If the Biden administration had its way, a lot more electronic chips would be made in factories in, say, Texas or Arizona.
They would then be shipped to partner countries, such as Costa Rica or Vietnam or Kenya, for final assembly and sent out into the world to power everything from refrigerators to supercomputers.
These parts may not be the first things that come to mind when people think of semiconductors. But executives are trying to transform the global chip supply chain and are negotiating hard to do so.
Key elements of the plan include foreign companies investing in chip manufacturing in the United States and finding other countries to set up factories to complete the work. Officials and researchers in Washington call it part of the new “chip diplomacy.”
The Biden administration argues that producing more of the tiny brains of electronic devices in the United States will help make the country more prosperous and safer. President Biden boasted of his efforts in an interview Friday with ABC News, in which he said he had gotten South Korea to invest billions of dollars in chip manufacturing in the United States.
But a key part of the strategy is unfolding outside America’s borders, where the administration is trying to work with partners to ensure that investment in the United States is more resilient.
If the nascent effort moves forward, it may help management achieve some of its overall strategic goals. It wants to ease security concerns about China, which is expanding chip manufacturing while also threatening Taiwan, a global center for chip technology. And it wants to reduce the risks of disruptions in the chip supply chain – risks that became apparent during the coronavirus pandemic and the war in Ukraine, which have disrupted global shipping and manufacturing.
“The focus has been on doing our best to extend the capacity to a diverse set of countries to make these global supply chains more resilient,” said Ramin Tolui, a Stanford professor who recently served as assistant secretary of the Treasury Department. and Finance of the State Department. Business Affairs, which is at the forefront of diplomatic efforts to create new supply chains.
The administration aims to do this not only for chips, but also for green energy technology such as electric vehicle batteries, solar panels and wind turbines. China is by far the biggest player in these industries.
Mr. Biden and his aides say the dominance of Chinese companies is a matter of national security as well as a human rights problem, since some of the manufacturing takes place in Xinjiang, a region of China where officials force members of some Muslim ethnic groups to work in factories. .
During the three years of the Biden administration, the United States attracted $395 billion in foreign investment in semiconductor manufacturing and $405 billion in green technology and clean energy production, Mr. Tolui said.
Many of the companies investing in this type of manufacturing in the United States are based in Asian countries known for their technology industries—for example, Japan, South Korea, and Taiwan—and in Europe. One is SK Hynix, a South Korean chipmaker that is building a $3.8 billion plant in Indiana. The State Department says the project is the largest investment ever made in this state and has the potential to bring more than 1,000 jobs to the area.
Secretary of State Antony J. Blinken mentioned this project in a speech last month at a conference in Maryland aimed at encouraging foreign investment in the United States. And he underlined how he hopes the legislation introduced by Mr Biden will attract foreign investment in US high-tech manufacturing “by modernizing our roads, our railways, our broadband, our power grid”.
Policy efforts, he added, aim to “strengthen and diversify supply chains, supercharge domestic manufacturing, drive key industries of the future, from semiconductors to clean energy.”
The Commerce Department has also played a major role in the effort to support the chip supply chain and is disbursing $50 billion to US companies and organizations for chip research, development and manufacturing.
Gina Raimondo, the commerce secretary, has led an in-depth study of global chip supply chains to identify vulnerabilities and has been working with foreign governments to discuss opportunities for additional overseas investment.
The issue was the focus of Ms. Raimondo’s trip to Costa Rica last spring, when she met with local officials and executives from Intel, which maintains a factory there. (Mr. Toloui spoke at a semiconductor manufacturing conference in Costa Rica in January.) He also discussed semiconductor supply chain diversification on trips to Panama and Thailand.
But reshaping global supply chains so they are less dependent on East Asia will be a challenge. East Asian chip factories offer more cutting-edge technology, a larger pool of talented engineers and lower costs than expected in American factories.
Taiwan produces more than 60 percent of the world’s chips and almost all of the most advanced chips, which are used in computers, smartphones and other devices.
By comparison, the U.S. semiconductor industry could face a shortage of up to 90,000 workers in the coming years, according to various estimates.
Governments in China, Taiwan, South Korea and elsewhere are also aggressively subsidizing their own chip industries.
But billions of dollars of new investment in the US is expected to shift global supply chains somewhat. The U.S. share of global chip production is projected to rise to 14 percent by 2032, from 10 percent today, according to a May report by the Semiconductor Industry Association and the Boston Consulting Group.
Some administration officials have engaged in a more coercive form of chip diplomacy to prevent China from developing versions of American technology. That approach focused on persuading a handful of countries—notably Japan and the Netherlands—to stop companies from selling certain chip-making tools to China.
Alan Estevez, who heads the Commerce Department’s office in charge of export controls, visited Japan and the Netherlands last month to try to persuade the countries to block companies there from selling certain advanced technology to China.
Instead, Mr. Toloui and his aides have flown around the world to identify countries and companies that might want to invest in American industry and set up factories that would be the final point of the supply chain. Mr. Tolui said his bureau’s work was one element of Mr. Biden’s recent legislation to create more manufacturing jobs in the United States, including the Infrastructure Act and the CHIPS and Science Act.
The CHIPS Act includes $500 million a year in funding for the administration to create secure supply chains and protect semiconductor technology. The State Department draws on this money to find countries to develop the supply chain. Officials are organizing studies in a number of countries to see how infrastructure and workforces can be adjusted to certain standards to ensure the smooth assembly, packaging and shipping of chips.
The countries now included in the program are Costa Rica, Indonesia, Mexico, Panama, the Philippines and Vietnam. The US government brings to Kenya.
Job training is a priority in this supply chain creation, Mr Tolui said. He has spoken to Arizona State University to partner with overseas institutions to develop training programs. One such institution is the National University of Vietnam in Ho Chi Minh City, which was visited in May.
Martijn Rasser, the chief executive of Datenna Inc., a China-focused research firm, said this network of alliances was a strategic advantage the United States has over China.
For the United States to try to do everything on its own would be too expensive, he said. And to do it alone would fail to recognize the reality that technology today is much more global than it was a few decades ago, with various countries playing a significant role in the chip supply chain.
