If the Biden administration could get its way, many more electronic chips would be manufactured in factories in, say, Texas or Arizona.
They would then be shipped to partner countries such as Costa Rica, Vietnam or Kenya for final assembly and then shipped around the world to power everything from refrigerators to supercomputers.
Those places may not be the first that come to mind when people think of semiconductors, but administration officials are trying to transform the world's chip supply chain and are negotiating hard to do so.
Central elements of the plan include getting foreign companies to invest in chip manufacturing in the United States and finding other countries to set up factories to finish the job. Officials and researchers in Washington call it part of the new “chip diplomacy.”
The Biden administration argues that producing more of the tiny brains behind electronic devices in the United States will help make the country more prosperous and secure. President Biden boasted of his efforts in his Friday interview with ABC News, during which he said he had gotten South Korea to invest billions of dollars in U.S. chip manufacturing.
But a key part of the strategy is playing out outside America's borders, where the administration is seeking to work with partners to ensure that investments in the United States are more durable.
If the nascent effort moves forward, it may help the administration meet some of its broad strategic goals. It wants to mitigate security concerns involving China, which is ramping up its chip manufacturing while launching threats against Taiwan, a global chip technology hub. 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 threw global shipping and manufacturing into chaos.
“The goal has been to do everything possible to scale up capacity in a diverse set of countries to make those global supply chains more resilient,” said Ramin Toloui, a Stanford professor who most recently served as assistant secretary of state in the State Department’s Bureau of Economic and Business Affairs, which is located in the technology-security-and-innovation-fund/” title=”” rel=”noopener noreferrer” target=”_blank”>vanguard of diplomatic efforts to establish new supply chains.
The government is aiming to do so not only in chips but also in green energy technologies such as electric vehicle batteries, solar panels and wind turbines. China is by far the biggest player in those industries.
Biden and his advisers say the dominance of Chinese companies is a national security and human rights issue, given that some production 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 has attracted $395 billion of foreign investment in semiconductor manufacturing and $405 billion to develop green technology and generate clean energy, Toloui said.
Many of the companies investing in such manufacturing in the United States are based in Asian countries known for their tech industries (Japan, South Korea and Taiwan, for example) and in Europe. One of them is SK Hynix, a South Korean chipmaker that is building a $3.8 billion factory in Indiana. The State Department says the project is the largest investment ever made in that state and has the potential to bring more than 1,000 jobs to the region.
Secretary of State Antony J. Blinken mentioned that the project in a speech Last month, at a conference in Maryland aimed at encouraging foreign investment in the United States, he stressed that he hoped the legislation signed by Biden would attract foreign investment into American high-tech manufacturing by “modernizing our roads, our railroads, our broadband, our electric grid.”
The policy efforts, he added, are aimed at “strengthening and diversifying supply chains, boosting domestic manufacturing, and driving key industries of the future, from semiconductors to clean energy.”
The Commerce Department has also played a major role in the effort to shore up the chip supply chain and is disbursing $50 billion to American companies and organizations to research, develop and manufacture chips.
Commerce Secretary Gina Raimondo led an in-depth study of global chip supply chains to identify vulnerabilities and has worked with foreign governments to discuss opportunities for additional overseas investment.
The issue was at the center of Ms. Raimondo’s trip to Costa Rica last spring, when she met with local officials and executives from Intel, which has a factory there. (Mr. Toloui spoke at a news conference.) Semiconductor Manufacturing Conference (Costa Rica in January). He also discussed semiconductor supply chain diversification on trips to Panama and Thailand.
But restructuring global supply chains to be less dependent on East Asia will be a challenge. East Asian chip factories offer more advanced technology, a larger pool of talented engineers and lower costs than American factories are expected to have.
Taiwan produces more than 60 percent of the world's chips and nearly all of the most advanced chips, which are used in computers, smartphones and other devices.
By comparison, the US 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 other countries are also aggressively subsidizing their own chip industries.
Still, billions of dollars of new U.S. investment is expected to shift global supply chains to some extent. The U.S. share of global chip manufacturing is projected to rise from 10 percent today to 14 percent by 2032, according to a May report by the Semiconductor Industry Association and the Boston Consulting Group.
Some government officials have turned to a more coercive form of chip diplomacy to stop China from developing versions of American technology. That approach has focused on persuading a handful of countries — Japan and the Netherlands, in particular — to block companies from selling some chip-making tools to China.
Alan Estevez, who heads the office within the Commerce Department in charge of export controls, visited Japan and the Netherlands last month to try to persuade the countries to prevent companies there from selling certain advanced technology to China.
Instead, Toloui and his colleagues have traveled the world to find countries and companies that might want to invest in American industry and set up factories that would form the final point of the supply chain. Toloui said his office’s work was one element of Biden’s recent legislation to create more manufacturing jobs in the United States, including the infrastructure bill and the CHIPS and Science Act.
The CHIPS Act includes $500 million a year in funding for the administration to build secure supply chains and protect semiconductor technology. The State Department is using that money to find countries in which to develop supply chains. Officials are organizing studies in a number of countries to see how infrastructure and workforces can be improved to meet certain standards that ensure smooth assembly, packaging and shipping of chips.
Countries currently participating in the program include Costa Rica, Indonesia, Mexico, Panama, the Philippines and Vietnam. The U.S. government is currently adding Kenya.
Job training is a priority in creating this supply chain, Toloui said. He has spoken with Arizona State University about the possibility of partnering with foreign institutions to develop training programs. One such institution is Vietnam National University in Ho Chi Minh City, which he visited in May.
Martijn Rasser, managing director 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 it all on its own would be too costly, he said. And doing it alone would fail to recognize the reality that the technology is now much more widespread globally than it was a few decades ago, and that multiple countries play important roles in the chip supply chain.
