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On June 8th, the Biden Administration announced immediate actions it was taking to address near-term vulnerabilities in four critical supply chains as identified by a 100-day America’s Supply Chains assessment initiated in late February. The four critical supply chains included in this announcement are: semiconductor manufacturing and advanced packaging; large capacity batteries, like those for electric vehicles; critical minerals and materials (so-called “rare earths”) used in smart phones, electric vehicles, wind turbines and other advanced technologies; and pharmaceuticals and active pharmaceutical ingredients (APIs) used in vaccines and other applications.
Today’s post takes an initial high-level view of the critical supply chain for semiconductor manufacturing and examines the shifting fault-line of vulnerability. Subsequent posts in the Global TECHtonics series will take a much closer look at these and related issues.
Photo: barks/Adobe Stock
What is the Fault-line?
The semiconductor supply chain fault-line runs directly under Taiwan, whose chip foundries produce 92% of the world’s most advanced microchips (which have transistors less than one-thousandth the width of a human hair). The small island is caught between the tectonic forces of the China market (which accounts for 53% of global semiconductor consumption and the U.S. market (which accounts for the vast majority of the advanced designs on which Taiwan chip production is based). In addition to these market forces, political dynamics add to the stresses along this fault-line. While China claims Taiwan as an inalienable part of its territory, the U.S. has been serving as the guarantor of Taiwan’s de facto independence since 1949. In more recent years, the Trump Administration’s “Tariff War” against China has given impetus to a process of technology “de-coupling” which is forcing Taiwan companies – especially its preeminent foundry manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) – to choose between the fast-growing China market (34% revenue growth since 2014) and its slower growing (4% growth) but highly strategic U.S. customers, including the U.S. military. The fact, for instance, that 14 of TSMC’s 17 foundries worldwide (and all of its foundries capable of higher-end production above the 16 nanometer level) are located in Taiwan at a distance of just 90 miles from the PRC mainland adds to the tectonic friction.
What is the Trend-line?
Subsequent posts in the Global TECHtonic series (approximately two per month) will examine a broad range of dynamics in detail to include the impact of the COVID-19 pandemic on global microchip supply chains, specific dynamics within microchip subproduct categories (logic chips, analog chips, memory chips, etc), TSMC’s strategic response to the increasing global pressure and detailed analysis of trends within the U.S. semiconductor industry. Today’s post will limit itself to two broad brush-strokes to suggest the general trend-line: (1) the twenty-year trend-line since 2001 and (2) the one-year trend-line since 2020.
- The accession of China and Taiwan to the World Trade Organization (WTO) in 2001 led to hopes that Information and Communications Technologies (ICT) supply chain tensions might start easing but, from 2008 at least, the opposite has proved true. Following the Global Financial Crisis, market forces and competitive tensions increased pressures on ICT supply chains markedly and these pressures further accelerated starting in 2012 following the 18th Chinese Communist Party Congress in 2012. (Readers interested in a deeper understanding of the ICT supply chain dynamics covering the period 2001-2008 can refer to Congressional Commission testimony I provided during the 107th, 108th and 109th Sessions of Congress as well as to my article in the edited volume Economic Integration, Democratization and National Security in East Asia (Peter Chow, Elgar Publishing) and my article in The Journal of Contemporary China (Volume 13, Number 40, 2006).
- The past year has shown some notable shifts along this fault-line. In Taiwan, policies instituted by President Tsai Ing-wen have led to a small shift in Taiwan’s trading dependence on China and to larger shifts in the pattern of outbound and inbound investment involving China. Specifically, the Tsai Administration’s New Southbound Policy has shifted a small portion of Taiwan’s trade in consumer electronics away from China in favor of Southeast Asian markets. More notably, the “Invest Taiwan” program has exceeded its targets and much of the reinvestment in Taiwan comes as a result of production being repatriated from the mainland. As for outbound investment from Taiwan in ICT sectors, recent trends favor the U.S. as a destination rather than China. In March 2020, TSMC announced that it would be building a $12 billion microchip production plant in Arizona. Meanwhile, tighter regulations by Taiwan’s Investment Commission has led to a 60% drop in outbound investment to the mainland since 2018.
It is for these and other reasons that the New York Times recently proclaimed “pound for pound, Taiwan is the most important place in the world.” The Strait of Hormuz may have been the world’s most dangerous fault-line in the 20th century oil economy. In the 21st century, the tectonic pressures of the global economy now converge on the Strait of Taiwan.
In the spirit of sharing news while it’s fresh, I’m copying verbatim a report on the gold nugget in the pile of dross that has passed for this year’s national budget process.
For those of you who took in (in person or digitally) the Philadelphia’s 21st Century Energy Opportunity event I convened with the Academy of Natural Sciences and the T.C. Chan Center for Building Simulation & Energy Studies on October 11th, the win is obvious — for the City and the region, for the national effort for cleaner energy jobs and investment, and for our global engagement. For U.S./China clean energy cooperation, this budget victory also solidifies the framework of U.S./China Clean Energy Research Centers CERC) in building energy efficiency (Lawrence Berkeley Lab), electric vehicles (University of Michigan) and clean coal (University of West Virginia).
Kudos to Mark Muro and Bruce Katz for their success in keeping this ball moving down the field. Here’s the report from late yesterday afternoon.
Mark Muro and Devashree Saha
December 19, 2011 | 4:10 pm
Notwithstanding the bleak outlook surrounding federal clean energy policy detailed in our recent report “Sizing the Clean Economy,” the FY 2012 omnibus spending compromise hammered out last week actually contains several reassuring affirmations of the value of recent institutional experiments.
One winner is the Advanced Research Projects Agency-Energy, perhaps the Department of Energy’s most popular program.
Although the program is funded at just $275 million–about half the level President Obama had requested–many will probably be relieved that the program has now survived, which hasn’t always seemed a certainty. Moreover, the deal improved on earlier bills that have circulated, suggesting that the cause of the government fomenting disruptive innovation using “outside-the-box” investments in venturesome technology ideas may be gaining traction. That’s good news.
So is another happy surprise in the deal: the authorization of two new DOE Energy Innovation Hubs, one specializing in rare earths and energy-critical materials and one for energy storage technologies. To be sure, the Obama administration had originally asked for eight of these hubs, and settled for three before this year requesting funds for three more in 2012. However, congressional appropriators weren’t convinced that there was a need for a hub focused on smart grid technologies, as reported Darius Dixon in Politico, and so the nation now has two more of them, for a total of five of these special purpose-driven, multidisciplinary centers for accelerated collaboration between corporations, universities, and government labs.
Yet we’ll take it. Having long argued that the nation has been making do with an obsolete energy research paradigm excessively oriented toward individual academic investigators, on the one hand, and the siloed and bureaucratic efforts of the DOE’s energy laboratories, on the other, it is gratifying to watch the slow but continuing rollout of a true network of well-funded, multi-sector regional innovation centers. Congress is doing the right thing by creating–hub by hub–a set of sizable new institutes charged with “winning the future” in energy technology.
The following post was co-authored by Shawn Lesser (Watershed Capital Group) and me and appeared initially on the Cleantechies blog: 
A number of the cleantech efforts between the United States and China reflect the need for cooperation on issues surrounding climate change and clean energy as it is a major factor in the relations of these two countries. Although there are still issues to resolve in many of the collaborations, it is believed that if the United States and China can continue in their cleantech collaborations, that it will show the world that two major players on the international platform are serious about combating the challenge of climate change, and it will also encourage other countries to create alliances. Through collaboration, the two largest greenhouse gas emitters will be able to create technologies required to combat climate change. Not only that, but tangible benefits will be developed, not just for the United States and China, but the world as a whole.
1) United States – China Ten Year Framework for Cooperation on Energy and Environment was established in 2008, and it “facilitates the exchange of information and best practices to foster innovation and develop solutions to the pressing environment and energy challenges both countries face.” It also led to the creation of “EcoPartnerships” – a way to encourage both United States and Chinese stakeholders to strengthen their commitment to sustainable economic development within the local level.
2) United States – China Clean Energy Research Center (CERC) has its main headquarters in both countries. It will facilitate research and development of technology by a team of leading scientists and engineers in the clean technology industry. The research center receives both private and public funding which is split evenly for each country. The initial research priorities of the United States – China Clean Energy Research Center includes building energy efficiency, clean vehicles, and clean coal, which includes carbon capture and storage. It was founded in 2009 by United States President Barak Obama and Chinese President Hu Jintao. The goal of the research center is to “build a foundation of knowledge, technologies, human capabilities, and relationships in mutually beneficial areas that will position the United States and China for a future with very low energy intensity and highly efficient multi-family residential and commercial buildings.”
3) United States – China Energy-Efficient Buildings (CERC-EEB) Action Plan enables the United States and China to work alongside the private sector in an effort to develop energy efficient rating systems and building codes, benchmark industry energy efficiency, provide training to building inspectors as well as energy efficiency auditors at industrial facilities, synchronize test procedures and performance metrics for consumer products that are energy efficient, exchange energy efficient labeling systems best practices, and assemble a new annual United States – China Energy Efficiency Forum. The action plan will be achieved through green building and communities, industrial energy efficiency, consumer products standards, advanced energy efficiency technology, and public and private engagement.
4) United States – China Electric Vehicles (CERC-EV) Initiative builds upon the previous United States – China Electric Vehicle Forum which was held in 2009. The initiative comes from the shared interest in increasing the utilization of electric vehicles to decrease oil dependence and greenhouse gas emissions, while promoting viable economic growth. This initiative includes a joint standard in development, demonstration projects in multiple cities in each country, technical road mapping, as well as projects to provide the public with more information.
5) 21st Century Coal Program (CERC-ACTV) promotes a cleaner use of coal resources, such as large-scale carbon capture and storage projects. The program calls for collaboration between a number of companies in the United States, including General Electric, AES, and Peabody Energy, which will be working with a number of Chinese companies to develop an integrated gasification combined cycle power plants, methane capture, as well as a number of other technologies.
6) China Greentech Initiative was founded in 2008 and has rapidly grown to become the only China-international collaboration platform of 100+ organizations, focused on identifying, developing and promoting green technology solutions in China. CGTI released its first free public deliverable, The China Greentech Report at the World Economic Forum in Dalian, China in 2009. With over 50,000 copies in use, the report is commonly referred to as the ‘primer’ by which to understand China’s greentech markets.
7) United States Alliances in Chinese Cleantech Industry includes the availability of a number of United States cleantech companies to invest into the Chinese cleantech industry. Currently, many companies from the United States are finding opportunities through alliances and cleantech and capital technology transfer investments. This leads to an increase in opportunities to assist cleantech into becoming one of the largest industries on a global platform. There has been much in the way of cross-border collaboration in many cleantech sectors, including solar and wind generation, water technologies, smart grid infrastructures, and electric transportation.
8 ) United States – China Renewable Energy Partnership develops roadmaps for widespread and continual renewable energy research, development and deployment in the United States and China, including renewable energy road mapping, regional deployment solutions, grid modernization, advanced renewable energy technology research and development collaboration in advanced biofuels, wind, and solar technologies, and public-private engagement to promote renewable energy and expand bilateral trade and investment via a new United States – China Renewable Energy Forum held annually. In connection with the U.S.-China Renewable Energy Partnership, another important area of U.S.-China cooperation is the Shale Gas Initiative.
9) United States – China Energy Cooperation Program describes itself as the only non-governmental organization that focuses on the United States – China business development within the clean energy sector. The partnership’s purpose is to “promote commercially viable project development work in clean energy and energy efficiency, and support the sustainable development of the energy sectors in both countries.” It was founded in Beijing in 2009, initiative by the United States commercial sector, and provides a vehicle allowing companies from both countries to work together and pursue clean sector market opportunities, address any trade impediments, and increase sustainable development.
10) Key U.S.-China Regional Cooperation Initiatives. An important layer of ‘connectivity’ in the U.S.-China clean energy business landscape is provided by long-standing, regionally-based cooperative initiatives. Top among these are the U.S.-China Green Energy Council (based in the Bay Area), the U.S.-China Clean Energy Forum (based in Greater Seattle with a Washington DC presence), and the Joint U.S.-China Cooperation on Clean Energy (based in Beijing, Shanghai and Washington DC).
Article by Shawn Lesser & Terry Cooke.
Shawn is president and founder of Atlanta-based Sustainable World Capital, which is focused on fund-raising for private equity cleantech/sustainable funds, as well as private cleantech companies and M&A. He is also a co- founder of the Global Cleantech Cluster Association (GCCA), and can be reached at shawn.lesser@sworldcap.com
Terry Cooke is Strategic Advisor for Global Partnerships for the Global Cleantech Cluster Association (GCCA). He is also a 2010 Public Policy Scholar on U.S.-China Clean Energy at the Woodrow Wilson Center and author of the forthcoming Sustaining U.S.-China Clean Energy Cooperation being published by the Kissinger Institute of the Wooldrow Wilson Center. His website is www.terrycooke.com .
______Assessing China / The TEA Collaborative______ 