Photo credit: www.bbc.com
The United States has significantly lagged in chip manufacturing over the years, allowing countries like China and various Asian hubs to advance rapidly in this critical sector. This viewpoint was articulated by Gina Raimondo, the US Commerce Secretary, during an interview in 2021. As we look to 2024, the semiconductor industry continues to be a focal point in the competition between the US and China for technological dominance, prompting former President Donald Trump to push for a renewed emphasis on domestic chip production.
Trump’s administration contended that his tariff policies would invigorate the US economy and facilitate the return of jobs from overseas. However, several leading companies have confronted challenges, including a shortage of skilled labor and quality issues at domestic manufacturing facilities.
Given the complexities of chip production, one wonders what new strategies Trump would employ to elevate the United States’ standing in this arena. Furthermore, with Taiwan and other Asian nations holding a competitive edge in the production of high-precision chips, one must ask if the US can truly replicate this success.
Understanding the Semiconductor Landscape
Semiconductors are fundamental to a vast array of devices, from household appliances to smartphones, military aircrafts to electric vehicles. While the technology for these silicon wafers originated in the US, the majority of cutting-edge chip production now takes place in Asia, achieving remarkable volumes.
Producing semiconductors involves significant financial investment and advanced technology. For instance, an iPhone may utilize chips designed in the US but manufactured in Taiwan, Japan, or South Korea, often relying on raw materials sourced mainly from China. These components might then be sent to Vietnam for packaging and later to China for assembly and testing before reaching the US market.
This intricate ecosystem has developed over decades, displaying robust interdependence among regions. Trump has lauded the chip industry while simultaneously applying pressure through tariff threats, notably telling Taiwan Semiconductor Manufacturing Company (TSMC) that it would face a 100% tax unless it established production facilities in the US.
Such a complex environment requires long-term planning beyond political shifts. The continuous fluctuations in policy make it difficult for firms to make strategic investments. Meanwhile, other countries, aided by substantial government subsidies, have gained substantial advantages in the semiconductor space.
The US Chips and Science Act, enacted in 2022 under President Biden, aimed to address these issues by providing grants, tax credits, and subsidies to foster domestic chip manufacturing and diversify supply chains.
Some industry leaders such as TSMC and Samsung have benefitted from this initiative, with TSMC receiving $6.6 billion for its manufacturing efforts in Arizona and Samsung approximately $6 billion for its facility in Texas. Additionally, TSMC announced an ambitious $100 billion investment to expand its operations in the US, a move motivated partly by geopolitical pressures concerning Taiwan.
Despite these advancements, challenges linger, including rising costs, recruiting hurdles, delays in construction, and local opposition. Marc Einstein, a research director at Counterpoint, emphasizes that chip manufacturing is not just about factory assembly but also about creating high-tech, sterile environments that require extensive time and investment to establish.
The Competitive Dynamics with China
While TSMC’s Arizona facilities produce high-quality chips, some experts, including Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology,” argue that these plants still lag behind Taiwan’s leading-edge capabilities. Miller points out that the extent of progress in the US is heavily reliant on investment levels relative to those in Taiwan.
Building capacity in this field requires years of development, and despite China’s substantial investments aimed at emulating Taiwan’s semiconductor capabilities, the latter continues to maintain its edge.
TSMC has also pioneered the “foundry model,” capitalizing on US designs to manufacture chips for other companies. Collaborating with Silicon Valley giants like Apple, Qualcomm, and Intel has enabled TSMC to leverage highly skilled labor and beneficial knowledge-sharing dynamics.
The US can certainly manufacture chips, asserts Einstein, but reaching the advanced levels seen in Taiwan poses significant challenges, particularly in attracting skilled workers from overseas amid current immigration policies.
The Broader Impacts of Trade Policies
Amidst these challenges, Trump has intensified tariffs and initiated a national security investigation into the semiconductor sector. Such measures disrupt global supply chains, crucial for countries that rely on semiconductors for economic rejuvenation.
The long-term implications may include a greater emphasis on local production capacities across crucial global markets, including China, Europe, and the US. For instance, firms like Huawei are diversifying into European and emerging markets to mitigate the challenges posed by tariffs, despite lower profit margins in these regions.
China’s ambition to innovate and invest in research and development remains strong, indicated by initiatives like the Deepseek AI chatbot. Should China succeed in enhancing its chip technology, it could attract global clients straining to stay competitive based on production efficiency.
India is also emerging as a potential new manufacturing hub, benefiting from its geographical proximity, affordable labor, and a strong educational system, although it faces obstacles such as land acquisition and the provision of quality water for chip production.
Negotiating for Chips
Chip companies are not entirely vulnerable to the impacts of tariff measures. The substantial demand for semiconductors from key US companies like Microsoft and Apple could compel the government to reconsider tariff implementations on the industry. Speculations indicate that lobbying efforts by high-profile executives, including Apple’s Tim Cook, may influence favorable adjustments to existing tariffs.
In discussions about electronics tariffs, Trump indicated a flexible stance, mentioning previous interactions with Cook that led to advantageous outcomes for Apple.
Einstein posits that the Trump administration seeks to negotiate favorable terms, similar to their approach regarding TikTok, with TSMC ultimately needing to forge alliances with US firms for mutual benefit.
The structure of Asia’s semiconductor industry serves as a critical lesson: no single nation can operate a successful chip industry independently. To create advanced semiconductors efficiently and on a large scale, collaborative efforts in a globalized economy are essential.
Instead of isolationist strategies, which can hinder progress, fostering cooperation and integration among nations may ultimately prove more fruitful for advancing semiconductor technology.
Source
www.bbc.com