June 28, 2022

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Will Japan and the US form a cutting-edge chips alliance to cut dependence on Taiwan?

Will Japan and the US form a cutting-edge chips alliance to cut dependence on Taiwan?. (Photo by HENRY NICHOLLS / POOL / AFP)Japan and the US governments are close to agreeing on cooperation in producing chips more advanced than 2 nanometers.Both countries are worried about their dependence on Taiwanese and other suppliers and seek to diversify sources.They are also working on a framework to prevent technology leaks, especially to China.Last month, there were reports indicating that the US is coming up with a new Indo-Pacific Economic Framework, and have asked Japan to join on board. Both countries were also encouraging members of ASEAN to join in to prevent the shortage of semiconductors and other strategic goods as they seek to reduce economic reliance on China. Now, the US and Japan may forge deeper ties as they plan on building supply chains for cutting-edge chips too.At this point, when it comes to chips, both the US and Japan are worried about their dependence on Taiwanese and other suppliers and therefore they seek to diversify sources. Therefore, as per a Nikkei report that had quoted some anonymous sources, the two governments are close to agreeing on cooperation in producing chips more advanced than 2 nanometers. For context, currently Taiwan Semiconductor Manufacturing Co (TSMC) is the leading development of the 2-nanometer technology, while IBM has completed a prototype in 2021. Although the Japanese government has invited TSMC to build a plant on the southwestern island of Kyushu, to increase domestic chip production, the plant, however, will only produce less-advanced 10- to 20-nanometer chips. That said, the new Japan-US cooperation, which focuses on cutting-edge developments, can be considered as the next step after the invitation to TSMC. To top it off, both the US and Japan are also said to be working on a framework to prevent technology leaks, with China in mind. Japan’s Minister of Economy, Trade and Industry Koichi Hagiuda is visiting the US to meet the US Commerce Secretary Gina Raimondo. During this very visit, they are expected to announce the chip cooperation. To recall, Japan has been concerned about waning domestic development and production in the industry. To recall, the country had about 50% of the global semiconductor market of about 5 trillion yen (US$38 billion at current rates) in 1990. Alas, market share shrunken about 10%, despite even the industry size ballooning to about 50 trillion yen.Japan’s Ministry of Economy, Trade and Industry (METI) attributes Japan’s fading dominance to a number of factors, including the US–Japan trade war in memory chips, its failure to embrace a horizontally integrated production model, its delay in digitalization and resulting lack of demand, an obsession with self-sufficiency and lack of public investment. Furthermore, domestic foundries are outdated and incapable of producing high-end chips. That led to a semiconductor strategy in June 2021 published by METI, calling for increased resilience in the domestic industrial base. The Japanese government in November last year, even approved 774 billion yen (US$6.8 billion) in funding for domestic semiconductor investment, in an effort to make the nation a major global provider of essential computer chips. The package consists of three parts which include 617 billion yen to fund domestic investment into cutting-edge chip manufacturing production capacity, 47 billion yen for legacy production such as analog chips and power management parts, as well as 110 billion yen for the research and development of next-generation silicon. 
Dashveenjit Kaur
| @DashveenjitKDashveen writes for Tech Wire Asia and TechHQ, providing research-based commentary on the exciting world of technology in business. Previously, she reported on the ground of Malaysia’s fast-paced political arena and stock market.

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