Semiconductor chips and integrated circuits, which form the basis of many technologies from computers to smart phones, from airplanes to electric vehicles, from household goods to military equipment, seem to be the new battleground of the increasing economic and geostrategic competition between the USA and China.
It envisages cooperation in chip production, which the USA plans to establish with Japan, South Korea and Taiwan.Chip Quad“, by forming a bloc against China in the sector, it can become the defining element of the global struggle between the two great powers.
How the “Chip Quartet”, the first preparatory meeting of which is planned to be held at the end of August or the beginning of September, will shape the ties of the signatory countries with China is of critical importance for the future of both the region and the world.
The US wants to maintain its leading position in the industry
The US administration sees the chip industry, of which it is a pioneer, as the “red line” in technological competition with China, and does not want to lose its superiority, as in 5G communication infrastructure.
Chips and integrated circuits, which are widely used today, were first produced in Silicon Valley in the 1970s. From its inception, the USA was the leading country in development, production and sales. The country still has the largest share in the world in terms of design and sales.
According to data from the American Semiconductor Industry Association, 46 percent of global chip sales, which reached $555.9 billion in 2021, were made by American companies. The USA was followed by South Korea with 21 percent, Japan and European countries with 9 percent, Taiwan with 8 percent and China with 7 percent.
But the share of the USA in the production area is gradually decreasing. The production share, which was 37 percent in the early 1990s, has dropped to around 12 percent today. Most of the production is done with partnerships abroad.
With globalization, chip foundries shifted to Asian countries as American companies outsource their production to overseas subcontractors. Japan, Singapore, Taiwan, South Korea and finally Chinese gained significant strength in the field of manufacturing.
USA; Considering the entire ecosystem covering design, development, marketing and sales, it is still the largest actor in the industry. First Intel Most of the world’s leading chip developers are American companies.
Washington sees increasing its share in manufacturing as vital to maintain control of the global market against disruptions in supply chains.
“The Chip and the Law of Science”
On July 27-28, in the US Congress, which envisions $280 billion in aid to the chip manufacturing industry, “The Chip and the Law of Science” accepted.
The law, signed by US President Joe Biden on August 9, aims to increase semiconductor production in the country.
The law includes approximately $52 billion in subsidies for semiconductor manufacturing, as well as a 25 percent tax cut for four years to encourage the establishment of semiconductor factories.
$39 billion of the incentives will be devoted to the establishment of manufacturing facilities, and $11 billion will be devoted to research and development activities in the chip field.
The fact that the law requires companies that want to take advantage of the incentives not to develop the technological capacity of their manufacturing facilities in China points to Beijing’s goal of limiting its influence in this area.
Taiwan, world leader in chip manufacturing, faces geopolitical risks
According to 2022 data from market research company Trendforce, Taiwanese companies have the largest share in global production with 66 percent. Taiwan is followed by South Korean with 17 percent, Chinese with 8 percent and companies from the USA and other countries with 9 percent.
About three quarters of global production is geographically concentrated in Taiwan, South Korea and China.
Taiwanese company TSMC (Taiwan Semiconductor Manufacturing Company) is the locomotive of the industry as “the world’s largest manufacturer” with a 56 percent share. In addition, Taiwanese companies UMC (Unified Micro Electronics Company) have a 7 percent market share, VIS (Vanguard International Semiconductor Company) 2 percent and PSMC (Powerchip Semiconductor Manufacturing Company) 1 percent.
The island, which is in a conflict of sovereignty with China, was on the agenda of the world with the visit of the Speaker of the US House of Representatives, Nancy Pelosi. Considering Taiwan as part of its territory, Beijing held military exercises in the waters and airspace around the Island after the visit. While some areas were closed to ship and aircraft traffic due to the exercises that created a de facto blockade around the island, some cruises were canceled due to security concerns in the Taiwan Strait.
The fact that Ada, at the center of global chip supply, is open to geopolitical risks arising from a possible confrontation with China raises questions for the future of supply chains.
Pelosi urged Taiwanese industry representatives she met during her visit to the Island to invest in the US to take advantage of its incentives under the Chips and Science Act.
Taiwanese manufacturers want to maintain economic relations with China on the one hand, and take advantage of the assurances that a US-led chip alliance can provide on the protection of their supply chains, on the other.
South Korea may have to choose between China and the US in manufacturing
The country that is expected to be adversely affected by the sectoral bloc that the USA aims to form against China is South Korea.
South Korea is one of the most important actors of the market, with a share of 21 percent in global chip sales and 17 percent in chip manufacturing.
The country sold about 60 percent of the memory chips it produced in 2021 to China and Hong Kong. Given the importance of the Chinese market for Seoul, it is unclear whether the US will be able to persuade South Korea to form an opposition to Beijing.
In addition, South Korea’s largest manufacturers Samsung and SK Hynix make most of their production in China. Samsung has a factory producing memory chips in Xian, China, while SK Hynix has foundries in Wushi, Chongqing and Dalian.
If South Korean companies, which also have investments in the USA, choose to benefit from the incentives under the “Chip and Science Act”, they will not be able to develop their production facilities in China, as per the restrictive condition stipulated by the law.
“It’s not an alliance, it’s an advisory body”
Industry cooperation under the “Chip Quartet” may force South Korea to choose between China and the US in manufacturing.
Seoul, earlier this week”Chip QuadHe conveyed to Washington his intention to attend the preparatory meeting for “.an alliance against ChinaHe took care to emphasize what he saw as an “advisory body”, not as a “consulting body”.
South Korean President Yoon Suk-yeol said in a statement on the subject, “Our government is closely examining the matter in terms of its compatibility with our national interests. Relevant government agencies will examine and discuss the matter in terms of protecting national interests. No one should be alarmed.” used his statements.
Japan seeks cooperation with “like-minded stakeholders”
On the other hand, Japan, as the most important supplier of semi-finished materials such as silicon and precision metals used in chip making, seems to be the most important supporter of sectoral cooperation to secure supply chains.
The country, once a leader in chip manufacturing, USA lost ground over time as foundries shifted to emerging markets in Asia.
Japanese governmentWhile investing billions of dollars to support domestic chip production, it supports partnerships between Japanese companies with Taiwan and US companies with incentives.
The government is also seeking collaboration with “like-minded stakeholders” such as the US and European countries to make chip supply less dependent on political and geographic risks and to conduct joint research on the development of advanced semiconductors.
“The days when the world is at peace and it doesn’t matter who supplies our chips are gone,” Kazumi Nishikawa, an official at the Ministry of Economy, Trade and Industry, said in a recent interview. made its assessment.
China interprets the formation as a bloc formed against it.
“Chip Quad“is interpreted by China as an effort to build a block against itself in the chip industry.
It is a matter of curiosity how the Beijing administration, which has been trying to develop the sector and increase its share with large subsidies in recent years, will react to the developments.
Foreign Ministry Spokesperson Cao Licien made the following statement on July 19, accusing the United States of “using state power against the market”:
“The USA always claims to be the biggest defender of free trade, but it does not hesitate to use state power to politicize high technology and market issues, to use it as a tool and weapon. It is trying to displace industries and cut cooperation ties. We hope that the relevant parties act fairly and objectively, and address the problems. It looks in the light of long-term interests and the principles of equity and fairness of the market, and does more to stabilize the global chip industry and supply chains.”
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