The US🇺🇸faces a new challenge in its long-distance confrontation with China🇨🇳, and this involves the semiconductor industry, materials used in the manufacture of various kinds of electronic devices📱💻, and in which China is closer to becoming a leader🥇in world production.
The White House could use the recent meetings of President Biden with Japanese Prime Minister, Yoshihide Suga, on April 16, and South Korean President, Moon Jae-in, on May 21, in order not only to strengthen the trilateral cooperation between the US, Japan🇯🇵, and South Korea🇰🇷in Asia-Pacific but also to address a common threat, especially as China could use this industrial advantage as a geopolitical tool in the future.
Washington, Tokyo, Seoul (and also Taipei🇹🇼) should join forces🤝to ensure the security of semiconductor international supply chains and prevent Beijing from gaining a strategic advantage in this regard.
For China, the semiconductor sector has become a priority of its five-year plan🖐📑after the Beijing government provided $155 billion💸to support the industry. China also uses the advantage of a cheap labor force on its territory, as well as a national regime with low taxes, lack of regulatory compliance, government subsidies, and intellectual theft tactics, to project its rising dominance in one sector or another. Following this “path of the dragon”🐉, when the Asian giant begins to catch the course of the production of a good/service, it uses all the tools given by its planned economy to gain an advantage in that industry.
After China became a leading producer in sectors such as steel🗜, chemicals⚗, clothing👔, and smartphones📱, now has come the turn of the semiconductor industry. The Chinese government has already set an ambitious plan that by 2025, 70% of global semiconductor consumption to be provided by China’s domestic production.
The age of China🇨🇳in semiconductor production has come, and this worries the US🇺🇲and its East Asian allies. The lack of a better-combined strategy between the US, Japan🇯🇵, South Korea🇰🇷, and Taiwan🇹🇼to create a more efficient integrated system through which the quartet can come together with a competitive response to China, could be the main reason behind China’s seizure of the world semiconductor market.
Looking at the quartet, production has been concentrated in East Asia, mostly in Taiwan and South Korea. The outsourcing of American production to its East Asian allies is based on economic reasons📊related to the comparative advantage. The semiconductor industry is a capital-intensive sector, making it more expensive to open a plant🏭on the US territory than in Taiwan or South Korea. These fixed costs must match the profits, an aspect that puts the American company Intel at a disadvantage in front of TSMC and Samsung. Asian countries have a more efficient unit cost, a fact that determined Intel to gradually outsource➡its production🔧to Asia.
There are two options✌for the US to stand up to China in semiconductor manufacturing.
👉Firstly, there is a need for a subsidy policy for the American semiconductor industry. Joe Biden has already announced the revitalization of the domestic sector with $50 billion in subsidy spending💸. The US government must act in concert with major US companies such as Intel, which has announced a $20 billion investment in opening two new plants.
👉Secondly, Washington needs to streamline its current economic integration strategy with its East Asian allies to come up with a more competitive production system than China. Each member of the quartet must strengthen its role in this economic system where the US has the advantage of the machinery required to produce integrated circuits, Japan the indispensable role in providing raw materials especially chemicals needed for chip production, while South Korea and Taiwan will make up for the good cost-efficiency ratio in production.
source: EVERY MORNING ASIA – FOLLOW