Semiconductors: Experts Weigh How US-EU Can Beat China

China Tech Threat co-founder Dr. Roslyn Layton joined Horizon Advisory’s Emily de La Bruyère and the National Security Institute’s David Hanke for a discussion on How the U.S. and E.U. Can Win Against China hosted by the Octavian Report and moderated by its Editorial Director Sam Munson. The panel discussed a trans-Atlantic strategy to address China’s malicious practices, growing militarization, and capturing of global connectivity.

Layton highlighted the need for the US to uphold the same standards it demands of the European Union (EU), citing the case in which the US requested Dutch semiconductor manufacturing equipment (SME)provider ASML not to supply sensitive chipmaking tools to the Chinese military fab SMIC, which the US subsequently put on the Entity List, which restricts the ability of US firms to contract with such entities. She called on the Department of Commerce’s Bureau of Industry and Security (BIS) to close a gaping hole that threatens Americans’ security: the delay to add YMTC to the Entity List. She noted that US companies like Applied Materials, KLA and Lam Research continue to export sensitive equipment to the Chinese military fab, despite the entreaties by military intelligence expert James Mulvenon and multiple members of Congress. Such an action is demanded by the major Congressional export control report adopted three years ago. The delay to comply with its new requirements has prompted Senator Tom Cotton and AEI’s Derek Scissors to suggest that BIS should be removed from Commerce and go to an agency where policy cannot be undermined by industry influence.

YMTC is gaining traction as described by SemiAnalysis in “The Impending Chinese NAND Apocalypse – YMTC 128 Layer NAND Is The First Semiconductor Where China Is Technologically Competitive.” This advance is ostensibly supported by  world class SME from US companies and reportedly South Korean engineers. “We can already see the beginning of this shift. Lam Research makes the most semiconductor capital equipment for NAND. Lam Research’s China revenue now exceeds their Korea revenues. Korea has long been known to be the center of NAND…” the article observes.

While the US retains some preeminence in chip design and SME, the US has been losing the capability to manufacture semiconductors for some time, notes a China Tech Threat report that was co-written with the Center for a Prosperous America (CPA). This has been driven in part by US firms empowering China with state-of-the-art tools and the lax enforcement of export controls. It is not clear whether and to what degree the proposed Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS Act) can turn the tide. The Hudson Institute’s Nadia Schadlow notes a standstill on the bill, failing a policy consensus about how best to spend $52 billion: early R&D, mid-range, fabrication of plants. The European Commission has also announced its own semiconductor subsidy strategy which would “put Europe back in the tech race.”

TTC Co-Chair and Secretary of Commerce Gina Raimondo said that a “great deal” of the discussions in Pittsburgh focused on semiconductor issues. “ The US and the EU are experiencing similar challenges in the semiconductor industry with respect to shortages, and we have agreed to… collect data from industry so we can have greater transparency and trust in supply chains, and over time really look to collaborate as we increase supply on each of our shores,” she added.

The pandemic has led to chip shortages in the US and EU, notably in the automobile industry, forcing the issue of the resiliency of supply chain. Both the US and EU are concerned that too much of the semiconductor supply chain is based in China and Taiwan, creating bottlenecks for critical inputs. The US-based Semiconductor Industry Association (SIA) estimates that 75% of all semiconductor manufacturing is now based in East Asia, while 92% of the world’s highly advanced logic semiconductors are made in Taiwan. Layton called on US and EU leaders to make measurable goals for domestic semiconductor production by US and EU majority owned firms in their respective regions along with concerted policy efforts to improve the environment for semiconductor manufacturing such as tax credits for private investment and a skilled labor force through meaningful STEM education. She cited the example of the transformation of Pittsburgh, once the center of the world’s steel industry, which has become a digital-medical-and educational hub for high tech industries.