The Biden Administration’s "Chip Diplomacy": A Global Strategy to Reshape the Semiconductor Supply Chain
The Biden administration is pushing a bold new agenda to reshape the global semiconductor landscape, aiming to bolster American manufacturing and secure critical technology in the face of growing Chinese competition. This strategy, dubbed "chip diplomacy," involves a two-pronged approach: aggressively attracting foreign investment in American chip-making facilities while also collaborating with partner countries to establish robust final assembly and packaging hubs.
Key Takeaways:
- Boosting U.S. Manufacturing: The administration aims to make the U.S. a leader in semiconductor production, viewing it as a key to economic prosperity and national security. Significant investments are being made to attract foreign companies and incentivize domestic manufacturers.
- Global Partnerships: The U.S. is weaving a network of alliances with countries like Costa Rica, Vietnam, and Kenya, creating a global supply chain for chip assembly and packaging.
- Counteracting China’s Influence: The administration sees establishing a robust, diverse supply chain as crucial to limiting China’s dominance in the semiconductor industry and addressing concerns over its potential to disrupt global supply chains and pose security risks.
- Challenges and Opportunities: While the U.S. faces the challenge of competing with East Asia’s more advanced manufacturing capabilities and lower costs, this strategy presents an opportunity to develop new markets and create high-skilled jobs.
A New Era of Tech Diplomacy
The Biden administration’s approach to "chip diplomacy" represents a departure from previous strategies. It recognizes the interconnectedness of the global economy and the need for international cooperation to build resilience and mitigate potential threats.
Attracting Investment to American Shores
The administration has made significant strides in drawing foreign investment in semiconductor manufacturing in the United States. The CHIPS and Science Act has allocated $50 billion in grants and subsidies to encourage domestic production, and the U.S. has attracted over $395 billion in foreign investment in chip-making since 2021. SK Hynix, a South Korean chip manufacturer, is building a $3.8 billion factory in Indiana, representing the largest-ever investment in the state.
Global Partnerships for a Secure Supply Chain
While boosting domestic production is a priority, the administration understands that creating a truly resilient supply chain requires collaboration with international partners. Beyond attracting investment in the U.S., the State Department’s Bureau of Economic and Business Affairs is leading efforts to build a network of trusted partners capable of finalizing chip assembly and packaging.
The administration has identified several countries — including Costa Rica, Indonesia, Mexico, Panama, Philippines, and Vietnam — as potential hubs for this critical final stage of the production process. Kenya is also joining the initiative, demonstrating the global scope of "chip diplomacy."
Addressing the Worker Shortage
One of the key challenges facing the U.S. semiconductor industry is a looming worker shortage, estimated at potentially 90,000 workers by some experts. This shortage underscores the importance of investing in workforce development, both domestically and internationally. The administration is working with educational institutions like Arizona State University to develop training programs in partnership with universities in key partner countries like Vietnam National University in Ho Chi Minh City.
Competing Against China’s Rise
The Biden administration views "chip diplomacy" as an essential strategy to counter China’s growing influence in the semiconductor industry. China has made aggressive investments in chip manufacturing, aiming to become self-sufficient and potentially challenge the dominance of Taiwan, which produces more than 60% of the world’s chips, including the most advanced ones.
The U.S. has also undertaken a more assertive approach, engaging in "coercive diplomacy" by pressuring Japan and the Netherlands to restrict the sale of advanced chip-making equipment to China. This strategy, while controversial, is intended to slow down China’s technological advancement and maintain America’s technological edge.
Challenges and Opportunities
The administration’s "chip diplomacy" strategy faces significant challenges. East Asian manufacturers currently offer more cutting-edge technology, a larger pool of skilled engineers, and lower production costs. Despite the challenges, the U.S. is expected to see a modest increase in its share of global chip manufacturing, rising to 14% by 2032 from 10% today.
This shift in the global semiconductor landscape presents both challenges and opportunities. While the U.S. faces an uphill battle to become the world’s leading chip manufacturer, the administration’s efforts to secure a diverse and resilient supply chain could ultimately yield positive results. By nurturing partnerships with trusted allies and prioritizing workforce development, the U.S. can create a more balanced global semiconductor market, benefitting both domestic and international economies in the process.
