Magdeburg in former East Germany is famous for its towering Gothic cathedral, and not a lot else. However, it is about to play a key role in US and European efforts to tilt the global balance of power.
Intel Corp unveiled plans on Tuesday to build a giant, 17 billion euro (US$18.8 billion) factory to manufacture cutting-edge semiconductors in the city, adding to new plants in Arizona and Ohio that the company announced over the past six months.
They are part of CEO Pat Gelsinger’s plan to wrest control of production from Asia and tackle the global shortage of chips that has been exacerbated during the COVID-19 pandemic, and exposed again following Russia’s invasion of Ukraine.
Illustration: Louise Ting
“The situation reinforces why we’re doing this project, and the need for globally resilient and balanced supply chain,” Gelsinger said after announcing the Magdeburg site.
His ambition is one that the US and the EU are promising to back with a combined US$100 billion in a subsidy race to reduce reliance on imports just as China plans to turn itself into a chip powerhouse.
However, behind closed doors, some people in the industry are getting increasingly concerned that the push to make the West more competitive might backfire.
Their worry is not only that the money is too little, too late, but the political strings attached to the aid could further complicate global supply chains. Different parts of the planet will compete to secure supplies while championing domestic plants that cannot yet fill the void.
The dearth of semiconductors has brought some auto manufacturing to a halt, and delayed shipments of game consoles and smartphones, waking up Washington and Brussels their continents’ dependence on a handful of regions for the key parts.
The most notable is Taiwan, a geopolitical hotspot because of historically tense relations with China, and one whose vulnerability is under more scrutiny since Russia’s invasion of its smaller neighbor.
CHIP POLITICS
However dysfunctional it might look at the moment, the supply chain is global and fully integrated. Unpicking it could carry greater risks, said Rudi De Winter, CEO of German chipmaker X-Fab Silicon Foundries.
The semiconductor industry “is a very global business, and it has done well being a global business,” he said. “This whole trend of trying to make things sovereign in every region and having its own supply chain is rather driven by politics and not by the semiconductor industry.”
Russia, which has been sanctioned by the US and Europe, is a clear example of how semiconductors have become increasingly important political tools. The items were some of the first goods that Washington and Brussels targeted to cut Russia off from the global economy, and they have continually threatened more action. Manufacturing of vehicles in Russia, for example, has already been hit.
On the flip side, Russia and Ukraine export palladium and neon used to make semiconductors, although chipmakers have downplayed the potential effects.
US Secretary of Commerce Gina Raimondo said on March 9 that if Chinese companies defy US restrictions against exporting to Russia, Washington could shut down companies by cutting them off from the US equipment and software they need.
Semiconductors and other high-tech components are becoming “weaponized” in trade disputes and supply chain issues, said Rafael Laguna de la Vera, CEO of SPRIN-D, Germany’s federal agency for disruptive innovation.
“This is why regions need to invest into high tech to get resilient,” he said.
The US and Europe want to claw back their share of the chip market after collapses in the past few decades. The US accounted for nearly 40 percent of the world’s silicon wafer production in the 1990s, while the EU accounted for more than 20 percent, figures cited by Washington and Brussels showed.
The US is now below 15 percent and the EU has about 10 percent.
BIDEN’S PLANS
In an effort to shift production away from Asia, US President Joe Biden plans to put US$52 billion into domestic semiconductor research, development and production as part of its broad China competition bill, although it is still awaiting approval.
The EU’s 27 member states, meanwhile, are only just scrutinizing a European Commission proposal worth US$48 billion to build up the bloc’s chip capacity.
China has been spending what could amount to US$150 billion by 2030 to jump-start production. The country is still far behind, especially when it comes to advanced chipmaking, but it is catching up quickly.
“We’re laser-focused on revitalizing America’s semiconductor industry,” Raimondo said at Intel’s new site in Ohio in January. “Semiconductors are the essential building blocks of our modern economy.”
Some members of the US Congress, though, want to see the public funds attached to guardrails that prevent companies from using the money to invest in China, while Intel at one point lobbied against the funds going to firms headquartered abroad.
In the past, things were simple for chip producers, said Kurt Sievers, CEO of Dutch chipmaker NXP Semiconductors NV.
Companies “could just choose production locations and [research and development] locations wherever you wanted,” he said. “I think we just have to stay realistic. Maybe these times are over. Now we are dealing with the world as it is going to evolve.”
Gelsinger is a major force behind government investment in new plants. Despite the naysayers, he said that public funding could help Intel lower the cost of trying to catch up on cutting-edge chips after falling behind Taiwan Semiconductor Manufacturing Co (TSMC), and South Korea’s Samsung Electronics. It would also make the US and Europe more self-reliant.
“Let’s not waste this crisis,” Gelsinger said earlier this year. “It’s good economics, but it’s also national security.”
Intel’s new plant in Magdeburg, which is scheduled to start production in 2027, is part of an 80 billion euro package of investment in Europe by the Californian company.
Whether the numbers stack up remains to be seen.
The US and Europe have some serious catching up to do, De la Vera said. Japan, for example, is also promising state funding to boost production. New facilities include a US$7 billion factory planned by TSMC in conjunction with Sony Group and Denso.
South Korea also wants to become the world’s biggest chip producer, with companies and the government pouring a total US$450 billion into the industry by 2030.
TAIWAN’S ROLE
Achieving economies of scale that can compete with Taiwan’s business model is also going to be tough if each region is racing to build its own capacity.
TSMC accounts for more than 50 percent of the global foundry market, or the business of purely making chips for other companies. Its customers include Apple Inc, which relies on Taiwanese chips for iPhones.
Indeed, the reliance on TSMC is the core concern. An invasion of the island by China would leave the world’s most advanced chips in the hands of Beijing. US academic Jared McKinney suggested in a US Army journal that Taiwan should protect itself by threatening to destroy chipmaking facilities so that Beijing would see its tech industry “immobilized” should it invade. He called it a “broken nest” strategy.
TSMC plans to have a new US location operating in Arizona in two years, and is mulling a plant in Germany after European automakers repeatedly expressed concerns about the long-term effects of the chip shortage.
However, Taiwanese industry insiders remain skeptical of plans to relocate production back to the West.
“It’s not possible to turn back the clock,” TSMC founder Morris Chang (張忠謀) told a Taiwanese tech association in October. “If you want to re-establish a complete semiconductor supply chain in the United States, you will not find it to be a possible task, even after you spend hundreds of billions of dollars.”
The federal money on the table is just a fraction of what the US industry needs, and some executives are wary of how governments are asserting themselves by slapping down mergers, limiting exports or banning working with industry partners.
The most recent example was Germany’s nixing of Taiwanese company GlobalWafers Co’s takeover of German rival Siltronic earlier this year. Industry officials said the move showed that the West is turning inward when governments should develop stronger alliances with Asia.
The White House has quietly moved to stop Dutch company ASML Holding NV from exporting its cutting-edge equipment to China. ASML has an effective monopoly on advanced extreme ultraviolet lithography machines used by companies such as TSMC.
The administration of former US president Donald Trump began pressuring the Dutch government as early as 2018 not to authorize the sale of ASML’s EUV machines to China, people familiar with the talks said.
That pressure has escalated under Biden, with officials considering pushing the Dutch government to put in writing a de facto export ban, people familiar with the internal deliberations said.
The company has become increasingly frustrated with the intervention of the US, which is also debating whether to ask the Dutch to ban ASML from selling its mature deep ultraviolet lithography systems to China.
“Any suggestion by any country to limit the shipment of the production equipment for mature technology to areas of the world where that technology is being produced is not a good idea,” ASML CEO Peter Wennink said. “We should not do that.”
CHIPMAKING DOUBTS
The US and Europe are set to discuss their strategies on semiconductors as part of the Trade and Technology Council, but there is still a long way to go to figure out if and how to coordinate government aid in the most strategic ways.
A US official said that the country wants to avoid a subsidies arms race, although a lingering mistrust from the Trump years has made the EU wary.
While the US’ eyes are on China, the EU plans to add strings to subsidies that would ensure the bloc possesses essential components in times of emergencies. These ideas follow lessons from the COVID-19 pandemic, when the US and the UK had quicker access to vaccines.
EU Internal Market Commissioner Thierry Breton has said the US Defense Production Act was a source of inspiration for the “security of supply” proposals.
The plans are not protectionist, nor are they seeking to make Europe completely autonomous, he said. Instead, they give the EU leverage to compete.
“That’s the new geopolitics of supply chains,” Breton said.
There is no shortage of skepticism, considering that the EU tried to double production nearly 10 years ago and failed. Now, the overall goal is for Europe to make 20 percent of the world’s semiconductors by 2030. With global demand expected to as much as double, in practice that means quadrupling Europe’s production within eight years.
This time, the EU opened the door to providing public money for production of chips — a massive shift — but many companies in the region question whether the bloc should be placing so much weight on making the next generation of chips rather than the less advanced, more “mature” chips currently in shortage.
Sievers said that the bloc should focus first on providing what the industry needs.
Leapfrogging to the leading edge of chipmaking “would be missing the beat of what the European industry needs in the next couple of years,” he said.
Whatever type of chips end up being produced, industry insiders expect the US and Europe will always be dependent on Asia for their materials, not least because of the global intricacies of supplies.
TSMC chairman Mark Liu (劉德音) highlighted the connectivity in December, saying that some semiconductor chemicals required by Intel are shipped to the US by Taiwanese suppliers. In other words, even US-made products rely on the outside world.
That is what makes the plans by Washington and Brussels so unrealistic, said Jan-Peter Kleinhans, a researcher at the German thinktank Stiftung Neue Verantwortung in Berlin.
There is also the risk of exacerbating shortages if you have politicians telling companies to prioritize certain chips for certain regions, Kleinhans said.
“Suddenly, it’s not up to the market anymore,” he said. Governments are not chip buyers or chipmakers. “It’s really 20th century policy tools applied to a 21st century value chain.”
In an article published in Newsweek on Monday last week, President William Lai (賴清德) challenged China to retake territories it lost to Russia in the 19th century rather than invade Taiwan. “If it is really for the sake of territorial integrity, why doesn’t China take back Russia?” Lai asked, referring to territories lost in 1858 and 1860. The territories once made up the two flanks of northern Manchuria. Once ceded to Russia, they became part of the Russian far east. Claims since then have been made that China and Russia settled the disputes in the 1990s through the 2000s and that “China
China has successfully held its Forum on China-Africa Cooperation, with 53 of 55 countries from the African Union (AU) participating. The two countries that did not participate were Eswatini and the Sahrawi Arab Democratic Republic, which have no diplomatic relations with China. Twenty-four leaders were reported to have participated. Despite African countries complaining about summit fatigue, with recent summits held with Russia, Italy, South Korea, the US and Indonesia, as well as Japan next month, they still turned up in large numbers in Beijing. China’s ability to attract most of the African leaders to a summit demonstrates that it is still being
Trips to the Kenting Peninsula in Pingtung County have dredged up a lot of public debate and furor, with many complaints about how expensive and unreasonable lodging is. Some people even call it a tourist “butchering ground.” Many local business owners stake claims to beach areas by setting up parasols and driving away people who do not rent them. The managing authority for the area — Kenting National Park — has long ignored the issue. Ultimately, this has affected the willingness of domestic travelers to go there, causing tourist numbers to plummet. In 2008, Taiwan opened the door to Chinese tourists and in
Taiwan People’s Party (TPP) Chairman Ko Wen-je (柯文哲) on Thursday was handcuffed and escorted by police to the Taipei Detention Center, after the Taipei District Court ordered that he be detained and held incommunicado for suspected corruption during his tenure as Taipei mayor. The ruling reversed an earlier decision by the same court on Monday last week that ordered Ko’s release without bail. That decision was appealed by prosecutors on Wednesday, leading the High Court to conclude that Ko had been “actively involved” in the alleged corruption and it ordered the district court to hold a second detention hearing. Video clips
RSS