From Taiwan and South Korea to China and the US and EU, the race towards manufacturing semiconductor chips has only just begun
Chip manufacturing is a capital and R&D-intensive process. A report from Counterpoint Research shows that most tier-two foundries have been registering poor earnings, low margins, and high debt ratio during the past few years and thus will be unable to expand production capabilities.The crisis has exposed geopolitical vulnerabilities well. Although the US leads in developing the design of ICs, Taiwan and South Korea dominate the manufacturing. TM Lombard economist, Rory Green, estimates that Taiwan and South Korea account for 83 percent of the global production of processor chips and 70 percent of memory chips. The US share of global chip production has declined to 12 percent from about 37 percent in 1990. A lobby group in the US called the current crisis ‘a canary in the coal mine’ for future supply-line shortages. Pivoting on the chipmaking business, the US Senate passed CHIPS for America Act under part of the National Defense Authorization Act (NDAA) last year. In June 2021, it passed the United States Innovation and Competition Act (USICA), which includes funding for Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act. The act will provide US $52 billion for production and research on semiconductors, including US $2 billion dedicated for auto-chips. The following week, lawmakers introduced a bipartisan bill giving 25 percent tax credit for semiconductor manufacturing equipment and facilities investments. Though the US administration has gone all out in reclaiming its position as the leader in semiconductors, it will take considerable time to yield up. Meanwhile, China has also ramped up efforts to combat the dual challenge of chip shortage from the pandemic and US sanctions. Apart from pumping large amounts of money in research as well as loans, the government has provided tax incentives to the whole semiconductor ecosystem, including IC manufacturing, IC design, IC equipment, IC materials, IC packaging, and IC testing enterprises. The Chinese companies have resorted to poaching engineers from top Taiwanese foundries to fill the talent void, which has compelled Taiwan to retaliate. Reiterating that hi-tech talent is an essential issue of its national economic policy, Taipei told local staffing companies to remove all job listings in China. Moreover, it launched an investigation into recruitment firms allegedly hiring local semiconductor talent for mainland Chinese chipmakers.
The Chinese companies have resorted to poaching engineers from top Taiwanese foundries to fill the talent void, which has compelled Taiwan to retaliate.The impact of the Sino-US trade war has reached Europe. The US pressurised the Dutch company ASML to block sales of extreme-ultraviolet lithography machines to China. Inundated with the demand for advanced lithography machines, ASML is facing the challenge of prioritising customers. The European Union has also woken up to the alarming hazards of relying on Asian and American semiconductor supply chains. In her annual State of the Union speech last week, European Commission President Ursula von der Leyen expressed the urgency to create a "state-of-the-art European chip ecosystem," including designing, testing, production, and insurance. She announced the plan to propose a "European Chips Act" to increase the European share in the global chips market to 20 percent by 2030. Ursula von der Leyen rightly said it is not just a matter of competitiveness but also of "tech sovereignty." One thing is for sure, the ever-frantic technological race is not going to slow down anytime soon.
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Saranya was a Research Assistant with the Centre for Security Strategy and Technology (CSST). Her research interests are domestic politics of China Sino-Indian ties Sino-US ...Read More +