wants to significantly increase the  US capacity for the highly complex and delicate manufacturing process for high performance chips, that has taken decades to perfect and is largely dominated by non-US businesses. 

Semiconductors are a major factor in powering things like iPhones, military jets and electric vehicles. While silicon chips were invented in the US, but the most advanced expensive chips are being produced in Asia in a sophisticated international supply chain. For example, an Apple iPhone contains chips that were designed in the US, manufactured in Taiwan, Japan or South Korea, using raw materials like rare earths which are mostly mined in China. Then they are sent to Vietnam for packaging, then back to China for assembly and testing, before being shipped to the US.

The Trump administration's recent imposition of harsh tariffs on the import of non-US manufactured goods has caused alarm amongst the major US technology companies, which rely heavily on Chinese manufacturing for components like memory chips and flat-panel displays. 

Donald Trump says his tariff policy will liberate the US economy and bring work back to the US, but it is also the case that some of the biggest companies have long struggled with a lack of skilled workers and poor quality products coming out of their American factories.

In a response to pressure, Trump moved fast to grant tariff exemptions for smartphones, laptops and other electronics import, however, semiconductors will remain subject to drastic import duties. 

In a related development which originated under President Biden, the US government has extended its restrictions on  the leading semiconductor manufacturer Nvidia Corp from selling its most sophisticated H20 chip to China, in a move that  that will cost the company billions of dollars in lost sales. In contrast, companies like the world's largest chipmaker, Taiwan's TSMC and the world's largest smartphone maker, South Korea's Samsung, have become major beneficiaries of the legislation, with TSMC receiving $6.6 billion in grants and loans as an incentive to build chip manufacturing plants in Arizona, while Samsung has been given an estimated $6 billion for a production facility in Texas. Nevertheless, both TSMC and Samsung have faced challenges with their investments, including surging costs, difficulty recruiting skilled labour, construction delays and resistance US labour unions.

TSMC has announced a $100 billion investment into the US, on top of $65 billion pledged for three manufacturing plants. Diversifying chip production works for TSMC, since China has been repeatedly threatening to take control of Taiwan by military force, giving it command of a major part of the semiconductor industry.

The reliance on a guaranteed supply of chips by the major US companies like Microsoft, Apple and Cisco could apply pressure on Trump to reverse any levies on the chip sector. Some industry experts think that intense lobbying by Apple CEO Tim Cook has already secured the exemptions to smartphone, laptop and electronic goods form tariffs.

This is fast-moving scenario with unpredictable consequences, but two things are apparent.

• No single country can operate a chip industry all on its own.

• If you want to make advanced semiconductors, efficiently and at scale, it take a long  time.

While President Trump is trying to create a domestic chip industry through protectionism, what has allowed the chip industry to emerge across Asia over the previous decade was based on a globalised supply chain.

BBC   |    Computer Weekly  |    Guardan   |    Moneyweb   |   Yahoo   |  Times of India   |  

Image: Unsplash

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