Major chip-making nations, including the United States, are forming alliances to secure semiconductor supply chains and prevent China from reaching the edge of the industry, analysts told CNBC.
The United States, South Korea, Japan, Taiwan and others with strong semiconductor industries are looking to build important technology partnerships.
“The direct reason for all this is definitely China,” said Pranay Kotastan, chairman of the high-tech geopolitics program at the Takshasila Institute, of the alliance.
The alliance highlights how important chips are to the economy and national security, while also highlighting countries’ desire to block China’s advances in key technologies.
Kotasthane was a guest on the latest episode CNBC’s “Beyond the Valley” Podcast Examine the geopolitics behind semiconductors, published Tuesday.
Semiconductors are an important technology because they are embedded in so many products we use, from smartphones to cars to refrigerators. It is also important for artificial intelligence applications and weaponry.
The Importance of Chips in the Spotlight Ongoing shortage of these components caused by the Covid pandemicamid soaring demand for consumer electronics and disrupted supply chains.
This made governments around the world realize the need to secure chip supplies.united states under president Joe Bidenpromoting the reconstruction of the manufacturing industry.
However, the semiconductor supply chain is complex. Areas from design to packaging to manufacturing and the tools needed to do so are included.
The US, while strong in many areas of the market, has lost its dominance in manufacturing.For the past 15 years or so, Taiwan’s TSMC and korean samsung came to dominate the manufacturing of the world’s most advanced semiconductors. intelwas the largest chip maker in the United States and was far behind.
Taiwan and South Korea account for approximately 80% of the global foundry market. A foundry is a facility that manufactures chips designed by others.
With critical tools and manufacturing concentrated in a few companies and geographies, governments around the world are at stake, pushing semiconductors into geopolitical territory.
“What happened is that there are a lot of companies scattered around the world doing just a fraction of that. can’t supply what it needs?, is it like some country tipping about espionage?
Kotasthane said the concentration of power in the hands of some economies and companies poses risks to business continuity, especially in contested places like Taiwan. Beijing sees Taiwan as a treasonous ministry, promised to “reunify” the island with mainland China.
“Another geopolitical importance relates to Taiwan’s central role in the semiconductor supply chain, as much manufacturing is done in Taiwan due to heightened tensions between China and Taiwan. , there is concern about what would happen if China were to take over, or is there just tension between the two countries?” Kotastan said.
The chip supply chain is so complex that no one country can go it alone.
Over the past two years, countries have increasingly sought chip partnerships. During my trip to South Korea in May, Biden visits Samsung semiconductor factoryAround the same time, U.S. Commerce Secretary Gina Raimond met with then-Japanese Commerce Secretary Koichi Hagiuda in Tokyo to discuss “cooperation in areas such as semiconductors and export controls.”
Last month, Taiwanese President Tsai Ing-wen told visiting Arizona Governor Doug Ducey: Looking forward to the production of the “democracy chip” with America. Taiwan is home to TSMC, the world’s most advanced chip maker.
Semiconductors are an important part of the cooperation between the US, India, Japan and Australia. a group of democratic nations collectively known as quads.
The US is also proposing a “chip 4” alliance with key players in the semiconductor supply chain: South Korea, Japan and Taiwan. However, this detail has not been finalized.
There are several reasons behind these partnerships.
One is to bring together countries that each have a ‘comparative advantage’ and ‘form an alliance that can develop safe chips.’ “It doesn’t make sense to do it alone,” he added, because of the complexity of supply chains and the strengths of different countries and companies.
US President Joe Biden visited Samsung Electronics’ Pyeongtaek campus in May 2022 to meet with South Korean President Yoon Seok-yeol. The US and South Korea, along with others, are seeking to form a semiconductor alliance aimed at cutting China off.
Kim Min-hee | Getty Images
All these partnerships have one thing in common: China is not involved. In fact, these alliances aim to cut China off from global supply chains.
“In my view, in the short term, China’s development in this area will be severely restricted. [as a result of these alliances]’ said Kotastan.
China and the United States see each other as rivals in areas ranging from semiconductors to artificial intelligence. As part of that fight, the United States has considered cutting China off. important semiconductor When Tools for Passing Export Controls.
Citing the objectives of the various partnerships, Paul Triolo, head of technology policy at consulting firm Albright Stonebridge, said: “The goal of all this effort is to increase China’s ability to produce advanced semiconductors domestically. It is to prevent it from developing,” he said.
So where does that leave China?
Over the past few years, China has poured large sums of money into its domestic semiconductor industry with the aim of promoting self-sufficiency and reducing its dependence on foreign firms.
As explained earlier, it is very difficult because of the complexity of supply chains and the concentration of power in very few companies and countries.
China has chip design, However, it still relies heavily on foreign tools and equipment.
According to Kotasthane, manufacturing is China’s “Achilles heel.” The largest contract chipmaker in China is called SMIC.However, the company’s technology is still It lags far behind TSMC, Samsung, etc..
“It requires a lot of international cooperation … I think this is a big problem for China right now because it has some kind of hostile neighbors,” Kotastan said.
“What China could do three or four years ago in terms of international cooperation simply wouldn’t be possible.”
That leaves China’s ability to reach the cutting edge of chip manufacturing in question, especially with the United States and other major semiconductor powers allied with it, Cotastang said.
“In the long run, I think they are [China] We can overcome some of the current challenges, but we cannot reach the cutting edge like many other countries.
Still, rifts are starting to form between some partners, most notably South Korea and the United States.
In an interview with financial timesSouth Korea’s Trade Minister Ahn Deok-geun said there was a disagreement between Seoul and Washington over Washington’s continued 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.
As the world’s largest chip importer, China is a key market for chip companies around the world, from US giants like Qualcomm to South Korea’s Samsung. The mingling of politics and business could set the stage for heightened tensions between nations in these tech alliances.
“Not all U.S. allies are eager to sign these alliances or expand their control over technology destined for China. Most allies don’t want to clash with Beijing, these issues,” said Triolo.
“A major risk is that attempts to coordinate some aspects of the global semiconductor supply chain development will undermine the market-driven nature of the industry, cause significant collateral damage to innovation, drive up costs, and increase the speed of new technology. It slows down the pace of development.”