Taiwan, China and the U.S.: Inside the fight to control the microchips that power your car and computer

A new U.S. bill places semiconductors on the front lines of U.S.-China competition.

Hear more from Lili Pike about this story:

That risk was very much in mind when Congress passed a sweeping bipartisan bill to lessen U.S. dependence on foreign chips — a bill signed into law by President Joe Biden on Tuesday. The legislation aims to build more semiconductor factories, or “fabs” in industry lingo, on U.S. shores with the help of $52 billion in subsidies.

Senate Majority Leader Chuck Schumer (D-N.Y.) called the Chips and Science Act “one of the most important things we’ve done for America in years, if not decades,” in a speech on Tuesday. Biden, in his remarks, referred to the Ohio plot where Intel is breaking ground on new semiconductor fabs as “a field of dreams.”

Behind that lofty rhetoric is a core mission for the U.S. that has won bipartisan support: outcompeting China in the 21st century. While China doesn’t dominate chipmaking today, lawmakers are worried about the country’s recent race to catch up. That concern has driven a significant change in the way the U.S. approaches economic development. Instead of letting the market shape the future, a bipartisan group of lawmakers signed on to a law that mirrors China’s own industrial policy. It was China, after all, that decided the semiconductor business was worth government support and put huge sums of money behind the technology. Now the U.S. has — belatedly, many would say — jumped into the game.

Why the U.S. thinks depending on Taiwan’s chips is risky

“It’s likely that military force used against Taiwan would really be catastrophic for this industry, in ways that we can’t really imagine,” said Paul Triolo, senior vice president for China and technology policy at Albright Stonebridge Group. “At a minimum, it would be hugely disruptive, and then the question would be how long it would take to restore and if it could be restored.”

The U.S. has long criticized China’s industrial policy. Now it’s copying it.

The United States’ game plan to address its weakness in semiconductor manufacturing, and its overdependence on Taiwan, appears to have been borrowed from an unexpected place — China.

The new law seeks to replicate China’s approach before the U.S. falls too far behind. The $52 billion will be directed toward research and manufacturing chips on U.S. soil, with the Commerce Department in charge of allocating the money to companies. The theory is that government investment will help reduce the costs of manufacturing in the U.S., which (as is the case for most sectors) are higher than in Asia.

“Whether the U.S. or Europe are able to bring down the cost to the level of Asia, I think, will be the key, and also the continuous supply of talent, as well as the integrated ecosystem,” said Jason Hsu, a former legislator in Taiwan and senior research fellow at the Harvard Kennedy School — citing the factors that have made Taiwan’s industry so strong. “Bringing back chip manufacturing won’t be an overnight success for the U.S.”

There are already signs of traction: In the week since the bill passed, the U.S. company Micron announced a $40 billion investment to build out U.S. fabs, and the Taiwanese powerhouse TSMC has already started building a fab in Arizona, anticipating the bill’s incentives.

“I think it’s a necessary and essential first step,” said Schell. “To not get the bill would have been a tremendous letdown and really made it look as if the United States was incapable of responding to the challenge that China is now posing.”

Competition — and containment

As the U.S. tries to move ahead with its own chip production, it’s clear that it is also trying to make sure China stays behind.

The new law explicitly states that companies receiving subsidies from the U.S. cannot build advanced chip factories in China. That’s a significant setback for China, which needs foreign expertise to bolster its own industry.

“The U.S. government is attempting to draw lines around how far Chinese companies can advance in the sector,” Triolo told Grid.

The motivation for the U.S. isn’t just maintaining an edge economically, but militarily as well. For decades, the U.S. has held a military advantage over other countries by leading in a range of advanced technologies. That, in turn, serves as a critical foundation for deterrence, Matthew Turpin, a visiting fellow at Stanford University’s Hoover Institution and a former China director of the National Security Council, told Grid. Containing China’s technological advances, he said, is part of that strategy.

“We, in our public statements, dress it up in more diplomatic language, but the reality is that is what we are doing. We view them as a nation-state that is seeking to overturn a liberal rules-based international order and to set up an international order that is more advantageous to their regime type,” he said. “The U.S. sees it as prudent to deny them those kinds of capabilities that would allow them to reach a sort of military parity or military superiority.”

Biden has also explicitly acknowledged the national security aims of the bill. In his speech on Tuesday, he described a recent visit to the Lockheed Martin factory in Alabama that produces Javelin missiles bound for Ukraine. “It’s crystal clear we need these semiconductors not only for those Javelin missiles but also for weapons systems in the future that are going to be even more reliant on advanced chips,” he said. “Unfortunately, we produce zero percent of these chips now. And China is trying to move way ahead of us and manufacture these sophisticated chips as well.”

The downward spiral of U.S.-China “decoupling”

Some experts say that this kind of negative spiral may be unavoidable due to the overall deterioration of U.S.-China relations and, on the U.S. side, a growing bipartisan consensus on the need to confront a rising China.

These moves are gradually breaking down not only commerce between the U.S. and China, but important pieces of the globalized economy and the geopolitics that were built alongside it. Now the world will have to see — literally and figuratively — where the chips will fall.

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