Read this in The Manila Times digital edition.
On August 9, President Biden signed the CHIPS Act. Along with the proposed "CHIP-4 alliance" (US, Japan, South Korea, Taiwan), it is a prelude in a lethal effort to weaponize the supply chains in the global ICT sector.
IN international media, the CHIPS and Science Act of 2022 is often portrayed as a $52-billion package aiming to boost semiconductor manufacturing in the United States. But the underlying strategic objective is geopolitical.
Today Asia dominates global semiconductor manufacturing. Though a top exporter, the US semiconductor industry no longer controls the supply chains in the global information communication technology (ICT) sector. However, it still accounts for over 80 percent of the world's chip design equipment, 50 percent of intellectual property for chip designs, and half of the globe's chip manufacturing equipment.
To dominate the semiconductors, which also enable advanced military technology, the Biden team seeks to restore the past US superiority in global semiconductors.
The problem is that no single nation can any longer control entire supply chains in the global ICT sector (see Figure 1). Hence, the effort to weaponize the system, to "counter" China.
FIGURE 1. REVENUE FOR VALUE CHAIN SEGMENTS (BY HQ LOCATION, 2018)
Forced to pick sides
Currently, the US, Taiwan, South Korea and Japan supply most of the world's semiconductors, whereas China represents the highest demand in the industry. The Biden administration would like to keep it that way. The geopolitical objective rests on a series of anti-competitive measures.
In order to restore the US' supremacy, the Biden administration seeks to neutralize future rivals. That's the likely reason why Washington is also considering restricting US chipmaking equipment from being exported to Chinese memory chip makers.
Such restrictions are designed to hurt China and its progress in advanced technology. But they would also harm South Korea's Samsung and SK Hynix, which have memory chip operations in China.
Japanese semiconductor rivals were derailed already in the 1980s trade wars.
Unsurprisingly, Chinese critics of the "CHIP-4 alliance" call it a "hongmen banquet," a well-known Chinese expression for a feast that's set up as a trap for the invitees.
Ambivalent 'allies' divided
At present, six US-headquartered or foreign-owned semiconductor companies have 20 fabrication facilities ("fabs") in America. South Korean Samsung is building a $17 billion fab in Texas, while the Taiwan Semiconductor Manufacturing Company (TSMC) is investing $12 billion on a plant in Arizona.
The real costs have already proved far higher than expected, as the senior executives of these chip giants have acknowledged.
Reportedly, the CHIPS Act would bar recipients of US government funds from expanding or upgrading their advanced chip capacity in China, which has led South Korean firms to review their Chinese operations. Seoul sees itself being sandwiched between Washington and Beijing. If it ignores the Biden administration, it will face challenges in sustaining its technology edge. If it shuns the Xi government, it will turn its back on its most critical market.
That leaves Taiwan.
Hence, the recent Taiwan visit by the US House Speaker Nancy Pelosi, which was presented as a moral intervention for freedom and democracy. The realities were somewhat different. For all practical purposes, Pelosi's trip was paved by the Taiwan lobby (Tecro), her generous financial supporter, which also helped to push through the recent $5 billion weapons sales deal to Taiwan (see Figure 2).
FIGURE 2. PELOSI, TAIWAN LOBBY, AND SEMICONDUCTORS
Behind the media spectacle, one of Pelosi's critical tasks in Taiwan was a meeting with TSMC's CEO Mark Liu, the largest contract chip maker. Reportedly, she said she hoped TSMC would side with the US.
It wasn't just a rhetorical suggestion. Nor was it just about business. It was first and foremost about geopolitics. To complicate things further, Liu knew well the pros and cons of Pelosi's wish and its tacit objective.
In the long term, the US and some of its allies hope to undermine Taiwan's dominance in semiconductors. Effectively, such goals were initiated by the Obama administration, codified by the Trump White House and are now being executed by the Biden team.
Weaponizing semiconductors
In the 1980s, US technology giants pressed the Reagan administration to battle the Japanese competitors. By contrast, the Trump and Biden administrations have pushed and are pushing the reluctant US semiconductor giants to fight China.
US-Sino ties soured and bilateral disputes escalated in July 2018, when the Trump administration imposed 25 tariffs on semiconductors imported from China, causing significant damage in the US industry. And as companies like Huawei bypassed US suppliers buying semiconductors from Taiwan and South Korea, the tariffs failed to have the desired effect. That's why the White House is now trying to use an alliance to command the full semiconductor ecosystem.
In early 2021, the Biden administration signaled it planned to move ahead with a Trump administration-proposed rule to "secure" the information technology (IT) supply chains. That allowed the Department of Commerce to monitor the transactions of governments, including those of China. Reportedly, it is part of the effort to weaponize the global IT ecosystem.
The activities of Eric Schmidt, ex-CEO of Google and financier of the Obama, Clinton and Biden campaigns, reflects the new semiconductor geopolitics. Prior to his advisory role in artificial intelligence, Schmidt headed Pentagon's advisory board to link Silicon Valley with the Pentagon. "The US and its allies," Schmidt urged, "should utilize targeted export controls on high-end semiconductor manufacturing equipment... to protect existing technical advantages and slow the advancement of China's semiconductor industry." (See Figure 3)
FIGURE 3. BBC NEWS ON SCHMIDT'S PENTAGON AI REPORT
Such are the behind-the-façade strategic objectives, which are driving an irresponsible arms race, as international science communities have noted.
"This is a shocking and frightening report that could lead to the proliferation of AI weapons making decisions about who to kill," said Prof Noel Sharkey of The Campaign to Stop Killer Robots. "The most senior AI scientists on the planet have warned them about the consequences, and yet they continue. This will lead to grave violations of international law."
The "Stars Wars" of the Reagan era never materialized. With semiconductor weaponization, the Obama-Trump-Biden AI wars could be only a few years away. In the absence of major opposition, Asia is set to serve as the testing ground.
Undermined supply chains
The semiconductor debacles first intensified with the US-Japan trade wars of the 1980s. Eventually, Japan, heavily dependent on the US military, agreed to "voluntary restrictions" on contested export products, bilateral concessions, sky-high US tariffs, de facto currency revaluation, and structural reforms opening the Japanese market to the US.
As a result, Japan lost its mantle of world leader in microchips. Secular stagnation ensued soon thereafter. This precedent obviously makes executive teams uneasy in both South Korea and Taiwan.
Weaponization of the global semiconductor supply chains by any one country would be disastrous to the ecosystem. It would replace industry competition with geopolitical dicta. It would undermine consumer welfare. And it would derail innovation.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). On his many books on the global ICT, see his Amazon page. For more, see https://www.differencegroup.net