In 1947, with the invention of the first transistor, Bell Laboratories began the semiconductor industry. In the past 75 years, the United States has changed from a semiconductor superpower to a marginal role.
At present, only 12% of the chips are made in the United States. The main consideration for enacting the 2022 Chip and Science Act (the Act) is that the United States relies too much on TSMC. Its factories are mainly located in Taiwan, which is currently facing many geopolitical risks. Therefore, the United States hopes to reduce these risks. Another consideration is that American politicians generally believe that it is necessary to strategically attack China’s semiconductor supply chain.
In order to further tighten the noose on China’s semiconductor industry, the Biden government is establishing the “Chip 4” alliance to push the rising dragon semiconductor industry to the edge. The four intended members of the Chip 4 Alliance are the United States, Japan, South Korea and Taiwan. The Chip 4 Alliance initiated by the United States is regarded by Beijing as a hostile action by Washington to exclude China from the global semiconductor supply chain. In the second part of the discussion, we will evaluate the strengths and weaknesses of the Chip 4 Alliance.
First of all, we will study whether the strict conditions for the US $52 billion federal subsidy stipulated in the Act will adversely affect the normal investment assets of relevant companies in China’s semiconductor industry. One of the strict conditions that the company must meet to obtain subsidies from the US government is that it is not allowed to expand semiconductor manufacturing in mainland China within 10 years after obtaining the US factory construction license. In addition, the United States Government may modify these restrictions as necessary.
The bill aims to enhance the resilience of the US semiconductor supply chain at the expense of China, which seems to be moving in the wrong direction. Nikkei Asia correspondents Zheng Tingfang and Laurie Lee poured cold water on these attempts. They believed that these efforts only touched the visible end of the semiconductor supply chain. Behind the chip production is a complex network of supply equipment and other items, including hundreds of raw materials, chemicals, consumables, gases and metals. Without these raw materials, the precision process of chip manufacturing cannot be run (Cheng Ting fang and Laury Li, The Hard Task, Nikkei Asia, August 1-7, 2022, pp. 14-21).
No country can achieve a high degree of self-reliance in chip manufacturing from beginning to end. For example, China controls nearly 60% of the world’s fluorite production, and fluorite is an important mineral for manufacturing fluoropolymers. Fluoropolymers are key coating materials for various valves, pumps, pipes, pipes and containers, which are critical to chip manufacturing. Interdependence is undoubtedly the mainstream of the chip manufacturing industry.

Another well-known example is the monopoly control of extreme ultraviolet lithography by ASML Holding Company (Netherlands). Photolithography is a printing process that uses photographic technology to transfer patterns from a photomask to a photosensitive material coating on the chip surface, called photoresist (Richard Yanda et al., Demystify Chipmaking (Oxford: Elsevier, 2005), p. 79). ASML has maintained a very close working relationship with TSMC for a long time.
In addition, due to the lack of talents in the United States, the efforts of the United States to make semiconductors at home did not have a reasonable chance of success. Another difficulty is the need to cultivate team spirit in the new American factory. Morris Chang, founder of TSMC, said that high manufacturing costs in the United States are also a major disadvantage. As Daniel Ives, an equity analyst, pointed out, cost dynamics, logistics and technology ecosystems have consolidated the “chip food chain” in Asia and its surrounding regions.
With regard to the subsidy restrictions imposed by the bill, Samsung Electronics and SK Hynix in South Korea may not be willing to closely link themselves with American combat vehicles. In order to protect their own interests, these Korean companies may be forced to find some ways to bypass the strict restrictions. They will be prohibited from upgrading their manufacturing bases in China due to subsidy restrictions. As a result, South Korea’s production capacity in China will soon become obsolete, and the two companies will be unable to meet the needs of their Chinese customers. Unlike its Korean counterparts, TSMC may have no choice but to meet the unreasonable requirements of the United States, even though these requirements harm the interests of TSMC and Taiwan.
For the above reasons, the Chip 4 Alliance is far from united. TSMC, Samsung, SK Hynix and other semiconductor companies in Taiwan and South Korea will be adversely affected by joining the alliance. Semiconductor companies in South Korea and Taiwan have many customers in mainland China, and the alliance may force these companies to abandon these customers. At present, China has provided a large amount of financial assistance for Samsung and SK Hynix’s chip factory operations in China. A sudden decoupling would hurt the two companies. As a leader in the production of wafers and photoresists, Japan may also suffer losses by denying Chinese semiconductor companies access to these products. On the positive side, the United States and Japan have strong scientific capabilities to jointly research the next generation of chips.
South Korean Foreign Minister Park Geun hye tried to alleviate China’s anxiety by defining the alliance as a “partnership” rather than excluding other participants. It remains to be seen whether South Korea will adopt a more flexible attitude towards its commitment to the alliance. At the same time, China should try its best to climb the ladder of chip manufacturing technology. The Chinese mainland has developed the professional technology to manufacture 7nm microchips, which is highly commendable.
He Junyao is a member of the Legislative Council and a lawyer.
Lawyer Wang is a part-time researcher of the Hong Kong and Macao Basic Law Research Center of Shenzhen University and one of the founders of the Hong Kong Solidarity Alliance.
These views do not necessarily reflect the views of China Daily.