The U.S. Has Trouble Finding Allies for Its “Chip War” against China

The primary aim of the visit of U.S. Speaker of the House Nancy Pelosi to Taiwan on Aug. 4 was to intentionally cross the “red line” clearly laid down by Beijing by supporting and encouraging separatist forces on the island, in violation of Washington’s commitment to the One China policy (cf. SAS 31, 32/22).

But another major aim was to try and convince Taiwanese chip manufacturers to invest in production in the United States, which is far behind in this sector, making any economic decoupling from China very much of an illusion.

So far behind, in fact, that the U.S. Congress passed in July a new law (CHIPS Act), providing $52 billion in government subsidies and some $24 bn in tax incentives for companies producing semiconductors. The U.S. represents only about 12% of this sector, while Taiwan dominates the market, currently manufacturing some 50% of the microchips used worldwide.

In the context of the “chip war” Washington intends to launch, Nancy Pelosi had lunch in Taipei with Morris Chang, the founder and former chairman of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading semiconductor manufacturer. According to an article in Asia Times by George Koo, a former adviser to U.S. business ventures in China, the Speaker of the House urged him to complete his company’s new site in Arizona and to locate more production outside of China. “Chang’s polite reply to Pelosi”, Koo writes, “was that building semiconductor fabs [fabrication plants] in different locations is not economically or technically practical. An American citizen, Chang did not say that he did not think the US has the needed skilled personnel, which he had said on other occasions.”

Pelosi’s visit to South Korea was an even bigger failure in that respect. Her purpose, George Koo writes, was to “pressure Samsung and other chip makers in Korea to join TSMC and move their fabs to the US”. But if they accept the subsidies under the new law, they would have to stop supplying chips to China, which currently accounts for 60% of their output. “Giving up 60% of their business to comply with the American embargo would be a real dilemma for South Korea”, notes George Koo. That might explain why South Korean President Yoon Suk-yeol avoided meeting Nancy Pelosi and her delegation during their visit, with the excuse that he was on vacation.

As for Taiwan, China used to account for more than 20% of TSMC’s sales, before the Trump Administration “ordered it to stop providing advanced chips to Huawei, ZTE and others”. As a result, that figure is down to around 10%, according to the company.

Washington’s embargo has caused pain for the entire sector, Koo notes. He cites the example of the Dutch company ASML, the number one manufacturer of lithography machines needed to produce semiconductors. In addition to its most advanced extreme ultraviolet system which is under U.S. sanctions, the U.S. is now demanding the Netherlands also forbid export of an older generation of deep ultraviolet (DUV) machines to China, which represented in 2021 14.7% of the company’s total sales.”