US To Squeeze Chip Choke Points To Thwart China Ambitions

A US national security commission led by former Google Chairman Eric Schmidt has recommended the US Congress tighten up “choke points” on chip-making technology.

According to Reuters, the US needs to implement the move to prevent China from overtaking the United States in semiconductors in the coming years.

It comes after US President Joe Biden signed an executive order on 24 February to tackle a number of pressing shortages for four critical products, including computer chips.

National security

American semiconductor firms account for 47 percent of global chip sales but only 12 percent of production, because they have outsourced much of the manufacturing overseas, mostly to Asia.

Under Biden’s order, the White House has ordered the US to diversify its’ supply chain dependence for specific products such as rare earth minerals from China.

It will look to develop some of that production in the United States and partner with other countries in Asia and Latin America when it cannot produce such products at home.

The review will also look at limiting imports of certain materials and train US workers to ramp up production at home.

Meanwhile the official report from the National Security Commission on Artificial Intelligence (NSCAI), recommended clamping down on China’s ability to procure the manufacturing equipment needed to make advanced computing chips.

It pointed out that advanced chips are used in surveillance technologies such as facial recognition – amid accusations that China is using such advanced technologies to suppress ethic minorities internally.

“China is making an aggressive push to promote authoritarianism around the world,” an NSCAI official told Reuters. “It boils down to semiconductors.”

The report points out that while most chip manufacturing is done in Asia, the majority of equipment needed to make the chips comes from American firms such as Applied Materials and Lam Research, which are already subject to American export controls.

It should be noted that other key chip making equipment comes from firms in other nations, such as Nikon and Canon in Japan, as well as ASML Holding in the Netherlands.

Report recommendations

According to Reuters, the NSCAI report recommends that the United States co-ordinate with those countries to create a policy of “presumptive denial” in each country for export licenses of advanced chip-making tools to China.

The report also recommends formalising into US policy a long-standing regulatory practice of limiting China’s semiconductor industry to two generations behind the United States.

In addition to steps to protect US and allied chip-making technology, the report also recommends measures to promote semiconductor manufacturing in America after decades industry migration to Taiwan and Korea.

Reuters reported that the $35 billion in proposals for grants and funding for chip plants and research overlaps with $37 billion in chip industry measures that President Joe Biden pledged to support last week.

The commission also calls for a 40 percent investment tax credit for semiconductor tools, which it says would spur chip factory construction in the United States as well as benefit American toolmakers.

“Our No. 1 ‘protect’ strategy is to run faster” than China’s chip industry, the NSCAI official was quoted as saying.

Silicon shortages

The US is alarmed at the global chip shortages that has forced car makers and other manufacturers to limit production.

German car maker VW last month publicly blamed poor planning by chip makers as the principle reason for most car brands around the world have had to to reduce factory production.

Audi (part of the Volkswagen group) also warned it was having to slow production because of the chip shortage, forcing it to make 10,000 fewer cars in the first quarter of the year and putting more than 10,000 workers on furlough.

Daimler (which makes Mercedes), Fiat, Honda, Ford, Nissan, Subaru and Toyota all reportedly have had to suspend production for days or weeks at a time.

Mazda also warned it would cut its global output by 7,000 vehicles in February and March.

General Motors also confirmed it was extending its production cuts at three North American factories.

Ford meanwhile warned this month the chip shortage could lead to a 10 to 20 percent loss in first-quarter production.

Samsung also recently warned that a global shortage in semiconductors for cars could have a knock-on effect on the memory chips used in smartphones.