US-Japan Cooperation in Semiconductors: can years of grievances and grudges be put totally behind? - 2022-08-09
After the United States and Japan proposed to strengthen cooperation in semiconductors in May this year, they have now taken a further step forward in their proposed cooperation. At the first meeting of the US-Japan Economic Policy Consultative Committee on July 29, 2022, the two countries included relevant cooperation in strengthening the supply chain in their joint statement and planned to jointly develop a new generation of semiconductors and establish a mass production system in Japan as early as 2025.
From competing with each other in the past to joining hands today to seize new high ground in the semiconductor domain, the United States and Japan have practically “put behind” their grievances and grudges of more than 30 years. But, the purpose is not as simple as it looks.
Former adversaries come to rapprochement for now
The "Japan-US semiconductor conflict" from the late 1980s to the early 1990s marked the start of the decline of the Japanese semiconductor industry. At the time, Japan, which accounted for more than 50% of the global semiconductor industry, was sued and harassed by the United States under "Section 301", and gradually lost its competitiveness under the pressure of the Japan-US Semiconductor Agreement. By 2020, Japan’s share of the global semiconductor industry had dropped below 10%. After the United States "strangled" the Japanese semiconductor industry, however, the US semiconductor industry itself has not been able to rest easy. Although the United States is still the leader in global semiconductor design and R&D, it only accounts for 12% of the global semiconductor manufacturing capacity at present, a significant decrease from 37% in 1990. Advanced wafer technologies which are most valued by all countries are now mainly in the hands of TSMC in China’s Taiwan, and Samsung in South Korea.
Changes in the global semiconductor industrial landscape have brought the United States and Japan back to rapprochement and alliance after years of alienation. It is a typical case of the often-quoted saying that “In international relations, there are no permanent friends or permanent enemies, only permanent interests”. Japan is eager to regain the past glories of its semiconductor industry, while the United States is trying to use the semiconductor industry and relevant supply chain as a weapon to contain China in the new geopolitical competitive environment.
Whether it is the US move to specifically modify and apply stricter "foreign-direct product rules" to target Huawei and its affiliated companies, or the malicious US action to suppress Chinese high-tech companies like SMIC, or the US attempt to pressurize the Netherlands into banning the sale of ASML lithography machines to China, or even the US effort to raise the local production of chips and outsourcing chips to allies in the name of improving the resilience of the semiconductor supply chain, the purpose of them all is to prohibit the export of high-end semiconductor products to China's strategic industries and prevent China's technological development.
"Dancing with the wolf" is an act hard to perform
By choosing to forget the smoke of its trade wars with the United States, believing in the United States' grand vision of building an economic order led by the United States and Japan, following the steps of the United States to wield government power in an industry that is more political than commercial and working with the United States to suppress China's increasing economic influence, Japan will find itself falling into a position of "dancing with the wolf" and get an outcome that may not be what it has desired.
Firstly, US-Japan cooperation in semiconductors is an unequal relationship of cooperation dominated by the United States. The so-called "flexible" semiconductor supply chain is completely defined and led by the United States. Just last September, in the name of helping to improve the trust and transparency of the semiconductor supply chain, the US Department of Commerce demanded important chip makers in the world, including Japanese companies, to "voluntarily" submit their sensitive information such as inventory levels, orders, sales and even top customer lists to the United States. Moreover, it also cited the Defense Production Act and other policy tools as the backing to force companies to take actions in accordance with the US demand. This is a blatant violation of the economic sovereignty and corporate privacy of other countries by the United States. The purpose is to exert greater control over the semiconductor industry, so that it can make more accurate strikes on China's technological development. For any country that places its bet on the United States, it is tantamount to ceding its economic sovereignty to the United States and placing the fate of its semiconductor industry entirely in the hands of the United States.
Secondly, highly politicized blocks are not conducive to forming a favorable ecosystem for the semiconductor industry. What the Biden administration has in mind is to strengthen cooperation with key partners and introduce more incentive measures to attract more chip manufacturing businesses back to the United States. However, this requires huge and continuous capital investment, sufficient high skilled workers and good market sales performance.
Due to labor costs and other factors, the 10-year cost of setting up a new plant in the United States is 30% higher than that in South Korea or Singapore, and 50% higher than that in China. At the same time, both in the United States and Japan, the semiconductor manufacturing industry is facing the severe challenge of high skilled labor shortages, which will restrict the development of semiconductor manufacturing capacity for a period of time.
Besides, without a certain commerce base, it is difficult for the chip industry to keep consistent leadership in technology, quality, cost and other aspects. The reality is that China is one of the largest semiconductor markets in the world, accounting for 25% of global consumption. As the United States continues to extend its sales ban on China to non-strategic sectors, its lost share of the Chinese market will seriously weaken US investment in semiconductor R&D, which will in turn affect the long-term viability of the US semiconductor industry. As for Japan's semiconductor industry, what comes with the US-Japan alliance is bound to be mounting pressure and intervention from the United States.
In a globalized market, global capital is bound to seek to avoid the increasingly irrational US export control on China. To a certain extent, this will promote the "de-Americanization" of the supply chain of the chip industry. To cope with the situation, the United States has to continue to intervene in its semiconductor industry, while constantly pressurizing its partners into taking concerted measures. The eventual outcome of segmenting the global market into political blocks will be low investment efficiency in the entire semiconductor industry and the distortion of the global market. Then, can Japan’s semiconductor industry, which aligns itself with the US action and dances to the US tune, return to its glorious pinnacle as it has hoped?
The author is Ke Jing, an associate research professor at the Institute of International Relations of Shanghai Academy of Social Sciences, who looks at semiconductor cooperation between the United States and Japan.
Source: Xinmin Evening News
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