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Biden lays out amibition to establish China-free tech supply chains

President Joe Biden is to seek $37bn in funding to boost semiconductor manufacturing in the US, amid an ambitious effort to establish supply chains for the technology industry independent from Chinese companies.

A shortfall of chips has forced some US manufacturers to cut production. For instance, temporary layoffs at General Motors’ Kansas City plant have now become “indefinite” as the company slowed production of its F150 pick-up truck amid a shortage of chips integrated into their vehicles. Ford Motor Co, meanwhile, has said that the shortage of chips could cut its production up to 20 per cent in the first quarter.

There are a limited number of companies designing and manufacturing semiconductors, and many US companies are reliant on a single company: the world’s largest chip foundry, Taiwan-based TSMC. Semiconductor supply has also been disrupted by the coronavirus pandemic and restrictions placed on technology companies amid the trade war between the Trump administration and Beijing.

While many semiconductor companies are based in the US (accounting for 47 per cent of global chip sales) just 12 per cent of manufacturing is carried out in the US, according to the Semiconductor Industry Association. This has fallen from 37 per cent in 1990.

Biden has been urged by the semiconductor industry to help boost US semiconductor manufacturing, including through investment in domestic manufacturing. This year’s National Defense Authorisation Act will include measures aimed at boosting domestic semiconductor manufacturing, although it requires a separate funding process

Biden said: “I’m directing senior officials in my administration to work with industrial leaders to identify solutions to the semiconductor shortfall. Congress has authorised a bill but they need […] $37bn to make sure that we have this capacity. I’ll push for that.”

An executive order will set in motion a 100-day supply chain review for four critical areas: rare earth minerals, semiconductor chips, EV batteries, and medical products. The US imports approximately 80 per cent of its rare earth elements from China and up to 90 per cent of some medical products.

Biden aims to establish “strong, resilient supply chains” such as these by boosting domestic manufacturing, with domestic manufacturing complemented by allies (which are likely to include Taiwan, Japan, South Korea, Australia, and some Latin American allies) where it does not have capacity to manufacture products domestically. These partnerships with allies could include a framework for sharing these products in emergencies, as well as securing stockpiles and excess manufacturing capacity. The review will also consider limiting imports of certain materials and providing training for US workers.

Senior US and Taiwanese officials signed a memorandum of understanding in November supporting technological cooperation in seven critical areas, including “safe, secure, and reliable supply chains”. TSMC has committed to build a $12bn manufacturing plant in Arizona, with the US government providing subsidies. Meanwhile, Australian rare-earth miner Lynas is building a processing facility in Texas, also supported by US government subsidies.

Ultimately, the ambition is to establish supply chains for these critical products which are less vulnerable to disasters, sanctions introduced amid geopolitical conflicts, and other disruptions. Disentangling its supply chains from China will be an expensive, long-term effort requiring collaboration with allies.

The Chinese government criticised the ambition to shift supply chains as unrealistic. Chinese Foreign Ministry spokesperson Zhao Lijian said during a press conference: “China believes that artificial effort to shift these chains and to decouple is not realistic.”

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