The Taiwan based global semiconductor manufacturing firm TSMC, which is now equipped with the world’s largest foundry, is leading the industry. Chinese premier President Xi Jinping, who is considered to be one of the most powerful global leaders, has undertaken numerous efforts to reunify or invade the island country Taiwan. The danger of military takeover by China is increasing everyday. Now, on the other hand, the US is forming various strategies with its allies to defeat China in the global technology race and also to boost its growth in the chip industry. Since the time of the Trump administration Chinese giants like Huawei and ZTE were banned from providing services and solutions in the country. In fact Japan, which was once a preferred semiconductor destination is now trying hard to regain the growth like the 70s. Therefore, experts opine that Japan must increase their current strengths and must have amicable relationships with their equivalents overseas such as Taiwan and the US.
With the onset of COVID-19 pandemic in 2019, the global production of semiconductors slumped to a larger extent, which ultimately affected the international automobile and every chip-based sector. As per media reports, the worldwide sales of semiconductors towards the end of 2021 has reached $556 billion of which the US accounted for 46 percent. In fact, the global shares of top-notch semiconductor manufacturers in the US has degraded from 37 percent in 1990 to 12 percent until today. This is because the USA’s counterparts overseas have invested massively in semiconductor manufacturing coupled with billions of dollars of incentives. In an effort to revive its growth again, the US has finally unleashed the much-awaited CHIPS and Science Act in 2022 worth $52.7 billion.
What’s Leading the Semiconductor Geopolitical Scuffle
Semiconductors act as the brain of electronic devices and are playing an imperative role in shaping the digital economy. Now, the point is the upcoming cutting-edge semiconductors, which will be equipped with millions of transistors coupled with massive integrations are relying on the volume of investments. The chip manufacturing is now going through a lot of geopolitical scuffles, which is because of the fact that China now produces 25 percent of the semiconductors and is aiming to lead the global market. The remaining 75 percent of semiconductors are manufactured in East Asian countries such as Taiwan, South Korea, and Japan. Taiwan’s TSMC alone accounts for 90 percent of the advanced semiconductor manufacturing. Apart from Taiwan, one foundry is located in Nanjing, Shanghai, and in the US.
As per a previous report of the CircuitDigest, there were several heated discussions and speculations in the past couple of weeks regarding USA’s strenuous efforts to persuade Netherlands and Japan to join its league of no export of semiconductor technology to China. According to the experts, the US has been undertaking this strategy to boost its semiconductor industry and Japan and Netherlands will play an imperative role because they are the key providers of semiconductor manufacturing equipment. Although the US has the largest group of Integrated Device Manufacturers (IDM) for semiconductors, Netherland's ASML Technology and Japan's Advantest are the key players in this industry. ASML is the only company in the world that produces lithography machines that are utilized in making cutting-edge chipset. Therefore, if the country chooses to abide by Biden’s request, the matter will be a serious threat to China. Both India and the US have announced a strategic partnership on January 31 to boost the growth of semiconductors, space, defense, and modern technologies.
According to the experts, this association will help India to grab the benefits from initiatives on development, research, and the potential decrease of hurdles on US tech exports for supercomputers. Global experts have clearly added that by unleashing the CHIPS and the Science ACT, the US is looking to spearhead cutting-edge technology globally such as 6G, quantum computing, and artificial intelligence. Before the alliance with India, the US decided to craft a ‘Chip 4’ association with Taiwan, South Korea, and Japan to build a strong semiconductor supply chain that will keep out China.
Against the USA’s critical strategy of curbing export of key semiconductor technology to China, the latter has carried out a dispute against the former at the World Trade Organization (WTO) a month back. This is because of the fact that the world’s second largest economy with a GDP of 23.32 trillion dollars feels that they could be under a serious financial tussle. Back in October 2022, the USA had formed rules that stopped export of chips to China made from American technology and also American citizens working in Chinese firms are fearing of losing their jobs or risking their US citizenship. This move has severely affected China’s semiconductor industry and other high-tech industries. Because of these stern situations, the Chinese Ministry of Commerce confirmed the trade dispute in a media briefing and harshly criticized the US for misusing export control rules and fetching obstacles in global trade in chips and other tech products.
The WTO argued that tariffs foisted by President Trump on imported aluminum and steel deeply contravened international trade policy and this is when China initiated the tech trade dispute against the US, as per a report of CNBC. Experts opined that trade disputes in the WTO can take numerous years for a possible solution. The point to be noted is that WTO also has rules that says every country has the right to impose curtailment of export in the interest of national security. Hence, it could be difficult for China to win this battle.
In an interaction with CircuitDigest, Samrendra Mohan Kumar, Founder & MD, MitKat Advisory said, “In the coming years, the communist government in China will play a significant role in increasing the financial strength of the country and it could be harsh. Li Qiang who is now spearheading the economic policy of China has framed various policies, which are yet to be implemented. Currently, the country still depends on the US and other countries for key technology and intellectual property for its semiconductor manufacturing. After COVID, global firms have decided to move out of China and semiconductor firms such as TSMC, Intel, Samsung, and many more are investing massively in the American market and also in India. Attractive measures are also launched by the EU to magnetize chief semiconductor firms.”
How The Global Semiconductor Battle Can Benefit India?
If we go by history, Bengaluru has turned out to be a hotspot for IT and technology in 1985 and it also gave birth to the semiconductor industry. The commencement of the semiconductor journey seemed to be very propitious, but unfortunately the revolution lost balance. It then helped South Korea, Taiwan, Japan, and China to lead the race. As per a report of The Print, semiconductor Complex Ltd (SCL), which was a government owned fabrication foundry in Punjab caught fire in 1989 and the numerous government initiatives were blown over. Rather than focusing on manufacturing, the country focussed deeply on chip design between the 1990s to 2000s. The nation now imports 100 percent of chips and it was negatively impacted by the global shortage of semiconductors due to Covid and the Russian-Ukraine tussle.
To achieve self-sufficiency and stop relying on imports, the government unleashed the much-anticipated PLI scheme of Rs 76,000 crore to boost display and semiconductor manufacturing. Also, a panel has been formed in April 2022 to assist start-ups and MSMEs in this industry. Now, there are various globals investments in the country in semiconductor manufacturing like investment from Singapore’s IGSS Ventures, Vedanta-Foxconn deal, Tata Group’s foray into manufacturing of chips, and Next Orbit Ventures and Israel’s Tower Semiconductor announcement of a $3 billion chip plant in Karnataka.
Now, the point is how China Plus One Strategy and USA’s export ban strategy will help India to grow its ESDM sector. The US is trying hard to pull out the supply chain strengths from China by forming amicable relationships with its allies such as the Netherlands, Japan, Taiwan, and India. The White House has assured India to build its semiconductor industry due to which the latter is expecting to unleash an investment of $25 billion as an incentive scheme. The aim is to make India a key competitor in the international supply chain. In a recent interaction with The Diplomat, Sunil G. Acharya, vice president at India Electronics & Semiconductor Association (IESA) mentioned that the semiconductor major firms such as Micron, Intel, and Texas Instruments are all operating in India who are providing support services and designs. Apart from that, there are a couple of well-known fabless domestic firms who provide design services to numerous international companies. Acharya further added that due to the unleashing of the SCIENCE and Chips Act, the US based chip firms will be able to expand their support services, R&D, and design centers in India.
Faisal Kawoosa, Senior Research Analyst and founder at techARC told CircuitDigest, “ChinaPlus One Strategy is already helping India to grow its ESDM sector in various ways and the alliance with the USA will give India further impetus to boost its semiconductor industry both in terms of investment and revenues. The major problem is China is still leading the component industry and without that you can grow your industry. Therefore, both India and the US must find solutions to grow its component sector. Even if you set-up manufacturing bases you are still importing a huge chunk of components from China. Global investments have already happened in India and I am sure the close association with the US will make India a major player in the ESDM sector internationally.”
Geopolitics surely has a say as every major country has now put semiconductors as an important pill and there is an urgency as every key semi-country also depends on imports of various kinds of chips as well. It's the IP that is at stake here and the race is on....US, Korea specialize in high value advance chips and China needs to play a catch game here. All this means that diversification will happen, claim experts.
Tarun Pathak, Research Director, Devices and Ecosystems at Counterpoint Research told CircuitDigest, "As no one would like to put eggs in one basket. India has an added advantage in terms of design experts as leading semiconductor companies have design houses here and It's the manufacturing and IP where we catch up and we believe India is at the right place at the right time. Semi content within categories is increasing, while the electronic devices growth will continue too. Promoting product design, including both hardware and software can be a first step in making India a hub for the electronics system design and manufacturing sector. India semiconductor market consumption is all set to reach $64Bn by 2026 with a CAGR of 16 percent."
Of late, various reforms and policy measures have been announced with an aim of escalating the share of manufacturing in gross value added (GVA) to 25 percent. In the financial year of 2019-20, the manufacturing cluster offered 17.1 percent of GVA and exports accounted for 20.7 percent of the overall manufacturing yield. The point to be noted is that none of the computer chips are completely manufactured in India yet and although US semiconductor firms have shown a lot of optimism to India there is still a discrepancy between what has been committed in eloquence and what has been assured in a signed document.