The US CHIPS and Science Act just passed its two-year anniversary, and most coverage focused on the part President Biden emphasized: “America is now on track to produce nearly 30% of the global supply of leading-edge chips by 2032, up from zero only two years ago. … [M]y CHIPS and Science Act is bringing chips manufacturing back to America, strengthening global supply chains.” But strengthening global supply chains and increasing American production are two very different activities. SIG’s view is that the US is playing several distinct games at once: improving US production, isolating the Chinese technology industry, and strengthening certain alliances. The last game is the most interesting one, because it involves US industrial policy as an aspect of US foreign policy.
The US has been somewhat coy so far at naming the countries that will be part of the CHIPS Act-related International Technology and Security Innovation (ITSI) Fund, but the leading candidates are Vietnam, the Philippines, Indonesia, Costa Rica, Panama, Mexico and possibly Kenya. ITSI is administered by the State Department, and Jose Fernandez, undersecretary of state for economic growth, energy and the environment, has said there will be seven core partners without committing to a specific list. He has been promoting the effort as connected to the US wish to secure semiconductor supply chains that avoid China, a window of opportunity he said “may not be here forever.”
One reason for the vagueness is probably that the Commerce Department has its own priorities, including the Indo-Pacific Economic Framework (IPEF) Agreement Relating to Supply Chain Resilience. IPEF includes three of the possible seven: Indonesia, the Philippines and Vietnam. Then again, Secretary of State Anthony Blinken, before the Americas Partnership for Economic Prosperity, stressed the Western Hemisphere Semiconductor Initiative, which also encompasses three ITSI countries (Mexico, Panama and Costa Rica).
Some overseas coverage has even mentioned Puerto Rico as being on the CHIPS list, probably confusing the US territory with Costa Rica — although Puerto Rico would also be happy to get involved.
But if inter-departmental rivalry and confused ambitions have made the details a bit murky, the fundamental policy thrust is clear. The US is using the CHIPS and Science Act to both strengthen US semiconductor production and turn a difficult fact — that US domestic wages are high and US engineering talent has better options — into a strategic win.
The seven countries that have apparently been selected are wildly different. In many ways, the most interesting is Vietnam. It has been making a very strong push to educate engineers, who then become available at a much lower wage than engineers elsewhere: Vietnamese engineers earn half the pay of their Malaysian peers and a sixth of the going rate in Taiwan. This industrial planning is occurring under a Communist government undergoing a leadership transition after 13 years of tight-fisted rule by party general secretary Nguyen Phu Trong, who recently died at age 80. His successor, To Lam, was the tough public-security chief under Trong. His first official trip in his new position will be to China, Vietnam’s largest (and growing) trading partner. Vietnam has a very long history of conflict with China, but of course it also has a shorter but intense history of conflict with the US.
From a distance, it does look odd that the US, hoping to secure its supply chain for vital semiconductor technology, would be relying in part on one Communist state to help weaken another Communist state.
However, US relations with all seven of the countries on the CHIPS list have had their fraught moments, with the exception of Costa Rica. The technology struggle with China is forcing the US alliance structure into strange new forms. The cold reality is that traditional allies like Japan, South Korea, Australia, Taiwan and others are at demographic plateaus and are priced out of the lower reaches of semiconductor production. A new tier of alliances is being created to deal with this problem.
The choices being made are often more economic than political — Vietnam’s economy is simply excelling at taking advantage of US-China conflict, as is Mexico’s under left-wing governments that cannot be described as pro-US. However, China was once itself a favored partner despite its ideological coloring — and then, as Xi Jinping’s power and political direction became clear, it was no longer.