Reporter | Liu Zixiang
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The United States and Japan announced the joint establishment of a next-generation semiconductor research center to seize the new technology highland.
On July 29, local time, the first "economic 2+2" meeting between the United States and Japan (foreign minister level and commerce minister level officials) was held in Washington. After the meeting, officials from the two countries announced that they would start to establish a new research and development institution to study a new generation of semiconductors. Japan's Minister of Economy, Trade and Industry Koichi Hagida said the research and development center would be open to other "like-minded" countries.
No further details of the plan were announced at the meeting. However, according to a number of Japanese media, the research center will be established in Japan at the end of this year for research and development of 2-nanometer chip mass production technology. The center will also build a prototype production line, which is scheduled to start mass production in 2025.
The post-meeting statement said it expressed "grave concern and opposition to the harmful use of economic influence" and "combating economic coercion and unfair and opaque lending practices". The Reuters article said the meeting was aimed at "countering the supply chain chaos caused by China and the Russian-Ukrainian conflict."
At a press conference on July 28, Chinese Foreign Ministry spokesman Zhao Lijian said on the issue of US chip subsidies that how the United States develops itself is the United States' own business, but it should not set up obstacles to normal scientific and technological exchanges and cooperation between China and the United States, let alone deprive and damage China's legitimate development rights and interests. Sino-US scientific and technological cooperation is conducive to the common interests of both sides, and restricting "decoupling" will only harm others and harm oneself. At the same time, China insists on putting the country's national development at the starting point of its own strength, and no restriction or suppression can stop the pace of China's scientific and technological development and industrial progress.
Securing a strong U.S. position in semiconductors has been at the heart of the Biden administration's policy agenda. Since taking office as president last January, Biden has prioritized the competitiveness and safety of the country's semiconductor industry. A comprehensive supply chain assessment released in June of the same year laid out the U.S. vision of achieving both "leadership" and "resilience" in the global semiconductor value chain.
After World War II, the United States has been leading the development and manufacture of semiconductors. In the late 1980s, U.S. leadership was briefly challenged by the rise of Japanese semiconductor companies. However, U.S. chipmakers quickly relied on innovation, rather than protectionism, to win quickly, cementing their dominance in the early 1990s, and their high-end dominance continues to this day.
The core of U.S. dominance is based on the formation of global value chains in the semiconductor industry. Technological developments have led to the emergence of fabless manufacturing with a focus on design and sales, while outsourcing the actual production of semiconductors. The rapid rise of East Asia semiconductor manufacturing companies has also allowed advanced U.S. companies to focus on chip design while taking advantage of Asia's relatively low-cost skilled workforce.
It is this formation of global value chains that has contributed to the continuous decline of the U.S. global share of low-end manufacturing. According to a June 2021 report, global semiconductor manufacturing capacity is concentrated in East Asia, with Taiwan accounting for 20% of the global total in 2019, followed by South Korea, Japan, Chinese mainland and the United States. According to the American Semiconductor Industry Association (SIA), the U.S. semiconductor manufacturing share accounted for 37% of the world's semiconductor manufacturing share in 1990. However, in 2021, it has slipped to 12%. After five years of rapid development, China's chip industry accounts for nearly 10% of global sales.
However, this does not mean that the United States has lost its dominance in the global semiconductor industry. Through the national innovation system, American companies have been monopolizing semiconductor design software, so that the United States has always occupied the high end of the global value chain.
The problem is that the Biden administration now has to defend not only the absolute dominance at the top of the value chain, but also the low-middle end of the global value chain. Tian He and Anton Malkin, scholars at the University of Chinese in Hong Kong, wrote earlier in diplomacy magazine that Biden is pushing for this goal in two ways.
The first is an alliance with global semiconductor companies to reproduce by guiding manufacturing plants back home. For example, Intel announced an "IDM 2.0" strategy to restore its advanced manufacturing capabilities and provide foundry services to other companies. At the urging of the U.S. government, TSMC and Samsung also announced plans to expand their factories in the United States.
As a supporting policy support for this program, since mid-2020, the US Congress has been introducing industrial policy-related bills, such as the Innovation and Competition Act and the Create Beneficial Semiconductor Production Incentives Act for the United States. After more than a year of haggling, the $280 billion Chip and Science Act was passed in both houses of Senate and House at the end of July.
Second, Biden intends to work with "like-minded" countries to build a "more reliable" semiconductor supply chain. For example, we have attracted Japan and South Korea to join the "Chip4" semiconductor alliance. As well as the recently announced Indo-Pacific Economic Framework (IPEF), working with Asian allies to develop resilience in the U.S. semiconductor supply chain is an important part of it.
This strategic focus is not new, but the challenges facing the Biden administration are unprecedented.
Tian He of the University of Chinese hong Kong and others believe that the challenges mainly come from two aspects. First, there is the increase in production costs. The formation of the semiconductor global value chain enables American companies at the high end of the value chain to obtain the best production capacity at the lowest economic cost, thus promoting a virtuous cycle of technological breakthroughs and innovation. When Biden embarks on a return to manufacturing, that will no longer be the case.
According to a boston consulting group report, the associated costs of operating a fab in the United States for 10 years will be about 30 percent higher than in Taiwan, South Korea or Singapore, and about 37 to 50 percent higher than Chinese mainland. Given the huge economic costs, bringing manufacturing back to the U.S. is easier said than done.
Second, it may further disrupt the operation of semiconductor global value chains. Biden hopes to establish technology alliances with japan and South Korea to strengthen the resilience of supply chains. This strategy, with security at its core, runs counter to economic principles and could affect the relationship between U.S. companies at the top of the value chain and their lower-end suppliers.
Its effectiveness also depends on U.S. diplomatic relations with its allies. The uneasiness of governments and capital in East Asia is becoming more and more pronounced. For example, the Japanese government fears that the return of U.S. manufacturing could hollow out manufacturing across East Asia, making Japan's ambition to regain dominance in the semiconductor industry by 2030 impossible. In April, TSMC founder Zhang Zhongmou directly expressed skepticism that U.S. efforts to increase onshore semiconductor manufacturing were futile due to high costs and a lack of manufacturing talent.
In short, supply chain issues are forcing the Biden administration to overstretch U.S. semiconductor capacity. The project to reshape the global semiconductor industry will require national mobilization and a series of diplomatic actions, which will certainly take a long time to achieve. Tian He and Anton Malkin wrote.