The Battle Over Chips is About to Get Uglier

"We're in a new world where governments are more concerned about the security of their digital infrastructure and the resiliency of their supply chains," Jimmy Goodrich, vice president of global policy with the Washington-based Semiconductor Industry Association, tells Bloomberg. "The techno-nationalist trends gaining traction in multiple capitals around the world are a challenge to the semiconductor industry." At once highly globalized and yet concentrated in the hands of a few countries, the industry has choke points that the U.S. under the presidency of Donald Trump has sought to exploit in order to thwart China's plans to become a world leader in chip production. Washington says Beijing can only achieve that goal through state subvention [funding] at the expense of U.S. industry, while furthering Communist Party access to high-tech tools for surveillance and repression. China rejects the allegations, accusing the U.S. of hypocrisy and acting out of political motivation. For both sides, Taiwan, which is responsible for some 70% of chips manufactured to order, is the new front line... Citing the need to promote "digital sovereignty," the European Commission is exploring a 30 billion-euro ($35 billion) drive to raise Europe's share of the world chip market to 20%, from less than 10% now. Japan is also looking to bolster its domestic capacity. At least one Japanese delegation traveled to Taiwan in May and June this year in the hope of convincing TSMC to invest in Japan, a person with knowledge of the visit said. But TSMC announced in May that it was building a $12 billion facility in Arizona, and the company declined to receive any foreign visitors seeking to woo it, said another person familiar with the company's thinking.... A focus of Beijing is to accelerate research into so-called third-generation semiconductors — circuits made of materials such as silicon carbide and gallium nitride, a fledgling technology where no country dominates. Yet without silicon capabilities it will be difficult for China to build a proper semiconductor industry, said a senior TSMC official. Another person from a company involved in third-generation chip production said designing them is an art, and even poaching a team of designers won't necessarily guarantee success. The consensus is it won't be easy for China to catch up, especially at the cutting-edge where TSMC and Samsung are producing chips whose circuits are measured in single-digit nanometers, or billionths of a meter. SMIC [a partially state-owned Chinese semiconductor foundry] would have to double annual research spending in the next two-to-three years just to prevent its technology gap with those companies widening, says Bloomberg Intelligence analyst Charles Shum. The tussle raises the prospect of a broader decoupling of the global industry with two distinct supply chains.

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