Since the painful 2020 semiconductor shortage, governments have poured public investments into semiconductors. All fear disruption in supply chains. Many worry about China using advanced chips to bolster its military. The US, EU, and South Korea have passed legislative CHIPS Acts. Others, from Japan and South Korea at the high end to Malaysia and India at the low end, have moved forward with ambitious, if less formal, projects.

A common goal is to gain some level of self-sufficiency. Rather than reinforcing a global semiconductor supply chain where each region focuses on its strengths, many governments compete. Each country wants to attract investment and win the largest market share. Instead of working together to meet the China challenge, democratic leaders quarrel about how hard they should crack down on Beijing.

This series details and analyzes the various national plans. It concludes that national self-sufficiency represents a dangerous mirage. Semiconductors rely on a complex global supply chain; so, each nation must concentrate on its strengths.

The current ingredients in various CHIPS Acts represent a recipe for billions of duplicative waste. They risk alienating a key semiconductor player, Taiwan while failing to keep down China, which looks poised to circumvent restrictions and catch up.

True, several governments focus their spending on their country’s strengths. The UK targets design. Japan strengthens chemicals and lithography. South Korea and Taiwan reinforce their world-beating advanced manufacturing.

In contrast, the US and EU attempt a little bit of everything. Both subsidize their domestic semiconductor supplies. Both try to reduce dependence on Taiwan, which produces more than 90% of the world’s most advanced chips. Both aim to de-risk from Chinese threats against Taiwan while cooperating with its powerful chip industry.

Although the transatlantic allies established the Trade and Technology Council to avoid a chip subsidies race, tensions are rising. Japan and South Korea, major global semiconductor supply chain players, worry about US semiconductor export restrictions to China. Two decades ago, Japan produced around 50% of all chips. Today, it reaches a mere 9%. South Korea depends on China as its most important trading partner, including for its chip exports. These Asian allies are uncomfortable with US export controls, which restrict their companies’ sales to China.

India and Malaysia are essential semiconductor hubs at the low end of the value chain. Companies outsource to them to reduce design costs. Although India has no end-to-end semiconductor chain, large numbers of Indian engineers design chips and equipment for foreign companies. New Delhi is spending $10 billion to move into advanced semiconductors, training 85,000 high-skilled semiconductor workers. Malaysia is disbursing $5.3 billion to do the same, training 60,000 workers. The two countries share a common goal — obtaining semiconductor manufacturing, which is now taking place in China.

The UK and Canada enjoy important semiconductor strengths and have announced initiatives to reinforce them. The UK has allocated £1 billion to the UK’s strengths in design, start-ups, and security technologies. Still, it has no strategy for where to source semiconductors in case of a supply-chain breakdown, and it is unclear how it will de-risk from China.

Canada supports numerous public initiatives and allocates funding rounds for domestic chip companies and projects but without a clear national strategy or budget. Its Semiconductor Council worries that Canada trails too far behind and advises that it should establish a “semiconductor pact with the US.”

Most of these programs suffer from a fatal flaw: a Don Quixote-like quest for self-sufficiency. No one can control the entire semiconductor chain from A to Z. Each region has its specialties and strengths. Public funds should support these strengths. Unless we work together, duplication will drown national efforts. And the West risks losing the chip race to a single-minded China.

Christopher Cytera is a Non-resident senior fellow with the Digital Innovation Initiative at the Center for European Policy Analysis and a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video, and imaging.

Sara Oversteyns attends the University of St Andrews and William & Mary in a Joint Degree Program.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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