President Biden holds a chip at a press conference after signing an executive order to review the chip supply chain on Feb. 24
Recently, the U.S. and China have announced various initiatives to increase investment in the semiconductor industry in order to stimulate the growth of their semiconductor industries. Meanwhile, TSMC, the world’s largest chip foundry, announced that it will invest $100 billion in the next three years to expand its chip manufacturing capacity. A chip war without smoke and mirrors has already begun. Who has the upper hand in the U.S. and China’s chip rivalry? What impact will it have on the global semiconductor industry?
The United States to spend a lot of money to strengthen the chip manufacturing research
The $2 trillion infrastructure plan announced by President Biden on Wednesday (March 31) specifically calls for a $50 billion investment in semiconductor manufacturing and research.
U.S. Commerce Secretary Gina Raimondo said Wednesday that the White House infrastructure plan will put the United States on a more equal footing with the Chinese Communist Party because it will support the U.S. semiconductor industry.
It’s about beating the Chinese Communist Party in the competition,” she said in an interview with CNBC. If we act now … We will be competing with China. We have time to do that, to rebuild, to build the semiconductor industry in particular, but we have to get our hands dirty and do it.”
Last week, Congress, businesses and workers agreed at a Senate hearing that the tax code should be updated to incentivize domestic production and innovation, make U.S. manufacturers globally competitive and reduce U.S. dependence on imports of key products such as semiconductors.
They called for investment tax credits and restoration of tax deductible credits for research and development to provide long-term stability and attract investment in jobs and technology.
Chinese chipmakers enjoy tax credits
In China, the Ministry of Finance announced Monday (March 29) that it will accelerate China’s efforts to transform itself into a self-reliant “technological powerhouse” by giving chipmakers tax exemptions on imports of machinery and raw materials until 2030.
The Communist government has already poured billions of dollars into the semiconductor industry, offering tax credits to semiconductor companies, and more than 50,000 new semiconductor-related Chinese companies will register in 2020, more than triple the number in 2015. China’s leading chipmaker, SMIC, said last month it would spend $2.35 billion to build a plant in Shenzhen with the Shenzhen government.
The Chinese Communist government lists advanced semiconductors as one of the core technologies they consider vulnerable to foreign pressure. China cannot produce the highest-performing chips without U.S. technology, particularly in chip manufacturing equipment and design software.
The Wall Street Journal reported this week that it could take a long time for China to develop its own cutting-edge semiconductor supply chain, but that private companies could help speed up the process.
China’s tech giants are already trying to design their own chips. For example, ByteBeat is hiring engineers to design ARM server chips. Alibaba and Baidu also have internal chip design departments. Huawei has previously designed its own chips through its subsidiary Hysis Semiconductor.
Global demand soaring TSMC also to expand investment
Global demand for semiconductors has increased sharply and is expected to grow by 5% per year by 2030. Only 12 percent of semiconductor production activity is in the United States, of which only 9 percent comes from U.S. companies. The Boston Consulting Group estimated last September that 80 percent of the world’s semiconductor manufacturing is now concentrated in Asia.
Taiwan is home to many global semiconductor producers, including TSMC, the world’s largest computer chip foundry. The company plans to invest $100 billion over the next three years to expand its chip manufacturing capacity, a stunning financial commitment to address the surging demand for new technologies. This year, TSMC has planned record capital expenditures of up to $28 billion, but recent trends and developments have pushed for more capacity. Today, Taiwan’s largest company is at the center of a global chip supply crisis, and it has committed to working with customers across industries to overcome the massive demand.
Experts: In a war without smoke and mirrors, the U.S. will continue to lead
In this war without smoke and mirrors, experts believe that the United States will continue to lead.
James Lewis, director of the strategic science and technology program at the Center for Strategic and International Studies (CSIS), a Washington think tank, told the Voice of America, “Until the Trump administration imposed sanctions on Chinese semiconductor technology, China had been doing well and was on the path to becoming a chip powerhouse that South Korea and Taiwan had taken. But they got off track because they couldn’t get access to Western technology, not just the U.S., but Japan, some European countries, and the decision not to sell chips to China has really put China behind. Chinese experts tell me that it will take 10 to 15 years for the Chinese Communist Party to catch up, so I think that in the short term, the U.S. will do just fine.”
Ainikki Riikonen, a research associate in the technology and national security program at the Center for a New American Security (CNAS), agrees that the U.S. has a strong leadership position in the semiconductor field again. She told the Voice of America, “The United States already has a very strong leadership position in the semiconductor field. Although much of the manufacturing is outsourced outside the U.S., the design part of the supply chain is critical, because without design, there is no manufacturing. China has a long way to go if it wants to succeed, especially if the U.S. and like-minded countries are already working to accelerate innovation and stay ahead of the curve.”
But Lewis of the Center for Strategic and International Studies cautioned that U.S.-China competition in semiconductors could create a crisis for the semiconductor industry worldwide.
“It causes damage in two ways, first because the Chinese Communist Party is willing to spend billions of dollars to build its own semiconductor industry. It has become a major market for U.S. semiconductor equipment manufacturers, for the people who produce those capital goods, for chip-making machinery. So this debate carries great risk for those in the United States, and even in Europe and Japan. Second, semiconductors are a research-intensive industry. You need to do a lot of research, and for that you need to have revenue. So there’s a concern that if we can’t solve the China problem, our revenues will go down. We won’t be able to invest as much in R&D. But I think that’s a solvable problem. Another problem is that if China floods the market with subsidized goods like it does into other industries, Huawei is the classic example. When Huawei entered the market, there were about a dozen telecom equipment suppliers worldwide, but Chinese espionage combined with subsidized prices and government support allowed Huawei to squeeze all but two foreign suppliers out of the market. How do we know China won’t do the same thing with semiconductors? So it’s a risk not to sell to China and let China develop its own industry and squeeze everyone else out.”
Rikkonen, for her part, believes the semiconductor industry would benefit from competition between the two countries.
She said, “Competition can benefit the industry as long as neither country suddenly blocks the supply chain. Increased attention to semiconductors could mean more R&D funding and preferential treatment for the industry in general. The risk is that sudden restrictions or retaliatory measures could be costly. For example, rare earths are critical to the manufacture of semiconductors, and having cell phones or other electronic devices as customers is important to the semiconductor industry. Therefore, a disruption at either end could damage the industry. The semiconductor supply chain is long and complex, so governments must work together to create positive change and avoid the risk of disruption.”
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