De-risking? Decoupling? Whatever you call it, one thing is increasingly clear: Western allies are determined to up their production of semiconductors to reduce their dependence on supply chains exposed to China.
In a joint communique issued during the G7 summit, which concluded over the weekend in Hiroshima, Japan, members pushed back against what they called China’s “economic coercion,” and affirmed the “importance of cooperation on export controls on critical and emerging technologies such as microelectronics.”
The statement from G7 members Japan, the U.S., the U.K., France, Germany, Canada, Italy, and the European Union (the latter of which is technically a “non-enumerated member”) continued: “We are not decoupling or turning inward. At the same time, we recognize that economic resilience requires de-risking and diversifying.”
The statement is striking, says Nick Reiners, a senior analyst on geotechnology at the Eurasia Group, for its degree of alignment on China. “Previously, even if China isn’t always mentioned explicitly, the EU has been very reluctant to talk about China,” he says.
A big contributing factor for Europeans has been China’s refusal to condemn Russia’s invasion of Ukraine. “That’s forced a reevaluation of the relationship,” Reiners says.
But more than any other G7 member, Japan has been making waves recently in the semiconductor sector. Days before the G7 summit, Japanese Prime Minister Fumio Kishida met with CEOs from leading chipmakers including Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung, Intel, and Micron before announcing a $3.6 billion deal for Micron to produce chips in Japan starting in 2025, with support from the Japanese government.
Last week IBM and Google also announced a $150 million investment in a quantum computing research partnership between the University of Chicago and the University of Tokyo, a deal pitched by Rahm Emanuel, the U.S. ambassador to Japan. “We have to count on our allies more for primary research,” Emanuel told reporters.
These moves follow a $7.4 billion deal inked in February for TSMC to open a second factory in the country to make advanced chips. Japan has also poured billions worth of government subsidies into Rapidus, a new firm that Kishida hopes can turn his country back into a leading chipmaker.
Semiconductor expert Jason Hsu, a Taiwanese former legislator who is a senior fellow at Harvard’s Kennedy School, says Japan is emerging as an important player in the U.S.-led pivot away from Chinese tech. The pandemic devastated U.S. automakers as Chinese semiconductor supply chains slowed to a crawl. “Japan could be a substitute to produce those chips for automakers,” Hsu says, adding, “God forbid, if war breaks out in that region, Japan will be a very strategic base to make maneuvers or to resupply materials.”
But one U.S. ally could face new risks as the global chip landscape changes: Taiwan. Home to TSMC, the world’s leading foundry of advanced chips, Taiwan has been partly protected by what Hsu calls a “silicon shield”—the idea that China’s dependence on Taiwanese chips makes it less likely to invade.
Hsu believes that protection is now weakening as Western allies invest in chipmaking efforts elsewhere. Earlier this month, Warren Buffet’s Berkshire Hathaway announced it had sold all its shares in TSMC, citing geopolitical risk.
“The perception of Taiwan as dangerous undermines the business confidence of foreign investment,” Hsu says. “The Taiwanese government needs to speak up for its industry and for the interest of Taiwan in order to make sure we don’t completely give away our strategic industries, and [to] negotiate favorable terms for these chipmakers when they go overseas.”
As an example, he says, TSMC has been asked to share “excessive profit margin” with the U.S. government when setting up subsidized plants there, and the “Taiwanese government has been silent. I feel a window is closing, because if the industry is not capable of dealing with foreign government pressure, we will quickly lose our advantage.”
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