Semiconductors: Economy vs. Security

On July 4, the Valdai Club hosted a presentation of the Valdai Paper, titled “The Semiconductor Reindustrialisation of the United States: Implications for the World”. The moderator of the discussion, Ivan Timofeev,  noted that the topic was highly relevant, since semiconductor technologies are of global importance and are currently being politicised. He pointed out that the United States, which was the architect of the globalisation model that emerged after the Cold War, is dismantling it, and trying to concentrate strategically important production on American soil.

Anastasia Tolstukhina, the author of the Paper, head of the technology policy programme, and editor of the RIAC website, noted that the United States is trying to achieve relative independence in the field of semiconductor production. If in the 1990s the United States accounted for about 40 percent of global semiconductor production, then by 2020 this volume had decreased to 10 percent due to the outsourcing of production to other countries. Recently, US authorities have sought to expand domestic production. First of all, this is due to the geopolitical factor, and more specifically, the desire to contain China, a key rival of the United States. This trend has provoked tension between the countries and has worsened the risk of a conflict in which America could be cut off from supplies of advanced semiconductors. In addition, one cannot discount the economic factor, particularly the need to create jobs in the United States and restore the technological competencies of American companies. The process of reindustrialisation began during the first term of President Trump. Then the Biden administration picked up and developed this initiative, and during Trump’s second term, the vector did not change. Thus, it can be said that Republicans and Democrats have reached a consensus on the reindustrialisation of the country, although their approaches to this goal differ. Achieving it can contribute to an increase in technological and digital inequality, leading to technological and digital neocolonialism, Tolstukhina believes.

Ruslan Yunusov,co-founder of the Russian Quantum Centre, called on Russia to develop its own semiconductor production for geopolitical and strategic reasons, despite the relatively low efficiency of these efforts, and, in particular, to consider integration models with partners and allies. Addressing the actions of the United States, Yunusov emphasised that they could lead to an increase in prices for semiconductors, which would imply an additional burden on the US economy. However, against the backdrop of geopolitical instability, the Americans are capable of doing this for political reasons. In addition, the development of AI, leading to an increase in demand for chips, could soften this burden. For Russia, American reindustrialisation could open up additional opportunities by pushing companies in Asian countries to be more favourable to cooperation with non-allies of the United States.

Arvind Gupta, head and co-founder of the Digital India Foundation, presented the Indian view on the issues discussed in the Paper. He pointed out that the world should prepare for the concentration of production and development in the United States, and that this will affect the sovereignty and national ambitions of each country. The United States is likely to get a big piece of the semiconductor pie and control a lot of it, either directly or through partners. The global supply chain is currently distributed. American companies do R&D and India serves as a back office, but the United States is trying to reclaim manufacturing as well, effectively taking control of the entire supply chain. “We need to think about how we can ensure that chips are not completely dominated by one country, so that chips are not weaponised. India has a very important role to play,” Gupta said. He added that India is generally trying to remain neutral in this situation and protect its national interests and digital sovereignty.

“For all countries, having their own capabilities in microelectronics production is now a matter of economic, traditional and any other forms of security,” said Ivan Danilin, Deputy Director for Research at IMEMO RAS. For example, during the pandemic, entire industries began to shut down due to disruptions in microelectronics supplies from China. Previously, countries were not ready to protect themselves from such risks through additional expenses, but now the situation has changed, and things will remain this way for a long time. At the same time, Danilin was critical of the prospects for the United States to return to the level of microelectronics production that they had before 2010, and the possibility of de-globalising production chains with a complete American monopoly. The system will likely become less monopolistic and more balanced. The key issue, according to Danilin, is related to the development of new technologies and the transition to new architectures. This is what will determine the economic geography and political economy of microelectronics markets in the coming decades. “If several new sources appear in the world that will allow it to develop more systematically and harmoniously, this will be in everyone’s interests,” the expert concluded.

The Valdai Discussion Club was established in 2004. It is named after Lake Valdai, which is located close to Veliky Novgorod, where the Club’s first meeting took place.