Language : English 简体 繁體

No U.S. Economic Globalization Regarding Semiconductors

Dec 24, 2021

A global rivalry has led to a somewhat irrational U.S. policy on semiconductors, which fuels the semiconductor shortage while handicapping big U.S. producers. A Cold War mindset could continue to damage global supply chains while failing to keep the world economy open for the free flow of crucial chips and specialized hardware. 

The U.S. debate around global semiconductor production imbalances continues to run into heated debate in Washington. 

The share of modern semiconductor manufacturing capacity in the U.S. dropped from 37 percent in 1990 to 12 percent earlier this month because other nations significantly subsidized domestic chip production over the same period. The U.S. has not considerably boosted federal spending on similar projects. The CHIPS for America Act can help change this, but Congress must fully fund manufacturing and research provisions in the CHIPS Act. The Senate passed the U.S. Innovation and Competition Act (USICA) with $52 billion in federal investments for the domestic semiconductor research, design, and manufacturing provisions in the CHIPS Act. However, the House has not yet passed this bill to send it to President Biden’s deck. 

The House of Representatives recently rejected the Senate-passed U.S. Innovation and Competition Act (USICA) which would have authorized $190 billion to boost U.S. technology and research, and an additional $54 billion to increase production and research of semiconductors and telecommunications technologies. House representatives cited their desire to pass their own bills first, and failed to provide an alternative piece of legislation. 

Beijing’s reaction was highly critical of  USICA, suggesting that it opposes economic globalization since it would generate additional federal support for the domestic production of semiconductors. Funds made possible by USICA would increase U.S. production of manufacturing semiconductors while significantly shifting the global balance of semiconductors back to the U.S. 

Intel, the world’s largest chipmaker, recently declared that the company would like to start silicon wafer production in Chengdu by the end of 2022. Still, the White House “strongly discouraged” such a move due to security issues. Recent statements suggest that the White House will only support investment in silicon wafer factories in the U.S. and Europe. Intel is also waiting for Congress to pass the $52 billion CHIPS Act, which hopes to boost domestic research and manufacturing. 

Therefore, President Biden has only repackaged the Trump-era policies that place restrictions on the government’s use of Huawei and ZTE products while blocking the two companies from obtaining licenses from the Federal Communications Commission. President Biden also restricted the sale of hacking tools to China and banned U.S. investment in Chinese surveillance companies. President Biden now, perhaps prudently, aims to give the U.S. an edge during the semiconductor shortage, which could extend well into 2023, affecting high tech components needed across a plethora of industries, like USB ports, auto parts, game consoles, and mobile phone production. 

However, rejecting economic globalization and punishing China while boosting domestic production could worsen the shortage and spill over into other advanced manufacturing centers. It is also unclear if Washington can stifle China’s semiconductor industry growth, which strives for autonomy, mainly because of U.S. punitive measures. Further, investors from the U.S. and the world participated in over 50 investment deals in China’s semiconductor industry between 2017 and 2020. This outpaced investment by the same actors during the four prior years. Therefore, while the U.S. government pressures the Chinese semiconductor industry, investors continue to bet on China’s growth. Decoupling from the largest semiconductor market in the world might cause harm for both countries. Companies like Intel have plants in China, while the U.S. government prevents them from exporting semiconductors to China’s domestic markets. 

Despite the U.S. semiconductor policy's sensitivity and doubled-edged nature, China could continue to trailblaze through technological progress regardless of U.S. measures. China is already the world’s top high-tech manufacturer, “producing 250 million computers, 25 million automobiles, and 1.5 billion smartphones in 2020.” Further, Beijing is a powerful competitor in artificial intelligence (AI), 5G, quantum information science (QIS), semiconductors, biotechnology, and green energy. It is more and more likely that China will surpass the U.S. in all of these technologies by the end of the decade, mainly due to its ‘whole of society approach,’ which expands Chinese improvements in its technology talent pipelines, the research and development ecosystem, and its national policies to multiply such efforts. 

Previous U.S. dominance in semiconductors is rapidly diminishing due to a lack of domestic investment and a willingness to ignore Chinese innovation, followed with attempts to stifle it with punitive measures.  

The U.S. still leads in chip design and manufacturing inputs, but its share of semiconductor fabrication has fallen from around 40 percent in 1990 to 12 percent in 2021. China has since narrowed the gap in semiconductor production between itself and competitors. It seems that China is only one or two years behind the U.S. and Taiwan in chip design and about five years behind TSMC in fabrication. At the same time, only 44 percent of U.S. chips are fabricated domestically. 

While recent U.S. goals to boost federal production contradicts Washington’s commitment to economic globalization, the U.S. should focus on growing its capabilities instead of harming or curtailing innovative Chinese efforts. Otherwise, breaking or punishing China will only create a situation in which China is more autonomous and capable while the U.S. fails to develop and expand its capabilities. Such a negative approach is likely a failing strategy.

You might also like
Back to Top