Semiconductor Industry and the Global Supply Chain: Let’s work together to assure Digital Inclusion across the World

Over the past 30 years, the semiconductor industry has been at the heart of technological advances that have generated enormous benefits for the US economy, US defense capabilities, and consumers and enterprises around the world. It has also created benefits for China, whose technology industry has been able to use foreign semiconductor components to develop increasingly competitive electronic devices that are gaining share in global markets. These advances in semiconductors were the fruit of a virtuous cycle of innovation that relied on the adequate protection of intellectual property and free and fair access to global markets — both for core technology and for tools — as well as on highly specialized supply chains that brought these innovations to end customers.

Recent frictions between the US and China, fueled by reciprocal national security concerns, have led to policies that seek to impose broad barriers to access to markets, technologies, and resources. Safeguarding national interests is critical, of course. But policy mechanisms require careful consideration if they are to avoid permanently harming the innovation model that has enabled the semiconductor industry’s success.

From a US perspective, the analysis shows that imposing broad unilateral restrictions on US semiconductor companies that prevent them from serving Chinese customers may backfire and risk endangering the US’s long-standing global leadership in semiconductors.

Preserving access to cutting-edge technology also serves China’s interests, particularly as it seeks to accelerate its economy’s transition toward a new growth model that relies more on higher-value-added products and technology-enabled productivity improvements.

Finding constructive ways to address some of the concerns expressed by the US, such as strengthening the protection of intellectual property and ensuring a level playing field for foreign semiconductor companies, may also benefit China’s own technology development aspirations. Such measures could further encourage foreign investment in R&D activity in China, favor inflows of know-how and talent that China needs in order to upgrade its own domestic industry’s capabilities, and ultimately stimulate healthy competition in innovation and quality.

A strong US semiconductor industry, well integrated into the global technology supply chain, is vital to the continued delivery of advances that will make the new era of digital transformation and AI possible. As with the mobile revolution, the massive benefits of such breakthroughs will reach consumers and enterprises in all countries, not just in the US. It is therefore urgent that the US and China find a new balance that, while safeguarding their respective national security interests, permits US semiconductor companies to continue investing heavily in R&D and making their cutting-edge products widely available to innovative device makers around the world, wherever they are.

The Strategic Importance of the Semiconductor Industry for the US

The US’s leadership in semiconductor technology is essential for economic competitiveness and national security — particularly as the world advances into the era of digital transformation and artificial intelligence (AI). The leadership position of the US, which has long supplied 45% to 50% of worldwide semiconductor demand, is grounded in an innovation-intensive model that relies on access to global markets. This access provides the large customer base needed to achieve scale to fund the high levels of investment in R&D that allow US companies to maintain their technological edge over global competitors, and it enables the highly specialized supply chains required for the industry’s complex manufacturing processes.

China accounts for a very large portion of the global semiconductor market, generating approximately 23% of demand in 2018. The US-China frictions have generated significant headwinds for US semiconductor companies.

Enabling Technology Breakthroughs

The semiconductor industry has been at the heart of successive revolutionary advances in information and communication technology (ICT) over the past three decades. ICT breakthroughs, in turn, have become a driving force behind economic growth, enabling the US to significantly outperform other high-income countries both in productivity growth and in real GDP growth since 1988.

The benefits of these technological advances made possible by US semiconductor technology have benefitted the rest of the world as well. For example, mobile communications has become the fastest globally adopted technology in history, and its global economic impact is estimated to exceed $1 trillion.

Massive technology-driven change in the global economy

We are now in the early stages of another massive technology-driven change in the global economy: the era of digital transformation and AI. Revolutionary applications such as augmented/virtual-reality experiences, self-driving vehicles, the Internet of Things (IoT), and Industry 4.0 systems, along with smart cities, are on their way to becoming commercial realities. Enabling each of these new applications are advances in semiconductor technology, including the following:

• Sensors that gather rich contextual data in real-time
• 5G technology that can provide secure high-speed, low-latency wireless connectivity for billions of devices
• High-performance processing units that power computers capable of machine learning
• Advanced low-power processors built into all sorts of edge computing devices that can perform very complex tasks, such as computer vision and natural-language comprehension

A strong semiconductor industry is critical to US global economic competitiveness and national security in an era of digital transformation and artificial intelligence (AI).

The US has long been the global semiconductor leader. US leadership is grounded in a virtuous innovation cycle that relies on access to global markets to achieve the scale needed to fund very large R&D investments that consistently maintain US technology ahead of global competitors.

Broad unilateral restrictions on Chinese access to US technology could significantly deepen and accelerate the share erosion for US companies. Lose 18 percentage points of global share and 37% of their revenues, if the US completely bans semiconductor companies from selling to Chinese customers, effectively causing a technology decoupling from China.

Established alternative non-US suppliers exist already for over 70% of Chinese semiconductor demand. Over the next three to five years.

These drops in revenue would inevitably lead to severe cuts in R&D and capital expenditures, and the loss of 15,000 to 40,000 highly skilled direct jobs in the US semiconductor industry.

As experience in communications network equipment and other tech sectors has shown, once the US loses its global leadership position, this dynamic effectively reverses the industry’s virtuous innovation cycle and throws US companies into a downward spiral of rapidly declining competitiveness and shrinking market share and margins. Lower R&D investment would inhibit the US semiconductor industry’s ability to deliver the breakthroughs that US technology and defense sectors rely on to maintain global leadership, and ultimately could force them to depend on foreign semiconductor suppliers.

In order to avoid these negative outcomes, policymakers must devise solutions that simultaneously address US national security concerns and preserve global market access for US semiconductor companies — a fundamental pillar of the proven innovation model that will allow the industry to continue to deliver technology breakthroughs that are crucial for US economic competitiveness and national security.

Huawei is a major global provider of telecoms equipment and technologies and part of the global supply chain.

Semiconductors are the foundation of modern electronics, information technology, cloud services, critical infrastructure, and the defense industrial base. In addition to playing a critical role in sectors throughout the economy, semiconductors currently play an essential role in addressing the COVID-19 public health emergency.

Semiconductors drive the functionality in advanced medical equipment used by health professionals and telehealth to treat the public, and they enable the products and services that allow telework, remote learning, telemedicine, and other aspects of our economy and daily life.

Semiconductors will also play a pivotal role in driving the industries of the future and the economic recovery once the public health emergency is defeated.

Were it not for its advanced technology and the cost-effectiveness of its equipment and technology, it would be impossible for Huawei to gain such popular recognition worldwide.

Huawei has committed to and emphasized the importance of building digital skills around the world. Huawei’s TECH4ALL initiative focuses on technology to benefit people and launched this initiative to make sure no-one is left behind, especially those in the most remote areas and believes in Eduacation4All that everyone, everywhere has the right to education and the equality of opportunity it brings.

If Huawei is forced to stop building chips, the entire industry suffers

Huawei did not get any relief from US sanctions and attacks and some media news recently declared that The U.S. prepares crackdown on Huawei’s global chip supply, in addition, some US officials are proposing to put more strict and tightened sanctions on Huawei, such as curbing Taiwan Semiconductor Manufacturing Co. producing chips for Huawei via seeking a U.S. License before doing business with Huawei.

This is a very dangerous move. Even if a U.S.-based company is not involved in the chain between chipset manufacturers and Huawei, a change in the government’s policy via the “Foreign Direct Product Rule” could indirectly place enough pressure to halt sales. Many chipset fabs and assembly lines use equipment that can be traced back to U.S. companies, and the proposed change would require such companies seek a U.S. license before supplying resulting products to Huawei. Of course, foreign companies don’t have to oblige that change, but they would implicitly risk their own sales bans and further retaliation from the U.S. government if they don’t — ICT firms can hardly risk that. It will hurt the whole ICT industry and global economy very badly.

SEMI works with policymakers to build awareness of the damaging US restrictions

Semiconductor Equipment and Materials International (SEMI). SEMI stressed that unilateral controls on U.S.-origin semiconductor devices, equipment, materials and technology could significantly and disproportionately harm U.S. companies, serve as a disincentive for further investments and innovation in the U.S., and impact non-U.S. companies as well and this change will harm U.S. exports of chip-making equipment, which bring in over $20 billion a year.

See report “How Restrictions to Trade with China Could End US Leadership in Semiconductors”

Bottomline — countries especially global leaders like the US and China must work together to assure ICT continues to advance so we can assure that society as a whole wins.