While the US leads chip design, Japan, South Korea, and Taiwan dominate manufacturing. All feel vulnerable.
It was one of her first public appearances after being approved for a second term as European Commission President. Ursula von der Leyen traveled to Dresden to approve €5 billion in German support for Taiwanese semiconductor company TSMC.
“This is just the beginning,” she said, adding that industrial competitiveness is a key. Europe and the US depend on Asian semiconductor manufacturers, and both are wooing Asian investors.
Taiwan dominates advanced manufacturing, South Korea dominates memory chips, and Japan holds a presence in various semiconductor sectors. Malaysia and India are strong in the labor-intensive parts of the chain. All these countries are mobilizing public funds to support their chip ambitions.
Taiwan
The island focuses on foundry manufacturing. ”Front-end” foundries such as TSMC and UMC don’t design chips. They take the designs of semiconductor design houses and fabricate semiconductor wafers from them. The wafers are then shipped to assembly and test houses (the “back-end”) to be made into completed semiconductors. Design houses range from “fabless” semiconductor giants Nvidia, Qualcomm, and Broadcom, to medium-sized specialists such as Infineon, Silicon Labs, and Realtek (Taiwanese), to countless startups, most in the US and Europe.
Taiwanese foundries act as a “silicon shield”: they are so critical to US tech giants that the US government must foot the defense bill for Taiwan to deter a Chinese invasion.
Taiwan is now expanding beyond manufacturing. It is growing its research and development activities and generating essential intellectual property. The Taiwan National Development Council has announced its “Asia Silicon Valley Development Plan,” which targets generative AI and startups.
Although no public funding strategy has been announced to accompany these projects, Taiwan aims to maintain its indispensable position in the semiconductor value chain and use this position as diplomatic leverage. Germany, for example, ignored the risks of Chinese retaliation to lure the TSMC investment in Dresden.
Japan
The Japanese government aims to make the country indispensable in the global supply chain by investing heavily in R&D and subsidizing domestic and foreign companies.
Besides the US, Japan is the only country with all the capabilities (though not the capacity) to achieve self-sufficiency. It chooses not to attempt this goal, considering it economically unviable. Japanese design tools usually come from the US, and they outsource their assembly and testing to countries such as the Philippines and Malaysia.
Japan subsidizes Taiwanese and US corporations, as well as back-end production and domestic R&D. Between 2021 and 2023, the government sunk 0.71% of its GDP into semiconductors, surpassing the corresponding figures for countries like Germany, which stood at 0.41%, the US, at 0.21% and France, at 0.20%.
The objective is “maintaining, boosting, and obtaining strategic indispensability.” Instead of seeking to become independent of the global semiconductor supply chain, Japan aims to be indispensable.
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South Korea is a semiconductor superpower, especially in memory chips and camera sensor chips, accounting for 17.9% of the world’s total semiconductor production capacity.
Its ambition is to increase its market share of global logic chip production to 10% by 2030, up from 3%. Generous outright subsidies, $471 billion over the next 20 years from the private sector and more than $2 billion of the Ministry of Trade, Industry, and Enterprise’s $4.7 billion R&D budget is devoted to chips. Private manufacturers also receive tax breaks.
These amounts dwarf the EU and US Chips Acts, and international collaboration is not mentioned.
India
India boasts a large number of highly qualified chip design engineers. Most start their careers at the country’s semiconductor “design houses”, which fill outsourcing contracts from US and European companies.
Little semiconductor IP comes out of India. The US, Canada, Europe, Japan, and Korea — challenged by China — dominate the high-value section of the semiconductor chain. Many Indian engineers aspire to work in Silicon Valley or Europe, and the country plans to move up the value chain. By 2026, it hopes to have 85,000 skilled workers specialized in semiconductor design and manufacturing.
Although India has not been strong in manufacturing, its government aims for improvement. Public chip spending matches 50% of capital spending for new entrants. A total of $10 billion is earmarked to develop its semiconductors and display manufacturing.
Malaysia
Malaysia accounts for 13% of global semiconductor testing and packaging, benefiting from efforts to move production away from China.
It is the world’s sixth-largest exporter of semiconductors, although most of this focuses on the lower end of the value chain, such as assembly and testing. The government plans to leverage $5.3 billion to out-compete its rivals in the region by attracting leading advanced chip manufacturers to become an R&D hub that employs 60,000 highly skilled Malaysian engineers.
Christopher Cytera is a Non-resident senior fellow with the Digital Innovation Initiative at the Center for European Policy Analysis and a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video, and imaging.
Sara Oversteyns attends the University of St Andrews and William & Mary in a Joint Degree Program.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
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