Fears of Chinese retaliation and regional tensions are hampering US efforts to rally its East Asian allies behind a proposed semiconductor supply chain alliance.
The so-called “Chips 4” initiative is part of a US strategy to strengthen its access to vital chips and undermine Chinese involvement, for commercial and national security reasons.
It should include the United States, South Korea, Japan and Taiwan, providing a forum for governments and businesses to discuss and coordinate policies on supply chain security, workforce development, research and development, and subsidies.
But a year after the first draft of the plans, the four countries still have to finalize the plans even for a preliminary meeting. Concerns include China’s likely response, hesitation over Taiwan’s inclusion in an intergovernmental forum, and long-standing tensions between South Korea and Japan.
Sujai Shivakumar, a researcher at the think tank of the Center for Strategic and International Studies in Washington, said the United States “needs alliances to strengthen its supply chain” and to “give it breathing space” to recapitalize its industrial base in the sector. He added that the Chips 4 initiative was also designed “in part to slow China’s progress [on chips]”.
The United States is pitching the initiative as a positive multilateral agenda, entirely separate from the export controls and investment screening it has imposed to make it harder for China to obtain advanced semiconductor technology.
But in July, Chinese Commerce Department spokesman Shu Jueting warned against the US’s “damage and splitting” in the global semiconductor supply chain through the Chips 4 alliance, which she says could exacerbate the problems of the US. supply chain if it were “discriminatory and exclusive”.
Opposition from China, which accounts for 40% of global IT production and remains a crucial source of key components and materials, has angered several regional governments and chip makers.
Kyung Kye-hyun, the head of the semiconductor industry at Samsung Electronics, said last week that Samsung had “voiced our concerns” about the initiative to the South Korean government.
“Our position is that, for the Chips 4 alliance, they should first seek understanding from China and then negotiate with the United States,” Kyung said. “We are not trying to exploit the US-China conflict, but we are trying to find a win-win solution.”
South Korea’s Samsung and SK Hynix are world leaders in memory chips, while Taiwan’s TSMC dominates the non-memory sector, and Japan is home to some of the world’s leading semiconductor material manufacturers and equipment manufacturers.
A US government official said South Korea, the most reluctant of potential alliance members, expressed concern that the move “would interfere with the competitive balance between some of the big chip companies.” for example by asking rivals like Samsung and TSMC to share the technology with each other.
Some in Korea also fear Washington may be tempted to use the initiative to give US rivals Intel and Micron a competitive edge.
Lee Jong-ho, South Korea’s Minister of Science and ICT and renowned semiconductor expert, said China had “already become a difficult market in which to do business and introduce new equipment even before the alliance was proposed.” .
But he said it is important to respect the views of private companies, adding that “it is not appropriate to see this as a crisis”.
Park Jea-gun, a professor of electronic engineering at Hanyang University, said South Korea “should emphasize to China that it has no choice but to join under US pressure and that it cannot manufacture memory chips in China without joining the alliance “.
But a Japanese government official said that if South Korea joins, then it could limit the scope of the initiative, given the unresolved tensions between the two countries. Japan has yet to lift chemical export controls on the Korean semiconductor industry that were imposed in 2019 amid a dispute over historical issues.
Sanae Takaichi, the new minister of economic security, stressed the importance of Japan working with the United States and other neighboring countries to make its semiconductor supply chain resilient. But he added: “It is also important, however, to be aware that economic security efforts do not restrict business activities and harm innovation or efficiency.”
Japan and Korea have also been reluctant to engage at the government level with a formal grouping that includes Taiwan.
A senior Korean official said South Korea had sought assurances from the United States that Taiwan’s involvement could not be interpreted by Beijing as a challenge to One China policy.
The Korean official added that South Korea has made no commitments other than attending a future “preliminary meeting” of the four countries.
But the US official said Seoul has now actually made the decision to join: “They don’t want to be left out or left behind, and frankly it would be hard to move forward without them.”
Nazak Nikakhtar, a former senior US economic security official now at Washington law firm Wiley Rein, said the initiative’s slow progress has shown that “a multilateral approach only works if everyone has the same desire to move exactly. at the same time”.
“South Korea is not as advanced as the United States or Japan on the China issue: they are concerned about North Korea, their proximity to China and so on,” Nikakhtar said.
“We can’t even expect Taiwan to self-regulate trade with China, because so much of the raw materials they use to make chips come from China,” he added. “So the idea that you can get Taiwan and South Korea in particular to go hand in hand with us on this is absurd.”
Additional reporting by Eleanor Olcott in Hong Kong