The Geopolitics of Chip Manufacturing

By Gershon Salzberg

The global manufacturing arena is heating up in the fight for who will be the dominant player in the advanced computer chip-making scene. These tiny, complex pieces of silicon are the beating heart of billions of devices worldwide, from the latest iPhone to PS5s, Xboxs, and even a new car. They are also crucial in the operation of advanced military technology, making it strategically advantageous for global superpowers like the U.S. and China to have as much control of the chip supply chain as possible. In recent years, China, the U.S., and the E.U. have all been jostling each other to ensure a more significant piece of the pie.

However, building a new fabrication facility (fabs) for the newest, most advanced chips has become so expensive over the past few decades that a large percentage of chip manufacturing has been consolidated into the hands of a few prominent companies like Intel, Samsung, and TSMC (Taiwanese Semiconductor Manufacturing Company).

Many of these advanced fabs are concentrated in the U.S. or Southeast Asia, with a few across Europe. This sprinkling of fabs across the world has been successful without too many significant disruptions, but that could change in the near future due to rising tensions between the U.S. and China. Creating new fabs in different places across the globe can help strengthen the international supply chain, leaving it less vulnerable to significant disruptions like ones experienced during the COVID-19 pandemic.

As it stands, the supply chain of advanced manufacturing machines for the fabs is also limited. Only one company in the world, Advanced Semiconductor Materials Lithography (ASML) can produce the most advanced extreme ultraviolet light (EUV) lithography machines that make the tiniest, most advanced chips. These EUV machines can cost more than $200 million each, which creates roadblocks in the effort to diversify the manufacturing scene.

In recent years, sanctions have been placed on China by the U.S., limiting what foreign technology it can import for its domestic manufacturing scene. The Trump Administration had pressured ASML in 2018 to not sell its EUV machines to China. This effort was spearheaded by the Dutch government which approved the sale of EUV machines to China. However, the Trump administration held talks with Dutch officials to reverse this decision and stem the tide of advanced technology entering China.

 More recently, the Biden administration has been intensifying economic sanctions against China while also passing the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act. This major piece of legislation hoped to kick chip manufacturing in America into high gear. Over the coming years, $53 billion is earmarked in subsidies and tax credits to fast-track investment into American manufacturing and research facilities. $39 billion of this is set aside for a financial assistance program called the CHIPS for America Fund which would build new and expand existing semiconductor facilities.

The passing of the CHIPS Act and the creation of the CHIPS for America Fund  has led to a flurry of activity from American companies in the past two years, with hundreds of statements of interest submitted totaling more than $70 billion. Additionally, more than $200 billion in private investments have been announced since the act has been passed. With the price tag of a new facility ranging between five and twenty billion dollars, there is fierce competition for federal funding.

Since December 2023, several grants from this fund have been announced. These grants range from $35 million to $8.5 billion. Some of the grants are for defense contractors, like the one awarded to BAE Systems, a UK-based defense contractor. Other grants have been awarded to companies like Intel, who will use the grant as part of its larger plans to invest $100 billion in American facilities over the next five years. 

In an industry that moves rapidly in some ways and at a glacial pace in others, it can be hard for major players like Intel, Samsung, or TSMC to get a head start on the competition. It can take years for a new manufacturing node that can build smaller and more advanced chips to get to a point where the manufacturing process is ironed out, and the yields are high enough to stay in business. But with all these recent investments by the U.S. government alongside geopolitical concerns making companies weary of building too much manufacturing capacity within China’s sphere of influence, the next few years can mark the return of the U.S as a major player in manufacturing the highly advanced computer chips which are used in many different industries.

Photo courtesy of unsplash.com.