Semiconductors—commonly known as microchips, chips, or integrated circuits—enable modern life. Those small devices make everything from computers, smartphones, microwaves, and cars to advanced weaponry work. A car, for instance, needs as many as 3,000 semiconductors while one Javelin anti-tank missile requires more than 250 chips. As artificial intelligence (AI) and quantum computing continue to advance, the global demand for semiconductors will only increase, while power will accrue to those countries that can develop, produce, and harness the most advanced chips.

Currently, however, none of the world’s most advanced chips are produced in the United States; Taiwanese companies dominate the market. U.S. policymakers, worried that the United States would lose access to semiconductors during a conflict with China over Taiwan, have turned to industrial policy to address this issue. Such an approach, however, comes with the inherent trade-off of maximizing economic efficiency versus bolstering national security and resilience. 

State of Play 

Despite the critical importance of semiconductors, the United States remains highly dependent on imports to meet domestic demand—especially from Taiwan. Although U.S. companies design the most advanced chips, they are entirely or largely “fabless,” meaning that they contract out production. According to U.S. International Trade Commission estimates, 44.2 percent of U.S. imports of the most sophisticated logic chips (the “brains” of devices that process information) are manufactured in Taiwan. But even that understates Taiwan’s dominance of the global semiconductor market: 60 percent of all semiconductors and more than 90 percent of the most advanced chips are manufactured in Taiwan. 

The supply chain for semiconductors is a model of efficiency, with companies hyper-specializing in one area and leaving other parts to their peers. Although semiconductors were invented in the United States—at one point it produced nearly 40 percent of the world’s chips—U.S. companies decided to focus on chip design, which has the highest margins, and outsource actual production. Foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), which dominates semiconductor manufacturing, produce chips designed by firms such as Apple, Intel, Nvidia, and Qualcomm. Once a chip is made, it is typically sent to Southeast Asia for assembly, testing, and packaging. Chips are then shipped to factories around the world. 

This process, an archetype of globalization, has allowed each participant to focus on their respective comparative advantage, driving down costs and enabling the industry’s blistering rate of innovation. At the same time, however, this industry, which is vital to the global economy and to national security, has become heavily reliant on one manufacturing hub, Taiwan, which has raised anxieties in the United States regarding the fragility of the supply chain. 

Rising Concerns 

With China exerting more pressure on Taiwan and questions growing about whether Chinese leader Xi Jinping will use military force against the island, the United States is increasingly focused on the implications of a conflict for the global economy. Bloomberg, for instance, estimates that a war between the United States and China over Taiwan could shave as much as $10 trillion off of global gross domestic product. The economic devastation that a conflict would bring is driven above all by the reality that such a war would likely entail a prolonged halt in the production and shipment of chips, which would make it difficult for companies to produce much of anything. 

The argument for establishing semiconductor manufacturing capacity outside Taiwan and in the United States, however, extends beyond the growing possibility of war. Taiwan’s susceptibility to earthquakes and typhoons carries heightened risks for supply chain disruptions. Manufacturing semiconductors also requires vast amounts of water, which Taiwan has been forced to ration during droughts, raising the possibility that semiconductor manufacturing could be impacted during an extended drought. 

To guard against the possibility of such a disruption and enhance supply chain resiliency, the United States has poured resources into rebuilding its long-dormant domestic semiconductor manufacturing industry. There is no guarantee, however, that industrial policy along these lines will work, as it could drive up prices and reduce innovation. 

Made in America 

Recognizing the United States’ vulnerability to semiconductor supply chain disruptions, in 2022 Congress passed and President Joe Biden signed into law the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, which will deliver $280 billion in federal subsidies over ten years to increase domestic semiconductor capacity, of which some $39 billion will go to building and expanding fabrication plants (or fabs) in the United States. To that end, the Biden administration has awarded $8.5 billion to Intel, $6.6 billion to TSMC, and $6.4 billion to Samsung. The recipients of these grants have vowed to invest billions more in the United States, with the goal of producing two nanometer or more advanced chips, which support AI and high-performance computing. The United States has set a goal of producing 20 percent of the world’s leading-edge chips by the end of the decade. 

At What Cost? 

The push to build resiliency in the semiconductor industry could result in higher costs and less innovation. TSMC founder Morris Chang has cautioned that U.S. efforts “will be a very expensive exercise in futility.” He has estimated that shifting production to the United States could double the cost of chips and warned that “when the cost goes up, the pervasiveness of chips will either stop or slow down considerably.” Chang pointed to TSMC’s fab in Oregon, where he claimed chips cost 50 percent more than those made in Taiwan. If companies like TSMC have to spend more on production, they will likely pass those costs on to their customers, which will then pass the costs to the consumer. This means pricier phones, computers, and AI-related applications. 

In addition, the CHIPS Act alone is likely not enough to guarantee success. TSMC’s annual capital expenditures are nearly as much as the entire sum in the CHIPS Act dedicated to boosting U.S. manufacturing. TSMC benefits from an ecosystem of critical suppliers that has grown around it in Taiwan, which lowers its costs and allows it to quickly repair and upgrade equipment. Such a network, however, does not currently exist in the United States. Taiwan’s undervalued currency, the New Taiwan Dollar (NTD), also enables Taiwan to offer more competitive exports. Some have pointed to the perceived mismatch between the United States’ workforce and that of Taiwan in terms of compensation expectations, training level, and work ethic. To address those shortcomings, the United States could find itself having to spend billions more to keep a nascent semiconductor manufacturing industry afloat. Indeed, Intel CEO Pat Gelsinger has alluded to just this, commenting, “I don’t think CHIPS 1 is the end of what we need to do to rebuild the industry.” Secretary of Commerce Gina Raimondo seems to agree, stating, “I suspect there will have to be… continued investment.” 

U.S. efforts to reshore semiconductor manufacturing could also threaten Taiwan’s crown jewel, the “silicon shield” that some believe deters China by raising the costs to Beijing of military action. In addition, China has used U.S. onshoring efforts as an opportunity to sow distrust of the United States in Taiwan by pushing the narrative that the United States is looking to hollow out and then abandon the island. The U.S. focus on onshoring because of perceived risk over Taiwan has also prompted other businesses to reevaluate their investment plans and presence in Taiwan, which could make Taiwan more vulnerable to Chinese pressure. If Taiwan becomes less economically competitive and more susceptible to Chinese coercion while Taiwanese people grow skeptical of U.S. intentions, the U.S.-Taiwan partnership could grow strained. 

Do Alternatives Exist? 

If onshoring proves to be too expensive or difficult, one alternative that would still increase resilience is to friendshore production in places like Japan, South Korea, and Malaysia. Each of those countries has experience with semiconductor manufacturing or testing and packaging and offers lower costs than production in the United States. In the event of a conflict over Taiwan, those countries would still likely be able to produce and ship chips. 

If policymakers conclude that Taiwan is truly irreplaceable to the global semiconductor supply chain and that it is nearly impossible to meaningfully reduce reliance on chips manufactured in Taiwan, that will provide an added incentive to safeguard Taiwan’s security. An alternative, or supplemental, approach could therefore be to make explicit that the United States will come to Taiwan’s defense or to invest greater resources in bolstering Taiwan’s own military capabilities. After all, if the effort to onshore semiconductor manufacturing is largely a product of fears of a conflict over Taiwan, then reducing the likelihood of such a conflict by bolstering deterrence would directly address such concerns. 

Alternatively, policymakers could turn to coercive diplomacy if they deem that relocating the bulk of semiconductor manufacturing is a strategic imperative but the CHIPS Act is insufficient. Such an approach could entail threatening to withhold critical manufacturing equipment or refusing to service existing equipment at Taiwan’s foundries unless they shifted more production to the United States. Doing so, however, would fundamentally damage U.S.-Taiwan relations and make Taiwan far more vulnerable to Chinese pressure. 

Finally, the United States could seek to supplement the CHIPS Act by pursuing legislation or regulatory changes that incentivize companies to procure domestically manufactured chips. While the CHIPS Act seeks to ensure a supply of chips made in the United States, as of now there is no guarantee customers will demand that a certain percentage of their chips be made in the United States. The United States could offer tax breaks to those companies that source chips made in the United States or require that chips used in national security applications be made in the United States.

To read the full article post as it appears on the Council on Foreign Relations (CFR) website, click here.

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This strategy reframes the region’s importance to U.S. national security interests. In November 2021, Secretary of State Antony Blinken affirmed that “Africa will shape the future— and not just the future of the African people but of the world.” Accordingly, this strategy articulates a new vision for how and with whom we engage, while identifying additional areas of focus. It welcomes and affirms African agency, and seeks to include and elevate African voices in the most consequential global conversations. It calls for developing a deeper bench of partners and more flexible regional architecture to respond to urgent challenges and catalyze economic growth and opportunities. It recognizes the region’s youth as an engine of entrepreneurship and innovation, and it emphasizes the enduring and historical ties between the American and African peoples. And it recasts traditional U.S. policy priorities—democracy and governance, peace and security, trade and investment, and development—as pathways to bolster the region’s ability to solve global problems alongside the United States. This strategy outlines four objectives to advance U.S. priorities in concert with regional partners in sub-Saharan Africa during the next five years. The United States will leverage all of our diplomatic, development, and defense capabilities, as well as strengthen our trade and commercial ties, focus on digital ecosystems, and rebalance toward urban hubs, to support these objectives:

1. Foster Openness and Open Societies
2. Deliver Democratic and Security Dividends
3. Advance Pandemic Recovery and Economic Opportunity
4. Support Conservation, Climate Adaptation, and a Just Energy
Transition

This strategy represents a new approach, emphasizing and elevating the issues that will further embed Africa’s position in shaping our shared future. It resolves to press for the necessary resources and prize innovation in our efforts to strengthen vital partnerships. The United States will both address immediate crises and threats, and seek to connect short-term efforts with the longer-term imperative of bolstering Africa’s capabilities to solve global problems. The strategy’s strength lies in its determination to graduate from policies that inadvertently treat subSaharan Africa as a world apart and have struggled to keep pace with the profound transformations across the continent and the world. This strategy calls for change because continuity is insufficient to meet the task ahead.

To read the original report by the White House, please click here.

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Americans deserve to know whether the Section 301 tariffs were effective, as well as how they affected our economy more broadly. With that goal in mind, the Consumer Technology Association (CTA) commissioned Trade Partnership Worldwide LLC to develop this report on the impact of the tariffs on the U.S. and global consumer technology industry.

The report shows that consumers and the consumer technology industry paid over $32 billion in tariffs through 2021. That sum has surely grown even larger over the past six months, likely reaching close to $40 billion. As the U.S. economy slowly recovers from several years of shutdowns and snarled supply chains, this means that companies are allocating scarce resources toward tariff payments. Instead, they could be investing in the research and development, equipment, job creation or workforce upskilling that helps bring new and innovative products to market.

Many technology companies, which include global technology companies as well as small businesses and startups, say they can no longer absorb the costs of tariffs without increasing prices for products. This trend is exacerbated by continued global supply chain challenges and higher shipping rates imposed by foreign ocean carriers. For American consumers, this means the technology they love and have come to rely on is less accessible and less affordable. Amid rising prices across all sectors of our economy, removing tariffs is an important step to help fight inflation.

As the report makes clear, the tariffs also failed to substantially shift supply chains. In the United States, Section 301 tariffs did not spur job creation or significant new investments in manufacturing. In fact, employment in the consumer technology industry stagnated and, in some cases, declined throughout the “trade war” period. Further, China remains a manufacturing base and source of finished technology products and inputs for the United States. In fact, imports of Section 301-affected tech products have risen or leveled off since mid-2020, suggesting that Section 301 tariffs are no longer motivating companies to leave China.

Meanwhile, certain U.S. trading partners are benefiting from the U.S.-China trade war. This report shows that production is shifting to markets with fewer barriers to trade: Vietnam, Taiwan, Malaysia, and Thailand. However, the United States does not currently have free trade agreements with these markets, making it harder for U.S. companies to compete in global markets.

Tariffs have not been an effective approach to addressing our economic disputes with China. They hurt U.S. businesses and consumers.

We call on U.S. policymakers to:

• Eliminate tariffs on consumer technology products to mitigate inflation, lower costs and unlock the innovative power of the U.S. economy.

• Eliminate tariffs on inputs to revitalize U.S. jobs and U.S. manufacturing of technology products.

• Immediately create new and expand existing trade agreements, including with Vietnam, Taiwan, Malaysia and Thailand, to make manufacturing investments in the U.S. more attractive.

CTA is proud to contribute to the ongoing national discussion on the China Section 301 tariffs, and I hope you find the data and insights contained in this report as compelling as I do.

To read the full report from the Consumer Technology Association, please click here.

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Due to China’s vast population, however, even a modicum of economic efficiency results in an economy that assumes great global significance. The structure of China’s economy yields more economic influence than its size, measured in GDP terms, might imply. The tight relationship between the party-state and economic actors in China means that economic activity can be co-opted to national purposes more easily than in liberal, market-orientated economies, where private actors pursue profit maximization as the primary objective of economic activity.

According to official data, China has accounted for about 40% of global GDP growth since 2009. This storyline has been helpful to China’s rise. Indeed, Beijing has perpetuated a narrative that China’s economic growth is fundamental to the global economy and that the future prosperity of other nations is intrinsically intertwined with China’s continued success.

This narrative has helped ensure both a general enthusiasm for closer economic engagement with China and a reluctance to jeopardize commercial relations should Beijing’s interests come into conflict with those of its trading partners. As a result, considerable influence over other countries has been accorded to China and has enabled the country to advance a Sino-centric trade order in the Indo-Pacific.

Chinas manufacturing dominance and the potential for the weaponization of trade - Hinrich Foundation - Stewart Paterson - July 2022 RV (1)

To read the full report from the Hinrich Foundation, please click here.

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wipo-pub-944-2022-en-world-intellectual-property-report-2022

To read the full report from World Intellectual Property Organization, please click here.

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The digital economy has become critical to the U.S. economy, driving growth, prosperity, and dynamism for every state and sector across the United States. A diverse range of firms not traditionally seen as actors in the digital economy are producing digital goods and services, including businesses in transportation and warehousing, arts and entertainment, and even mining. Nearly two-thirds of the digital economy consists of digital services, not digital goods. The digital economy is expanding nearly three times as rapidly as the economy writ large.

Digital economy jobs are proliferating in the United States. Jobs tied to the digital economy can be found in nearly every sector, and their number is growing at a faster rate than that of overall job growth over the last decade. These jobs pay well, and compensation growth for digital jobs exceeds that for all jobs generally.

Trade is key to the U.S. digital economy’s growth. The bulk of U.S. services exports are digitally tradeable, but the potential for expansion of the digital delivery of services exports remains largely untapped.[1] Developed economies — and particularly Europe — are the top markets for U.S. exports of digitally tradeable services. These exports, coming from every U.S. state, supported more than 2 million U.S. jobs in 2020. America’s small business exporters are among those with the most to gain from digital technologies that have the potential to overcome the longstanding hurdles to exporting they face.

To read the full report from the U.S. Chamber of Commerce, please click here. 

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To read the full report by UNCTAD, please click here.

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The global economy is increasingly digitalized. Oxford Economics estimated that in 2016 the digital economy accounted for 22.5 percent of global gross domestic product (GDP). Going forward, analysts at the research firm IDC have estimated that as much as 60 percent of global GDP will be digitalized (meaning largely impacted by the introduction of digital tools) by 2022. Countries that wish to successfully compete in the global digital economy must cultivate workforces possessing the requisite digital skills so that industries, enterprises, and even individuals can thrive in the digital environment. This report explores the state of digital skills across the U.S. economy, examining what they are, why they matter, the current extent of workforce digitalization, and how the United States fares in international digital skills comparisons. It concludes by providing a brief overview of some of the best practices and programs being introduced by nonprofit, academic, and corporate organizations to deepen the U.S. digital skills base and suggesting policy recommendations to further foster U.S. digital skills development.

To read the full report from the Information Technology & Innovation Foundation, please click here.

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To read the full report from the Center for Strategic & International Studies, please click here.

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