By the June park *
The United States is home to ‘state-of-the-art’ integrated device manufacturers and factory-less chip companies, but the global chip shortage during COVID-19 has revealed weaknesses in US chip manufacturing capabilities in the US. foundries. The Biden administration’s assessment of global semiconductor supply chains recognizes that while the United States is leading in system-on-chip designs, it is sorely lacking in foundries to increase large-scale chip production in order to mitigate the risk of future chip shortages.
The United States aims to synthesize the entire chip production process by overcoming constraints on subsidies and infrastructure. It is also raising funds through the Chips for America Act and by lobbying allies with chip-making capability to contribute. The Taiwan Semiconductor Manufacturing Company has pledged to help the United States solve the chip shortage after considerable pressure from the White House to invest in the United States. Samsung’s pledge to invest US $ 17 billion in foundries for semiconductor production in the United States followed under similar pressures.
While South Korea and Taiwan are major players in the global chip market, their shares in advanced semiconductor and chip production facilities are only a fraction of the industry. The United States continues to lead in advanced chip design capabilities in areas where market revenues are highest: embedded device manufacturers, factory-less companies, and system chips as the end product. Global semiconductor leadership requires an assessment of the entire chip production ecosystem, from research to design and manufacturing, as well as an assessment of production capacity by chip type.
Out of the US $ 1.5 trillion semiconductor industry, the United States dominates the integrated device manufacturers (15%), factory-less factories (25%), and microprocessors (17%) sectors. Meanwhile, South Korea and Taiwan dominate the foundry (13%) and memory chip (7%) sectors to a lesser extent. The United States maintains its lead in microchips through innovation and is now seeking leadership in the memory systems and chip markets. The United States aims to increase its mass production capacity by acquiring foundries to consolidate complete supply chains nationwide, despite a persistent reluctance towards government-led industrial policy.
Frictions between the United States and China and the flea war between Japan and South Korea show that the ultimate goal of the United States is to merge its East Asian allies into a chain of global supply led by the United States. Japan’s export restrictions against South Korea on three critical materials – fluorinated polyimides, hydrogen fluoride and photosensitive resin – for semiconductor production since July 2019 as part of Huawei’s ban opened up the South Korean semiconductor materials market to US companies. The restrictions prompted South Korea to set up facilities to produce fluorinated polyimides domestically and to diversify import sources of hydrogen fluoride, lowering the dependency rate on Japan to 10 %.
The Moon administration emphasizes self-sufficiency, which implies that South Korea will slowly move away from dependence on Japan. But Japan remains a major exporter of semiconductor materials and dominates the world market (24%), followed by the United States (19%).
The South Korean Ministry of Trade, Industry and Energy has succeeded in securing 28 million dollars for a new plant in Cheonan from the American investor DuPont to produce photosensitive resin, the constraining element that the South Korea has struggled to switch to domestic production. Several Japanese exporters of the three elements have reduced or shifted production to South Korea. Japan’s export controls have revealed a source of risk for South Korean chip producers. This has led to incentive efforts towards self-sufficiency or alternative sources. Amid the paralysis of the WTO Appellate Body, South Korea continues to seek recourse against Japan under the 1994 General Agreement on Tariffs and Trade.
It is predicted that the post-COVID-19 economy will lead to an explosive expansion of the semiconductor market. The centrality of advanced semiconductors that power AI algorithms for defense systems has also made it imperative for the United States to consolidate chip production nationwide.
The United States is seeking dominance at a time when post-pandemic recovery is invisible and electrification and digitization is proceeding rapidly. Semiconductors will be the main source of this momentum as the United States steps up its decision to stop the flow of chip technology to China. Regardless of the friction between South Korea and Japan, the US policy of becoming the chip leader will be maintained.
* About the author: June Park is a political economist and fellow of the East Asia Voices Initiative at the Elliott School of International Affairs at George Washington University.
Source: This article was published by East Asia Forum