The global semiconductor industry sits at a unique crossroads. The United States currently finds itself juggling an interest in ever-complex China relations with a goal of shoring up domestic manufacturing. In fact, Taiwan has a far greater capacity for chip production than China. This should be alarming to anyone who cares about U.S. competitiveness and the U.S.’s ability to compete effectively in this critical sector. Industry leaders and analysts point to the U.S. dominance in chip design as a major asset, mainly through behemoths such as Apple and Intel. They caution that today’s complicated global ecosystem of chip manufacturing provides substantial hurdles.
Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung have emerged as key players, benefiting from generous subsidies from their respective governments. TSMC recently announced its own far-more-ambitious $100 billion plan to expand its U.S. manufacturing footprint. This adds to their previous commitment of $65 billion for the development of three new plants. TSMC has loudly and repeatedly proclaimed that it will retain the majority of its advanced chip production in Taiwan. The company does extremely well there, with strong advantage based on developed capabilities and knowledge.
The chip industry has been devastated by the U.S. government’s misguided tariff policies. Additionally, steep tariffs on imported chips have been implemented. After some dramatic behind-the-scenes lobbying by Apple CEO Tim Cook, industry giants like Apple and Samsung earned the exemptions. These exemptions are critically important. They allow businesses – of all sizes! – to prevent price creep as they compete in the new reality of a global marketplace.
The tariff policies may limit the arrival of this skilled talent from other countries, including China and India. This could prevent the U.S. from benefiting from this valuable expertise. Marc Einstein, an industry expert, remarked on this issue, stating, “That’s a bottleneck and there’s nothing they can do unless they change their stance on immigration entirely. You can’t just magic PhDs out of nowhere.” This sentiment resonates across the industry as companies struggle to recruit the necessary skilled labor to support their advanced manufacturing operations.
Second, the global chip market is more integrated than ever. It is built on a web of suppliers and manufacturers that spans the globe. In addition to Intel’s announcement, TSMC and Samsung are viciously competing with each other. At the same time, they’re hobbled by crippling challenges such as escalating costs, construction delays, and opposition from local unions. Einstein pointed out, “This isn’t just a factory where you make boxes. The factories that make chips are such high-tech sterile environments; they take years and years to build.”
Aside from the intricacies of the manufacturing processes themselves, the landscape becomes even more complicated by the supply chain involved in the rare earth mineral procurement process. Unfortunately, the vast majority of these necessary raw materials are currently mined in China. This dependency might jeopardize U.S. plans to strengthen its semiconductor manufacturing base. “China ultimately will want to win – it has to innovate and invest in R&D,” Einstein noted, highlighting the competitive nature of the industry.
Despite all of that, the Biden administration recently reversed itself on a ban it had placed on certain chips that Nvidia was allowed to sell to China. This decision is indicative of a more nuanced approach foreshadowing a larger strategy to address national security concerns while recognizing the realities of global commerce. The administration obviously is very closely monitoring the activities of other countries. For instance, Japan has coordinated its economic revitalization plans with leaps in semiconductor technology.