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HomeTechnologyU.S. Creates High-Tech Global Supply Chains to Blunt Risks Tied to China

U.S. Creates High-Tech Global Supply Chains to Blunt Risks Tied to China

If the Biden administration had its way, far more electronic chips would be made in factories like Texas or Arizona.

They will then be shipped to partner countries like Costa Rica or Vietnam or Kenya for final assembly, and shipped around the world to power everything from refrigerators to supercomputers.

These places might not be the first to come to mind when you think of semiconductors. But administration officials are trying to transform the world's chip supply chain and are in intense talks to do so.

Key elements of the plan include encouraging foreign companies to invest in chip making in the United States and set up factories in other countries to get the job done. Officials and researchers in Washington call it part of a new “chip diplomacy.”

The Biden administration argues that producing more of the small brains of electronic devices in the United States will help make the country more prosperous and secure. President Biden boasted about his efforts in his interview with ABC News on Friday, during which he said he had convinced South Korea to invest billions of dollars in chip-manufacturing in the United States.

But a key part of the strategy is unfolding outside U.S. borders, where the administration is trying to work with partners to ensure that investments in the United States are more sustainable.

If this new effort moves forward, it could help the administration accomplish some of its broader strategic goals. It wants to ease security concerns over China, which is ramping up chip manufacturing while making threats against Taiwan, a global hub of chip technology. And it wants to reduce the risk of disruptions in the chip supply chain — risks that became apparent during the coronavirus pandemic and the war in Ukraine, both of which threw global shipping and manufacturing into turmoil.

“Our focus has been on doing our best to expand capacity in different countries to make global supply chains more resilient,” said Ramin Toloui, a Stanford professor who most recently served as assistant secretary for the State Department’s Bureau of Economic and Business Affairs. At the forefront of diplomatic efforts Establishing new supply chains.

The administration aims to do the same not just for chips, but also for green energy technologies such as electric vehicle batteries, solar panels and wind turbines. China is by far the biggest player in these industries.

Mr. Biden and his allies say the dominance of Chinese companies is a national security as well as a human rights problem because some manufacturing takes place in Xinjiang, a region of China where authorities force members of some Muslim ethnic groups to work in factories.

Three years into the Biden administration, the United States has attracted Mr. Toloi said that foreign investment of $395 billion will be invested in semiconductor manufacturing and $405 billion will be invested in green technology and clean energy generation.

Many of the companies investing in such manufacturing in the United States are based in Asian countries known for their tech industries – Japan, South Korea and Taiwan, for example – and in Europe. One of them is SK Hynix, a South Korean chipmaker that is building a $3.8 billion factory in Indiana. The State Department says the project is the largest investment ever in that state and is expected to bring more than 1,000 jobs to the region.

Secretary of State Antony J. Blinken mentioned the project a speech At a conference in Maryland last month, he aimed to encourage foreign investment in the United States. And he emphasized that he hoped the legislation introduced by Mr. Biden would attract foreign investment in American high-tech manufacturing by “modernizing our roads, our rail, our broadband, our electric grid.”

He said policy efforts are aimed at “strengthening and diversifying supply chains, boosting domestic manufacturing, and boosting key industries of the future, from semiconductors to clean energy”.

The Commerce Department has also played a key role in the effort to strengthen the chip supply chain and is distributing $50 billion to U.S. companies and organizations for research, development and manufacturing of chips.

Commerce Secretary Gina Raimondo conducted an in-depth study of global chip supply chains to identify vulnerabilities and worked with foreign governments to discuss opportunities for additional investment abroad.

The topic was a focus of Ms. Raimondo’s visit to Costa Rica last spring, where she met with local officials and executives from Intel, which runs a factory there. (Mr. Toloi spoke at an event. Semiconductor Manufacturing Conference (In Costa Rica in January.) He also discussed diversifying the semiconductor supply chain during visits to Panama and Thailand.

But restructuring global supply chains so they are less dependent on East Asia will be a challenge. East Asian chip factories offer more advanced technology, a larger pool of talented engineers and lower costs than U.S. factories.

Taiwan produces more than 60 percent of the world's chips and nearly all the advanced chips used in computers, smartphones and other devices.

By comparison, the US semiconductor industry could face a shortage of up to 90,000 workers over the next few years, according to several estimates.

Governments in China, Taiwan, South Korea and others are also aggressively subsidizing their chip industries.

Still, billions of dollars in new U.S. investment is expected to reshape global supply chains to some extent. The U.S. share of global chip manufacturing is projected to grow from 10 percent today to 14 percent by 2032, according to a May report from the Semiconductor Industry Association and Boston Consulting Group.

Some administration officials have engaged in a more forceful form of chip diplomacy to prevent China from developing versions of U.S. technology. This approach has focused on persuading a handful of countries — notably Japan and the Netherlands — to stop companies from selling certain chip-making equipment to China.

Alan Estevez, who heads the bureau in charge of export controls at the Commerce Department, visited Japan and the Netherlands last month to try to persuade those countries to prevent companies there from selling certain advanced technologies to China.

By contrast, Mr. Toloi and his colleagues have flown around the world looking for countries and companies that want to invest in American industry and set up factories that would become the end point of the supply chain. Mr. Toloi said his bureau’s work was an element of Mr. Biden’s recent push to create more manufacturing jobs in the United States, including the Infrastructure Act and the CHIPS and Science Act.

The CHIPS Act includes funding of $500 million annually for the administration to build secure supply chains and protect semiconductor technology. The State Department uses that money to find countries for supply chain development. Officials are conducting studies on various countries to see how infrastructure and workforces can be brought up to certain standards to ensure smooth chip assembly, packaging, and shipping.

The program now includes Costa Rica, Indonesia, Mexico, Panama, the Philippines and Vietnam. The US government is also looking to include Kenya.

Mr. Toloi said job training is a priority in this supply chain creation. He has spoken to Arizona State University about partnering with foreign institutions to develop training programs. One such institution is Vietnam National University in Ho Chi Minh City, which he visited in May.

This network of alliances is a strategic advantage for the United States over China, said Martin Rasser, managing director at Detena Inc., a research firm focused on China.

He said it would be too costly for the United States to try to do everything on its own. And doing it alone would not recognize the reality that technology today is much more globally dispersed than it was just a few decades ago, with different countries playing key roles in the chip supply chain.



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