Fears of retaliation from China and regional tensions are hampering US efforts to rally their East Asian allies behind a proposed semiconductor supply chain alliance.
The so-called “Chips 4” initiative is part of a US strategy to strengthen access to vital chips and weaken Chinese involvement, for trade and national security reasons.
It is supposed to include the US, South Korea, Japan and Taiwan and provide a forum for governments and businesses to discuss and coordinate policies on supply chain security, workforce development, R&D and subsidies.
But a year after the plans were first drawn up, the four countries have yet to finalize the plans, not even before a preparatory meeting. Concerns include China’s likely response, reluctance to include Taiwan in an intergovernmental forum and long-standing tensions between South Korea and Japan.
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Sujai Shivakumar, a senior fellow at the think tank Center for Strategic and International Studies in Washington, said the US “needs alliances to strengthen its supply chain” and “give it breathing room” to recapitalize its manufacturing base in the sector. He added that the Chips 4 initiative was also designed “in part to slow down China’s progress”. [on chips]” .
The US presents the initiative as a positive, multilateral agenda entirely separate from the export controls and investment screening it has imposed to make it more difficult for China to acquire advanced semiconductor technology.
But in July, China’s trade department spokesman Shu Jueting warned that the US would “damage and split” the global semiconductor supply chain through the Chips 4 alliance, which she says could exacerbate supply chain problems if it ” discriminatory and exclusive”.
China’s opposition, which accounts for 40 percent of global IT production and remains a vital source of key components and materials, has upset several regional governments and chip makers.
Kyung Kye-hyun, the head of Samsung Electronics’ semiconductor business, said last week that Samsung had expressed “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 US,” Kyung said. “We’re not trying to exploit the US-China conflict, we’re trying to find a win-win solution.”
Samsung and South Korea’s 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 materials manufacturers and equipment makers.
A US government official said South Korea, the most reluctant of the potential members of the alliance, had expressed concern that the initiative would “disrupt the competitive balance between some of the major chip companies,” for example, by rivals such as Samsung and TSMC to bring technology with to share each other.
Some in Korea also worry that Washington might be tempted to use the initiative to give a competitive advantage to US rivals Intel and Micron.
Lee Jong-ho, South Korea’s Minister of Science and ICT and a renowned semiconductor expert, said China had “already become a difficult market to do business in and introduce new equipment even before the alliance was proposed.”
But he said it was 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 electronics engineering at Hanyang University, said South Korea “must stress to China that it has no choice but to join because of US pressure, and it cannot manufacture memory chips in China without to join the alliance.” ”.
But a Japanese government official said that if South Korea acceded, it could limit the scope of the initiative, given unresolved tensions between the two countries. Japan has yet to lift export controls on chemicals to the Korean semiconductor industry imposed in 2019 over a dispute over historical issues.
Sanae Takaichi, the new Minister of Economic Security, stressed the importance of Japan working with the US and other nearby countries to make its semiconductor supply chain resilient. But she added, “However, it’s also important to realize that economic security efforts do not limit business operations or harm innovation or efficiency.”
Japan and Korea have also shown reluctance to cooperate at the government level with a formal group that includes Taiwan.
A senior Korean official said South Korea had asked for assurances from the US that Taiwan’s involvement could not be interpreted by Beijing as a challenge to the One China policy.
The Korean official added that South Korea had made no commitments other than attending a future “preliminary round” of the four countries.
But the US official said Seoul has now effectively made the decision to join: “They don’t want to be left out or left behind, and frankly it would be hard to move on without them.”
Nazak Nikakhtar, a former senior US economic security official now at the law firm Wiley Rein in Washington, said the initiative’s slow progress showed that “a multilateral approach only works if everyone has the same desire to move at the exact same time.”
“South Korea is not as advanced as the US or Japan in terms of China – they are concerned about North Korea, their proximity to China and so on,” Nikakhtar said.
“We also can’t expect Taiwan to regulate trade with China itself because so much of the raw materials they use to make chips come from China,” she added. “So the idea that you could get Taiwan and South Korea in particular to get in line with us on this is absurd.”
Additional reporting by Eleanor Olcott in Hong Kong