Control over the production of advanced digital technologies is an intensifying field of interest in international security. To approach this, the Biden administration has proposed a ‘Chip 4 Alliance’ to promote semiconductor supply chain security in East Asia, in addition to the comprehensive sanctions intending to cripple China’s technological development launched in October 2022. The success of the unilateral sanctions depends crucially on mobilizing support among the United States’ allies which are vital links in the semiconductor supply chain. Yet the proposed alliance faces acute difficulties in coming to an agreement. Amid regional rivalries, a lack of a shared approach toward China, and a diverging view of business interests, could the new US sanctions push forward a Chip 4 Alliance?
What’s Behind the Chip 4 Alliance?
The United States push for the Chip 4 Alliance stems from their concerns over China’s increasing technological capabilities. Beijing became acutely aware of its dependencies on overseas technologies when the US prevented Huawei from purchasing needed American software and hardware in 2019. According to a report by Nikkei Asia, China has responded by creating internal agencies of industry leaders and political officials with the aim of becoming self-sufficient in semiconductor capacities. Companies with established links with Chinese industry leaders, such as Chinese Semiconductor Manufacturing International Corporation, are developing new capabilities.
On 7 October, the United States imposed far-reaching sanctions on China’s tech sector. These unilateral restrictions are intended to slow China’s technological progress with tight controls on high-end chip transfers between US firms and China subsidiaries. Penalties are intended to curtail key choke points and place a broad set of constraints on technological transfer that could be used for military purposes. Additionally, the United States claims China’s technological development is used in human rights abuses. Example of the close links between China’s tech companies and the security state are the widespread surveillance of Uyghur, Kazakh and other Muslim minorities in China.
The US recognizes that stunting China’s technological development requires cooperation from its allies in East Asia. South Korea, Japan, and Taiwan are home to the world’s most advanced stages of the semiconductor supply chain and their companies sell, produce, and rely on China’s industrial centers for semiconductors. The Chip 4 Alliance would enable governments and semiconductor companies to coordinate policies on supply chain security, workforce development, research, and subsidies. The priority is to develop standards intended to limit China’s domestic semiconductor development.
The Chip 4 Alliance has struggled to take off. Internal rifts between South Korea and Japan remain with an ongoing trade dispute over the historical legacies of the Second World War. In 2018, previous South Korean President Moon Jae-In ordered two Japanese companies to pay compensation for forced labor during Japan’s occupation of the Korean peninsula between 1910 and 1945. Both Japan's Prime Minister Fumio Kishida and South Korea’s newly elected president Yoon are attempting to cool relations in the interest of regional security. Yet both presidents are treading lightly to avoid nationalist issues coming to the fore. South Korea’s Democratic Party of Korea is sensitive to Japan-South Korean relations and Japan’s ruling Liberal Democratic Party has a conservative wing resistant to rekindling relations.
Under the Yoon administration, South Korea has avoided overtly politicizing economic relations with China. President Yoon has pushed for ‘mutual respect’ with China and is pursuing closer military relations with the US. Yet South Korean policymakers recognize that joining an alliance would harm its relationship with China. In August, China and South Korea established a Collaborative Supply Chain Council aimed at reducing disruptions in bilateral trade. While it is an essential partner in the semiconductor supply chain, joining the Alliance might push China to refuse to cooperate with South Korea over key issues. With North Korea’s escalating nuclear missiles tests, South Korea acknowledges that China is the only country with influence over its neighbor.
Multinationals are also resistant to sharing information with rivals in the fiercely competitive electronics sector. Samsung Foundry has resisted sharing materials or designs which could be used by their rivals like Taiwanese TSMC or US-based Intel. More problematically, China remains the largest production hub as well as the largest market for vast multinational firms. For a region where the Cold War never truly ended, the powerful business interests driving internationalized production networks known as ‘Factory Asia’ have always been conducted in the context of ‘hot economics, cold politics.’ Without a substantial change in regional security, the powerful business lobbies are unwilling to permanently damage their competitiveness for national security.
Changing Security Architecture in East Asia? A Forecast
With the recent US sanctions, the slow pace of the Chip 4 Alliance could be changing. Multinationals with subsidiaries in China will face tough export controls on exporting back to the US. Japanese firms are facing difficulties in exporting to the States in light of US sanctions and may attempt to hedge supply chain security over competitiveness. In the long-term, planning for the fallout of an invasion of Taiwan could be a prudent business decision. Moreover, the fear of Chinese economic sanctions against tech multinationals could be overblown. Chinese economic pressure has been aimed at commodities with easy substitutes such as iron ore and primary commodities. Would China’s leadership seriously consider economic sanctions on companies that are vital to securing a position in the fiercely competitive semiconductor sector?
Yet China’s economic weight and regional tensions still play a vital role. China makes up the fastest-growing market for semiconductor demand, as well as where most production is located. Companies are slow behind national governments in perceiving China as a strategic competitor as they still invest heavily in the country, where China’s economy has moved from low-cost assembly to rapidly adopt new skills and technology. However, East Asian states do share US concerns over China’s military modernization and see it as an immediate security threat. North Korea’s massive escalation in nuclear weaponry, competition in the South China Sea, and the prospect of an invasion of Taiwan in this decade will make security policymakers fear resolutely taking a firm joint (economic) stance with the United States.
Ultimately, the Chip 4 Alliance has profound implications for security in the Taiwan Strait. Enhancing cooperation between US allies could improve supply chain security and information sharing in the semiconductor industry. Yet achieving technological dominance in semiconductors is the ultimate goal of Xi Jinping's techno-security state. Forming a Chip 4 Alliance could stunt the Chinese Communist Party’s technological development in the long term. Systematically locked out of semiconductor ambitions, the CCP could decide that the economic fallout from an invasion of Taiwan’s semiconductor sector is a small price to pay for the rejuvenation of the Chinese Nation. While it is too soon to gauge China’s response, the mutually assured economic destruction of an invasion of Taiwan could become too one-sided to be effective.
About the author: Jacob Dickinson
Jacob studied Global Political Economy at Leiden University. He is passionate about international development and is looking to expand his expertise in geopolitics and crisis management. Curious about other cultures, he has travelled in Europe and Asia for both academic study and professional purposes. His expertise includes subjects like the geopolitics of energy, China’s international political economy, and the implications of globalized supply chains for industrial policy. He is particularly interested in the evolving political and economic relationships between China and ASEAN, and the consequences for regional development and security.