The Missing Piece In US Chip Policy

(MENAFN- Asia Times) Here's a bit of an inside scoop: During the early days of the CHIPS Act, members of the congressional team responsible for drafting the act visited a US ally in East Asia with a substantial domestic Semiconductor industry.

The head of the semiconductor industry association of that country, along with several government officials, expressed criticism on a few aspects of the plan during a closed-door session.

However, one point of criticism was particularly emphatic: The Chinese are seeking to dominate the market for less advanced chips, mature nodes (25nm and above), and the CHIPS Act does not address that. The stated goal of the policy is chip supply chain independence for the United States.

The Chinese will dominate 50% of the less advanced chip market by 2030 and by this fact alone, the United States will lose out on the supply chain control that it is aiming for.

While the CHIPS Act is not a bad initiative - in fact, it's an excellent start - it is insufficient if the goal is to control our own chip manufacturing. We are funding companies that are investing heavily in profitable chips, yet our vulnerability concerning lower-tech, yet equally critical chips, persists.

These chips are fundamental components of critical everyday objects including medical instruments, cars, planes, and most importantly, military hardware.

The Chinese are taking the same economic strategy that they have repeatedly, but with a greater ferocity and a little more of a deliberate geopolitical angle than they usually do, that is, find a weak point in an industry, dominate the low-end, and then move up.

Their foundries, namely SMIC, the Chinese TSMC rival, are manufacturing the low-tech chips, before taking aim at more advanced nodes. The only difference here is that China sees semiconductors as a strategic good.

They have explicitly stated that besides the all-important domestic self-sufficiency, having a strategic chokehold on these low-end chips provides an edge for them in economic warfare with the US.

The US did earmark money for this but it has proven to be insufficient. CHIPS Act grant recipients do not have the right incentives and the government has not effectively provided them. Meanwhile, the Chinese are moving full steam ahead with their plan.

Source: TrendForce Market Research, 2023

The loss of control over higher node chips will not only compromise our consumer goods supply chain but pose a far more severe threat to our military supply chain. We already suffer from insufficient control over chip provenance within military applications, and the situation is worsening.

A military Humvee, for example, requires thousands of chips, from GPS to sensors to CPUs. The most advanced processor in a military device might use 14nm technology-equivalent to what an iPhone used in 2015-with most being far less sophisticated.

Losing control over our supply chain for these less advanced chips means losing control over our capability to produce essential military hardware.

We have neither a defensive nor offensive strategy. And we need both. Our defensive strategy should revolve around forcing companies that receive government grants for manufacturing to allocate to more mature nodes, even if it is unprofitable.

From an offensive perspective, we need a tighter sanctions and tariff regime, slowing down the Chinese as much as possible.

Technical and business context

The semiconductor industry is as American as apple pie. We started it. We continue to have a dominant position in it in many many ways. Most of the important companies in the sector are American.

And we do still have a wildly dominant position in a few critical parts of it, which are not going away anytime soon. In terms of market share of chips, we design most of the world's chips, about 70% of them.

And we control the major tools and associated technologies, both physical tools (with the exception of ASML) and digital tools, like Cadence and Synopsys.

The Missing Piece In US Chip Policy Image

Source: Understanding Semiconductors: A Technical Guide for Non-Technical People, Richard, Corey, 2022
Asia Times

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