In the last years, the competition in the economic field between United States and China have increased. This achieved a new level when former US President Trump began a so called “trade war” against China after decreeing an increase in tariffs against a range of goods. With the new Biden administration there were some expectations that a kind of “truce” could be achieved, but this did not happen. Instead of that, not only the trade restrictions are in place, but the Biden administration is imposing a new range of measures to counter China. These measures include new restrictions on the sale of goods deeming to be of high technology. Especially these measures look for to deny China the capacity to produce high end semiconductors, which are deemed to be the “brain” of every product, from a washing machine to a fighter jet. Currently the countries or economies considered to produce most of the high-end semiconductors (and the machinery, and parts and components needed to do that) are South Korea, Taiwan, US, and Japan. A U.S. initiative tries to bring them together and control the technology needed to produce them, in the so called “Chip 4 Alliance”. It seems the United States is embarking now in a “tech war” against China. In this report the so called “Chip 4 Alliance” will be analysed. First, a review to the state of the semiconductor industry is given; second, a look is given to the feasibility of the initiative becoming a reality; third, the possible impact in China capacity to produce high end semiconductors is analysed; and fourth, the consequences for the rest of the world is assessed.

1. China-United States competition and the Chip 4 Alliance
Carlos Aquino*
In the last years, the competition in the economic field between United States and
China have increased. This achieved a new level when former US President Trump
began a so called “trade war” against China after decreeing an increase in tariffs
against a range of goods. With the new Biden administration there were some
expectations that a kind of “truce” could be achieved, but this did not happen. Instead
of that, not only the trade restrictions are in place, but the Biden administration is
imposing a new range of measures to counter China.
These measures include new restrictions on the sale of goods deeming to be of high
technology. Especially these measures look for to deny China the capacity to produce
high end semiconductors, which are deemed to be the “brain” of every product, from
a washing machine to a fighter jet. Currently the countries or economies considered to
produce most of the high-end semiconductors (and the machinery, and parts and
components needed to do that) are South Korea, Taiwan, US, and Japan. A U.S.
initiative tries to bring them together and control the technology needed to produce
them, in the so called “Chip 4 Alliance”. It seem the United States is embarking now in
a “tech war” against China.
In this report the so called “Chip 4 Alliance” will be analysed. First, a review to the
state of the semiconductor industry is given; second, a look is given to the feasibility of
the initiative becoming a reality; third, the possible impact in China capacity to
produce high end semiconductors is analysed; and fourth, the consequences for the
rest of the world is assessed.
1. Review of the actual state of the semiconductor industry
What are semiconductors? According to the definition of the Semiconductor Industry
Association “Semiconductors, sometimes referred to as integrated circuits (ICs) or
microchips, are made from pure elements, typically silicon or germanium, or
compounds such as gallium arsenide. In a process called doping, small amounts of
impurities are added to these pure elements, causing large changes in the conductivity
of the material.
Due to their role in the fabrication of electronic devices, semiconductors are an
important part of our lives. Imagine life without electronic devices. There would be no
smartphones, radios, TVs, computers, video games, or advanced medical diagnostic
equipment.”1
United States used to be the biggest producer of semiconductors, until 1990, together
with Japan, but South Korea and Taiwan began producing them. As it is seen in the
following Graphic the U.S. lost over the years the dominant position that it had thirty
1
Semiconductor Industry Association: What is a Semiconductor?
https://www.semiconductors.org/semiconductors-101/what-is-a-semiconductor/

2. years ago, as the major manufacturer of global chips, and the Chip 4 Alliance initiative
is considered an intent to not lost its remaining capacity.
Graph 1:
Source: Nikkei Asia: “Chipping in: How U.S. states woo the likes of TSMC and Samsung” September 30,
2022 https://asia.nikkei.com/Business/Business-Spotlight/Chipping-in-How-U.S.-states-woo-the-likes-of-
TSMC-and-Samsung
Also, the Biden administration signed into law in August the CHIPS and Science Act,
which includes subsidies for 52.7 billion dollars to bolster semiconductor research and
production.
According to the following table, in the second quarter of 2022, measured by revenue,
the biggest companies in the global semiconductor market are Taiwanese and Korean.
TSMC, or Taiwan Semiconductor Manufacturing Company, has a share of 53.4%,
Samsung is in second place with 16.5%. The third one is UMC, another Taiwanese
company, with a share of 7.2%, and in fourth place is GlobalFoundries, a company with
headquarters in U.S. with 5.9%. SMIC, a Chinese company, is in fifth place, with a share
of 5.6%.
Table 1:

3. Source: BusinessKorea: “Samsung'sFoundryMarketShareEdgesupinQ2” September 28, 2022,
http://www.businesskorea.co.kr/news/articleView.html?idxno=101217
2. Will the Chip 4 Alliance become a reality?
The idea of a Chip 4 Alliance is based in the notion that putting together U.S., Japan,
Taiwan, and Korea, they can control most of the process needed to produce the
semiconductors. United States is considered a global design powerhouse and holds
most of the electronic design automation (EDA) tool licences. Japan has a dominance
of the production of critical manufacturing equipment, and materials such as
photoresists. Taiwan has companies like TSMC and UMC that produces more than 60%
of the chips in the world, and is a centre for the assembly, testing, marking, and
packaging processes. And Korea has a company like Samsung that not only produce
but also design chips.2
The U.S. also see a threat from China that is advancing in the technology supply chain
and plans to invest 1.4 trillion dollars in high-tech industries by 2025, with the aim of
achieving a 70% semiconductor self-sufficiency rate by that year.
The Chip 4 Alliance initiative was first reported in March 2022 by the South China
Morning Post (SCMP). It cited a Korean news portal reporting that the US government
has “proposed setting up a semiconductor industry alliance with its Asian allies,
including South Korea, Japan and Taiwan, to keep mainland China’s fledgling
semiconductor industry at bay”3
In that article by the SCMP, it mentions that the news portal BusinessKorea reports
that the proposal was not “fully acceptable” for Korean chip companies, like Samsung
Electronics and SK Hynix, as these companies have invested billions of dollars in
manufacturing facilities in China and feared retaliations by Beijing if such an alliance
went ahead.
The article by SCMP mention for example that Samsung has invested twenty-five
billion dollars in a NAND flash project in Xian, and this facility produces more than 40%
of Samsung´s total NAND flash production capacity. Also mention that SK Hynix
operates a DRAM wafer fabrication plant in Jiangsu province and a packaging and
2
The Diplomat: “The Chip 4 Alliance might work on paper, but problems will persist”, August 25, 2022
https://thediplomat.com/2022/08/the-chip4-alliance-might-work-on-paper-but-problems-will-persist/
3
South China Morning Post: “US-China tech war: Washington said to eye chip alliance with Japan,
South Korea, Taiwan to squeeze China” 30 march, 2022
https://www.scmp.com/tech/tech-trends/article/3172418/us-china-tech-war-washington-said-eye-
chip-alliance-japan-south

4. testing facility in Sichuan province. Integrated circuits (IC) or chips are the biggest
export item of South Korea to China.4
But Korea has strong political and military links with U.S. In its visit to Korea in May this
year Biden visited a Samsung Electronics semiconductor factory, showing the
enormous interest of the U.S. in having Korea in the Chip 4 Alliance. At the end, Korea
will have to maintain a delicate balance between its strong economic links to China
and its security cooperation with the United States.5
In the case of Taiwan, the island has been eager to join the Chip 4 Alliance from the
beginning. It seeks to strengthen its economic links with the U.S. and wants to become
a member of the U.S. initiative of the Indo Pacific Economic Framework (IPEF),
launched in May this year. IPEF includes fourteen countries. IPEF countries entered
official negotiations in September and strengthening supply chain for semiconductors
is in the agenda. Besides this, Taiwan is applying to become a member of the CPTPP,
that also China is trying to enter.6
In the case of Japan, which depend in bigger part for the U.S. for its military defence,
the government is looking for to deepen its relationship with U.S. Joining the 4 Chip
Alliance is a natural choice for Japan. Both countries are also looking to develop
cutting-edge, next generation semiconductors for applications in quantum computer
and artificial intelligence and have agreed to create a joint research centre for that
end.
As reports The Korea Times, the aim is also for U.S. and Japan to create facilities to
manufacture chips of less than 5-nm, that currently only Korea and Taiwan can do.7
3. Impact in China capacity to produce high end semiconductors
China is investing a lot of money to create its own semiconductor supply chain and to
not depend in foreign suppliers. Launched in 2015, its “Made in China 2025” initiative
fixed a target of achieving a 70% rate of self-sufficiency in semiconductors by 2025. But
according to an article in the SCMP, at present China “China lacks the software,
equipment, and capabilities to produce advanced chips, a weakness laid bare by an
escalating tech war between Washington and Beijing. The US has imposed trade
sanctions on China that prohibit the export of advanced US-origin technology on
4
See the SCMP article mentioned before.
5
Nikkei Asia: “U.S. chip alliance against China tests South Korea´s loyalty”, September 24, 2022
https://asia.nikkei.com/Business/Tech/Semiconductors/U.S.-chip-alliance-against-China-tests-South-
Korea-s-loyalty
6
The Asahi Shimbun: “Taiwan joining U.S.-led ´”4 Chip alliance” to counter China”, September 15, 2022
https://www.asahi.com/ajw/articles/14718568?fbclid=IwAR2-
WUCDX0_6Xwu_UnepOLetJLX6Hkn5DHRfhwH1lznSaTaNd1sIyPG6bTo
7
The Korea Times: “US-Japan chip alliance” August 3, 2022
https://www.koreatimes.co.kr/www/opinion/2022/08/202_333834.html

5. national security grounds, which have – as an example – crippled the smartphone
business of Huawei Technologies Co, one of China’s technology powerhouses.”8
The formation of a Chip 4 alliance will make China to redouble its effort to achieve self-
sufficiency in semiconductors. These efforts seem to be paying off. According to a
report, for example, SMIC, the country top chip maker, has been able to produce 7-nm
chips, something than only companies like Samsung, TSMC and Intel are capable to do.
The above is the more striking given that SMIC have been placed in a U.S. trade
blocked list and face additional restrictions to import advance equipment to produce
high end chips.9
4. Consequences for the rest of the world
It has been reported that a preliminary meeting of the parties belonging to the Chip 4
Alliance took place on September 28. The virtual meeting was hosted by the American
Institute in Taiwan (AIT) and the representatives of Korea, Japan, U.S., and Taiwan
exchanged opinions about goals to be set in the working groups that will be formed to
“tackle global semiconductor supply chain difficulties”.10
The formation of the Chip 4 Alliance could make permanent the so-called decoupling
of the U.S. and China economy. In one side, the U.S, and its allies are looking for to cut
its dependence on China and want to form supply chains that excludes China. In the
case of semiconductors, considered the “brain” of every manufactured good, and the
more sophisticated it the more necessary, the formation of the Chip 4 Alliance is seen
by the U.S. as the necessary step to ensure that.
But also, the aim of the U.S. is to deny China the possibility of creating its own
semiconductor industry, or at least, the creation and production of high-end chips.
For the rest of the world, the creation of two different supply chains could make more
expensive the chips and delay the creation of new and advanced ones (as collaboration
between several countries now is curtailed -China excluded for example-). Or it could
force countries to choose which one to get and face penalty from the other side. In the
case of the adoption of 5G technology for example, is well know the U.S. attitude of
8
SCMP: “US-China tech war: Beijing forges ahead with all-in chip effort, brushing asides asset bubbles
and graft probes” 27 August 2022 https://www.scmp.com/tech/big-tech/article/3190360/us-china-
tech-war-beijing-forges-ahead-all-chip-effort-brushing-
aside?module=lead_hero_story&pgtype=homepage
9
SCMP: “China´s top chip maker SMIC achieves 7-nm tech breakthrough on par with Intel, TSMC and
Samsung, analysts say” 29 August 2022 https://www.scmp.com/tech/big-tech/article/3190590/chinas-
top-chip-maker-smic-achieves-7-nm-tech-breakthrough-par-
intel?utm_medium=email&utm_source=cm&utm_campaign=enlz-
chinaeconomicupdate&utm_content=20220830&tpcc=enlz-chinaeconomicupdate&UUID=dfe8b11d-
fd87-457e-9dec-b388aef7bdda&tc=15&CMCampaignID=81ae7ba21df5ab7ab5e0ab278f417b77
10
Focus Taiwan: “Preliminary meeting of U.S.-proposed “Chip 4” alliance held virtually” September 29,
2022, https://focustaiwan.tw/business/202209290027

6. pressing countries not to choose China 5G technology, even with the menace of
sanctions if they do that.
October 4, 2022