9 mins read
Source: https://asiatimes.com/

While governments are pursuing strategies to secure microchips GSCs, the U.S. has started a new trade war against China and following December the 5th can be critical as the EU may decide to coordinate with allies’ sanctions.

Semiconductors, otherwise known as microchips or integrated circuits (ICs), have become critical commodities of a digitalised world. Nowadays, they are the “backbone of the digital economy” as they apply to almost every sector, including electronic devices, automotive, computing, healthcare, transportation, innovation, clean energy and military systems. Recently, semiconductor GSCs have entered a turbulent phase where major producing countries seek to recalibrate their position in the chain and are forming alliances to avoid future shocks. The billions of dollars that governments invested in this sector, likewise the establishment of the EU-US Trade and Technology Council (TTC) and the US-East Asian Chips 4 alliance, demonstrate that securing microchip’ GSCs has become a shared priority. Moreover, last October’s announcement by the Biden administration imposing new limits on China’s ability to import advanced microchips suggests that turbulences are transforming into a new trade war. 

 Semiconductors’ GSCs are complex and poorly resilient

The ongoing microchip shortages, which began in 2020, exposed existing vulnerabilities and risks. Consumers and producers of almost all sectors have been affected worldwide. The car sector was hated the most, with automotive producers interrupting production or trading unfinished products. The crisis’ remote cause resides in the semiconductors manufacturing system, which developed along very complex and highly interdependent GSCs dominated by a few countries (United States, Taiwan, South Korea, Japan, Europe, and, increasingly, China). Design, fabrication, and assembly are the main steps of production, and no country is autonomous in all these steps, nor in the technologies (memory chips, processors, etc.) applied to more than thirty microchip types. 

Complex interdependencies signify that to produce one microchip type, US companies must rely on Taiwanese foundries to manufacture their chips that, in turn, rely on US, Europe, and Japanese equipment and chemicals. Such a geographical specialisation has surely played a positive role in developing more efficient technologies. Indeed, no other industry detains higher investments in R&D and capital expenditure. However, although highly innovative, this chain has recently demonstrated poor resilience. Therefore, as future shortages may threaten countries’ national security, governments started pursuing policies to strengthen domestic production and secure semiconductors’ GSCs.


Historically, the U.S semiconductors industry has dominated essential segments in the chain like R&D, chip design and manufacturing. However, the U.S. global fabrication capacity has constantly declined, from 40% in the 1990s to 11% in 2019. To reverse such a negative trend,  in August 2022, the Biden administration signed the Chips and Science Act which concerns $52.7 billion to be invested in the next five years to semiconductor manufacturing, R&D, and workforce development, with an additional  $24 billion worth of tax credits for chip production. The Act aims to increase the US chip’s domestic output and reduce reliance on foreign countries. Notably, with this Act, the U.S. aspires to become a leader in semiconductors GSCs. Like in the US, the EU Chips Act will mobilise more than € 43 billion to strengthen EU research and technology leadership towards smaller and faster chips and to set measures to respond to future supply chain shocks. In terms of numbers, the act aims to double the current EU share of global chip production capacity to 20% by 2030. 


Just in five years, China’s semiconductor device sales passed from $13 billion to $39.8 billion, capturing 9% of the worldwide semiconductor market in 2020. Following this trend and considering the announcement to invest $1.4 trillion by 2025, China can easily reach 17.4% of the global market by 2024 and aspire to self-sufficiency.  Together with China, the other east-Asian countries (Taiwan, South Korea and Japan)  account for 75% of global semiconductors manufacturing capacity, with Taiwan alone owning 92% of the most advanced logic semiconductor manufacturing capacity (below 10 nanometers). Threatened by the Chinese rise and to maintain their positions, these countries planned massive investments. For example, on 11th November 2022, Japan announced 500$ million to manufacture advanced chips, in line with South Korea, which is also planning to form a semiconductor engineer training centre of 150.000 experts in 10 years. Differently, Taiwan is adopting an offshoring strategy and, this month, announced investments of up to 10 million euros toward microchip production in Lithuania.

United for securing chips GSCs or to contrast China’s rise?

Parallel to increasing domestic production, countries have sought to form international arenas to increase GSC’s resilience. Currently, there are two fronts, one between US-EU and another between the US and East-Asia countries (excluding China). Concerning the first,  in September 2021, allies reunited for the inaugural meeting of the US-EU Trade and Technology Council (TTC). The new council aims to coordinate allies’ approaches toward critical trade, economic and technology issues and to strengthen their economic relations based on democratic values. On the other front, the US has formed the “Chip 4” alliance with Japan, South Korea, and Taiwan. This forum should provide better coordination between governments and companies on supply chain security, workforce development, R&D, and subsidies. In the last two years, the U.S. has been the most active country in pushing forward the formation of these forums. 

However, meanwhile, the Biden administration has launched the initial steps of a new chip war with China. In early October 2022, further and heavier semiconductor restrictions on China were announced. These regulations seek to block Chinese access to memory chips and chip-making equipment, especially for those companies that produce advanced logic chips in China. As a result, the U.S. is now using the two forums to convince other countries to implement policies that can limit the fast development of the Chinese microchips market. However, the U.S. is currently running alone as no country on the two fronts demonstrated to be in favour of a rampant decoupling from China. During the first Chip 4 meeting held on 28th September 2022, Japan, South Korea and Taiwan expressed preoccupation to adopt similar policies toward China as it represents a fundamental partner for their semiconductor market and industries. Only Taiwan has recently announced it would abide by the U.S. rules, as restrictions are believed to have a limited impact on the island economy. 

On the other front, an important decision could be taken in the third TTC meeting planned for the 5th of December 2022. This meeting could be particularly relevant because, during the negotiations for the adoption of the agenda, the U.S. proposed the EU representatives to follow the recent allies’ approach toward Russia. In other words, the U.S.explicitly asked EU representatives to coordinate their export control to China. However, although the European response was ambiguous, rooms for dialogue are still open. Consequently, particular importance must be given to the upcoming TTC meeting as it can determine the intensity and potential escalations of the just-started Chips war.

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