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Chip 4 Alliance Not Enough to Sustain Chip Edge Over China, Panelists Say

The proposed Chip 4 Alliance of the U.S., Japan, South Korea and Taiwan (see 2212280035 and 2210050009) likely will not be enough to keep U.S. semiconductor technology ahead of China, one lawmaker and several experts said during a Feb. 22 event hosted by the Atlantic Council. For the U.S. to achieve true multilateral chip cooperation, including with the EU, experts said, the U.S. may have to settle for watered-down restrictions.

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Semiconductor industrial and trade policy "needs to include Europe," Sen. Jeanne Shaheen, D-N.H, said in remarks to open the discussion. Without a larger alliance, equipment manufacturers in Europe will fill the void left by the U.S. curtailing its exports to China, said Craig Allen, president of the U.S.-China Business Council. And even if the U.S. forms a larger alliance that includes the EU and Asian countries, those multilateral controls likely won’t be as strict as the ones the U.S. imposed on China in October (see 2210070049), said Martin Chorzempa, senior fellow at the Peterson Institute for International Economics. Chorzempa said U.S. allies don’t necessarily share the same security concerns, or they may want the chip technology threshold set somewhere else.

The October restrictions, along with many new additions of Chinese companies to the Entity List in recent years, has caused "tectonic shifts in the global supply chain," said Dexter Roberts, senior fellow at the Atlantic Council. He said there are significant challenges in realigning semiconductor production and limiting Chinese access, adding that export restrictions risk damaging major U.S. companies and could be a "major job destroyer.”

Allen echoed some of the same concerns, saying the Biden administration’s strategy risks the "de-Americanization of the entire global supply chain" with the additional risk of "massive uncertainty and overcompliance.” Regulations need to be "much more precise," he said.

Jeremy Mark, a nonresident Atlantic Council senior fellow, stressed that there are major packaging, assembly and testing centers for chips in China, and that Taiwan and South Korea are heavily reliant on the Chinese market for their exports. Though he predicted that Taiwan Semiconductor Manufacturing Corp. will "do more policing" of its exports to China, Korean firms SK Hynix and Samsung already have major production facilities in China that will take time and effort to relocate.

China controls potential choke points for the entire industry, Mark said, adding that the country could retaliate. If the U.S. wants to protect its technological advantage over China, it needs to be aware that damaging the bottom lines of its chip companies "will ultimately yield fewer resources for” research and development, he said.

"China will have a role in the supply chain for the foreseeable future," said Jimmy Goodrich, vice president for global policy at the Semiconductor Industry Association. The U.S. can focus on "gaps and vulnerabilities" like logic and memory, advanced packaging and critical analog semiconductors, but "we cannot realistically build everything here," he said. He said some mid- to lower level inputs can be "rebalanced" away from China to Mexico and Southeast Asia.