The Chips’ Warring States Period and the Chip 4 Alliance
Joongang Sunday l YOON, Young-kwan, a professor emeritus of political science and international relations at Seoul National University.
With the unfolding competition between the United States and China getting fiercer, the liberal international order established after World WarⅡ is in great flux. We are witnessing our core principles—such as free trade and multilateralism—that we hold dear crumbling, and the notion of globalization and economic integration, which took the center stage of the international economic and political discourse since the 1980s, becoming a thing of the past. Trade and investment have fallen into the category of protection and management, along with the rise of buzzwords—de-coupling, global supply chain, and industrial policies. As critical sectors of our economy are greatly affected by external factors like national security and political ideologies, entrepreneurs of our age seem to have no other option but to consider international diplomacy and geopolitical variables first and foremost in their decision-making, rather than economic efficiency.
Semi-conductors are at the forefront of this global landscape of today. U.S. president Biden declared that massive domestic investment with the aim of generating additional semiconductor manufacturing capacity is a critical strategy to “win the 21st-century” competition. Last March, he suggested South Korea, Japan, and Taiwan join the so-called ‘Chip 4 Alliance’, followed by a tour of the Samsung Electronics Plant during his official visit to Korea.
This ‘Chip 4 Alliance’ is the pinnacle of Washington’s multilayered networking strategy against Beijing. Otto von Bismarck, who unified Germany in 1871, deployed a similar multilayered alliance strategy to isolate its archenemy, France, achieving a leadership position on the Continent. The Iron Chancellor led and established the Three Emperors’ League (1873-75, 1881-87) by persuading two feuding states, Russia and the Austro-Hungarian Empire to join the alliance. He further pursued forging international partnerships, inviting Italy into the existing bilateral alliance with the Austro-Hungarian Empire (1879) to form the Triple Alliance in 1882. After the collapse of the Three Emperors’ League, Bismarck concluded the Reinsurance Treaty with Russia behind closed doors.
The United States is following Bismarck’s steps, connecting its partners and allies with multilayered global networks against China, such as the Quadrilateral Security Dialogue (QUAD); AUKUS—a trilateral security pact between Australia, the United Kingdom, and the United States; the trilateral cooperation among Korea, the U.S. and Japan; Indo-Pacific Economic Framework (IPEF); and strategic cooperation of NATO-Indo-Pacific, to name a few. The Biden administration now wishes to add this new technological alliance—‘Chip 4 Alliance’—to the existing strategic alliances based on common values, national security, and economic partnership to put more pressure on China.
Semiconductors are the key components of nearly every advanced technology, and the sector is also the key defense-related strategic industry. Chips are the number one export of Korea, and China is the largest importer of them. As of 2021, computer chips are affecting more than 40 percent of global GDP both directly and indirectly.
As the global chip shortage and competition against Beijing aggravate day by day after the break of the COVID-19 pandemic, Washington is sounding an alarm for the urgent need to bring the semiconductor industry back to the homeland. For the last decades, the States has depended on overseas foundries when it comes to manufacturing computer chips, despite being the leader in chip design and research capacity. As a result, it now barely produces 10 percent of the chips in the global market. Put it more simply, the U.S. cannot produce cutting-edge computer chips, like 7-, and 5-nanometer chips, on its own. These advanced chips are indispensable components of Artificial Intelligence (AI), which will revolutionize the whole aspects of modern warfare sooner or later.
The final report issued in 2021 by the National Security Commission on Artificial Intelligence (NSCAI) points out that if China is able to outcompete the U.S. in technological leadership or sever the advanced chip supply chain completely, it will acquire a significant military advantage over the States across the board—that is, China could surpass the U.S. in the military conflicts with the state-of-art weaponry.
The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act is before Congress right now, earmarking $52 billion in new funding for chipmakers to build plants in the U.S. to advance American technological leadership. Along with that, the Biden administration calls on domestic investment to leading foundry firms that produce chips abroad, like Samsung and Taiwan Semiconductor Manufacturing Company (TSMC).
TSMC is one of the producers of the most advanced computer chips in the world. Some go so far as to say that even China cannot provoke Taiwan easily thanks to this robust ‘Silicon Shield’. In the midst of much uncertainty, an interview of Morris Chang, the founder of TSMC, with the Brookings Institute last April draws our attention, where he articulates that “…the recent effort of the U.S. to increase onshore manufacturing of semiconductors…will be a very expensive exercise in futility.” Mr. Chang points out in the interview that the same product manufactured in the plant in Oregon costs about 50 percent more than the counterpart made in Taiwan—no matter how hard the company tried to improve its performance over the last 25 years. This remark might be a well-thought-out strategy of the competent businessman to bolster Washington’s will to protect Taiwan against Chinese aggression by rendering its dependence on Taiwan-made semiconductors deep. Chips competition for national security is unfolding not only between the U.S. and China; but among the close allied nations, like the U.S. and Taiwan.
When asked whether TSMC will be able to continue to straddle geopolitical divides and service clients, including Mainland China, Morris Chang answers “No.” and continues “…those good days when we can serve everybody in the world, those good days are gone.” This implies that chipmakers, at the end of the day, are to choose the U.S. as we have seen in the previous sanctions on Huawei. This development casts some much-needed light on the pressing issue of our own, whether to join the Chip 4 Alliance or not. Professor KWON, Seok-Joon, an expert on the semiconductor industry, argues that Korea should join the ‘Chip 4 Alliance’ in spite of the anticipated blow on the revenue due to the decrease of exports to China and the ensuing increase in manufacturing costs borne by the States, Korea, and Taiwan. That is, Korea should actively participate in the US-led global supply chain for chips, from which the supply chain for the next generation technology, Quantum ICT, could be drawn, and global standards and technological assets can be passed on seamlessly in the future.
The fierce global competition for leading semiconductor states is ongoing. Accordingly, our plate seems to be full of urgent tasks; how to build an efficient and effective public-private-academic sector cooperation system to establish and execute the strategy for the industries of the future; how to attract the best ideas and produce tens of thousands of brightest manpower by overcoming excessive regulations of the past.