Two years after the August 9th signing of the CHIPS and Science Act, the semiconductor world continues to be a battlefield for US-China competition. With the Act spending $52.7 billion on assisting domestic semiconductor manufacturing and research, the US took steps to counter China’s technological ambitions. The question is, how do other countries fit into this ‘chip war’? This article seeks to understand the industrial policies set by the US and China and the responses India, Taiwan, South Korea, and Europe had to them.
US Industrial Policy: More Military Than Economic
The US semiconductor manufacturing industry has seen a significant decrease in its share of the global market: 37% in 1990 and 12% by 2020. In an attempt to reverse this trend, the CHIPS Act has encouraged Intel, TSMC, and Samsung to build factories in the US. The Act has resulted in 67 new projects, which include fabrication plants in Texas, Arizona, and Ohio. Expenditure forecasts for the US are also looking up; previously estimating only 9% with the Act and now looking towards 28% of the global capital expenditures for semiconductors by 2032. On top of that, more aggressive controls on exports, such as the one placed on October 7th, 2022, restrict Chinese access to advanced chips, targeting their AI and military tech progress.
China’s Tech Ambitions: Resilience Amid Restrictions
China’s strategy regarding semiconductors emphasizes self-reliance due to President Xi Jinping’s “technology autarky” rhetoric. Since 2014, more than $221 billion has been invested, but China’s Semiconductor Manufacturing International Corporation (SMIC) still lags behind TSMC and Samsung in terms of capability, with SMIC only able to produce 7nm chips compared to their 3nm production. U.S. export controls, along with allies like the Netherlands and Japan, have limited China’s access to cutting-edge equipment and technology, forcing China to rely on domestic innovation. China has made advancements in legacy chips (28nm and older) and maintains a dominant position regarding rare earth materials, which gives it leverage. However, state-driven model weaknesses such as corruption and inefficiencies significantly stall progress. Experts believe that China is five years behind in advanced chip production.
Taiwan, the World’s Leading Semiconductor Producer
Taiwan is home to TSMC, which alone makes 60% of the world’s total chip production and over 90% of advanced chip production, rendering Taiwan indispensable in today’s world economy. With the CHIPS Act encouraging TSMC to expand its prosthetics facilities in Arizona, Taipei still wants to keep most of the advanced manufacturing on the island, claiming it as a “silicon shield” Taiwan uses to defend against Chinese aggression. Taiwan, alongside South Korea’s Samsung, emerged at the center of the global supply chain, allowing dominion over the foundry market.
South Korea: Balancing Act
Barely subdued by the pandemic, Europe is leaping to attack issues of sovereign capacity, like reliance on other countries for technology chips. And for that, they are more than willing to invest 43 billion euros and almost certainly achieve more than they ever need by 2030.
South Korea has made clear that they are loyal to the United States and fused themselves in the “Chip 4 Alliance.” However, their ties with China make it quite hard for them to invest 400 billion American dollars in semiconductors in the next decade alongside Taiwan.
Arsemberg is the EU’s only hope in executing its grand master plan of controlling 80% of advanced ASML lithography equipment until 2030 to get a firmer grasp on the global chip market.”
Europe: Catching Up
The European Union’s 2023 Chips Act sets a goal of acquiring a 20% stake in the global chip market by 2030, and with the injection of 43 billion euros, the European Union seems ready to achieve that goal with ease.
Germany has catapulted into placing first in the supply of automotive semiconductor chips. The goal is to help attain the 20 percent countered by Intel’s EU subsidies along with aid to the EU’s efforts to minimize funding and advance focus alongside legacy chips.
India: An Emerging Player
India is leveraging the ripple effects of the CHIPS Act on India’s semiconductor industry. Through the 2023 U.S.-India iCET initiative, India, alongside the U.S., Japan, and Taiwan, is fostering partnerships for chip manufacturing. Tata Group’s joint venture with Taiwan’s PSMC to construct a fab for mature nodes is a sign of India’s ambition to integrate into the global supply chain, albeit an aspiration that faces challenges as India still lacks the stature of other industry leaders.
The Road Ahead
A year has passed since the CHIPS Act was launched, and the U.S. has been very vocal about strengthening its position, though Taiwan, with its oft-sighted ‘dominance,’ South Korea in its ‘balancing’ position, and Europe and India, all with ambitions to wage wars, make the scenario increasingly complicated and interlinked. The U.S. still needs to deepen partnerships—like the Chip 4 alliance—to maintain their advantage, while China’s need for self-sufficient resources to drive self-sufficient innovation could shift global power dynamics. The semiconductor battle isn’t cooling off anytime soon, with increasing geo-economic stakes driving fiercer competition.
