When the chips are down, U.S. will suffer

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When the chips are down, U.S. will suffer

Yoon Young-kwan

The author is a professor emeritus of political science and international relations at Seoul National University.

The U.S.-China confrontation is shaking the international order established after World War II. After basic principles such as free trade and multilateralism collapsed, globalization and economic integration have become ideas of the past. As trade and investment have to be protected and carefully managed, decoupling, supply chains and industrial policy have become new buzz words. The dramatic shift in global politics demands entrepreneurs pay special heed to the diplomacy of their governments — and geopolitical variables — more than efficiency.

Semiconductors are at the front of the disrupted global order. After declaring investments in chips a core strategy of the United States to “win a 21st-century contest,” President Joe Biden visited a Samsung Electronics chip factory in Pyeongtaek on the sidelines of his summit with President Yoon Suk-yeol in May. Earlier in March, he proposed a “Chip 4 Alliance” with Korea, Japan and Taiwan,

The chip alliance is at the crest of America’s multilayered network strategy to compete with China. After unifying Germany in 1871, Otto von Bismarck, the Iron Chancellor, isolated France — Germany’s archenemy — by devising such a multilayered alliance strategy. He established the Three Emperors’ League with Russia and the Austro-Hungarian Empire — both enemies to one another — with Germany at the center. He went on build a bilateral alliance with the Austro-Hungarian Empire in 1879 followed by the Triple Alliance by inviting Italy in 1882. Shortly after the dismantling of the Three Emperors’ League, Bismarck secretly stuck the Reinsurance Treaty with Russia in 1887.

Just like Germany at the time, the U.S. keeps on building multilayered plurilateral networks — as seen in the establishment of the Aukus, the trilateral cooperation among Korea, the U.S. and Japan, the Indo-Pacific Economic Framework (IPEF), and the strategic cooperation between NATO and Indo-Pacific — all to help put pressure on China. The U.S. wants to add the Chip 4 Alliance to the existing alliance based on shared values and military and economic interests.

Semiconductors are an indispensable component of high technology and military industry for national security. They are Korea’s largest export item and China’s biggest import item. Chips are known to affect over 40 percent of the global GDP directly or indirectly.

After suffering a critical shortage of chips during the pandemic on top of a deepening standoff with China, the United States recognized the need to domestically produce semiconductors. Despite its unrivalled chip design ability, America has relied on foreign foundries for the manufacturing of chips. As a result, domestic chip production in the U.S. accounts for only 10 percent of global production. Simply put, the U.S. does not have the capability to produce chips the size of seven or five nanometers. Such cutting-edge chips constitute a pivotal part of artificial intelligence (AI), which could change the features of modern warfare dramatically.

So, if China outpaces America in the chip field or has the ability to stop cutting-edge chip supplies to the U.S., China can hold the high ground in nearly all areas of war with Uncle Sam, according to a 2021 report by the National Security Commission on Artificial Intelligence (Nscai) under the U.S. Congress. The report warned of the possibility of China winning if it attacks the U.S. with AI-based sophisticated weapons.

The $52-billion CHIPS for America Act aimed at fostering a cutting-edge semiconductor industry in the U.S. is waiting for approval by Congress. The Biden administration strongly demanded massive investment in the U.S. from foreign industry leaders like Samsung Electronics and Taiwan Semiconductor Manufacturing Company (TSMC). Thanks to its strength in top-notch foundry services, TSMC attracts keen U.S. interest. Defense analysts even say that China cannot provoke Taiwan easily due to its “silicon shield.”

A heated contest to lead the semiconductor industry is going on. Korea’s future hinges on how wisely the government weathers these challenges. The Yoon Suk-yeol administration must find effective ways to address them either by creating an efficient private-public-academic collaboration system or easing stifling regulations across the board or raising quality talent for chip production.
Translation by the Kora JoongAng Daily staff.
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