The United States is home to ‘state-of-the-art’ integrated device manufacturers and fabless chip firms, but the global chip shortage during COVID-19 has revealed weaknesses in US chip manufacturing capacities at foundries. The Biden administration’s assessment of global semiconductor supply chains acknowledges that while the United States leads in system-on-chip designs, it severely lacks foundries to boost chip production in scale to mitigate the risk of future chip shortages. June Park specially for the East Asia Forum.
The United States aims to synthesise the entire chip production process by overcoming constraints in subsidies and infrastructure. It is also mobilising funding via the Chips for America Act and by pressuring allies with chip manufacturing capacity to contribute. The Taiwan Semiconductor Manufacturing Company has committed to aiding the United States in resolving the chip shortage after considerable pressure from the White House to invest in the United States. Samsung’s commitment to invest US$17 billion in foundries for semiconductor production in the United States followed under similar pressures.
While South Korea and Taiwan are major players in the global chip market, their shares of semiconductor and advanced chip production facilities are only a fraction of the industry. The United States still leads advanced chip design capability in areas where market revenue is greatest — integrated device manufacturers, fabless firms and system chips as final product. Global leadership in semiconductors requires an assessment of the entire ecosystem of chip production from research to design and manufacturing, as well as assessment of production capacity by chip type.
Of the US$1.5 trillion semiconductor industry, the United States dominates the integrated device manufacturer (15 per cent), fabless (25 per cent) and microprocessor (17 per cent) sectors. Meanwhile, South Korea and Taiwan lead the foundry (13 per cent) and memory chip (7 per cent) sectors to a lesser extent. The United States maintains the lead in microchips through innovation and is now seeking leadership in both the system and memory chip markets. The United States aims to increase its capacity for mass production by acquiring foundries to consolidate complete supply chains domestically, despite an enduring reluctance on government-led industrial policy.
US–China frictions and the Japan–South Korea chip war show that the ultimate goal of the United States is to amalgamate East Asian allies into a US-driven global supply chain. Japan’s export curbs against South Korea on three critical materials — fluorinated polyimides, hydrogen fluoride and photoresist — for semiconductor production since July 2019 amid the Huawei ban has opened the South Korean semiconductor materials market wide open for US firms. The curbs prompted South Korea to set up facilities to domestically produce fluorinated polyimides and diversify import sources for hydrogen fluoride, lowering the dependency ratio on Japan to 10 per cent.
The Moon administration stresses self-reliance, implying that South Korea will slowly move away from reliance on Japan. But Japan remains a critical exporter in semiconductor materials and leads the global market share (24 per cent), followed by the United States (19 per cent).
The South Korean Ministry of Trade, Industry and Energy managed to induce US$28 million for a new plant in Cheonan from US investor DuPont to produce photoresist, the curbed element that South Korea had difficulty in transitioning to domestic production. Several Japanese exporters of the three elements have diminished or moved production to South Korea. Japan’s export controls have revealed a source of risk for South Korean chip producers. This has led to incentivised efforts toward self-sufficiency or alternative sources. Amid the paralysis of the WTO Appellate Body, South Korea continues to seek recourse against Japan under the General Agreement on Tariffs and Trade 1994.
It is projected that the post-COVID-19 economy will entail an explosive expansion of the semiconductor market. The centrality of cutting-edge semiconductors that power AI algorithms for defence systems has also made it imperative for the United States to consolidate chip production domestically.
The United States seeks domination at a time when post-pandemic recovery is invisible, and electrification and digitalisation are unfolding rapidly. Semiconductors will be the main source of this drive as the United States reinforces its move to halt the flow of chip technology to China. Regardless of the friction between South Korea and Japan, the US policy to achieve leadership in chips will be maintained.
June Park is a political economist and an East Asia Voices Initiative Fellow at the Elliott School of International Affairs, George Washington University.