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Home»Finance»ASEAN Holds the Key to Reducing US Dependence on Taiwan’s Chip Industry
Finance

ASEAN Holds the Key to Reducing US Dependence on Taiwan’s Chip Industry

November 30, 2023No Comments5 Mins Read
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How the ‘Fab 4’ Can Bring Clarity to Semiconductor Supply Chains
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The last stage of the semiconductor supply chain, the assembly, packing, and testing (APT) process, has come to the forefront of the China-U.S. technology competition. The APT process is essential because it gives chips protection to ensure their commercial applications. Yet, today, the United States only has 3 percent of global APT capacity compared to Taiwan’s 58.6 percent. Amkor is the only major U.S.-headquartered firm specializing in APT operations, but it does not have assembly plants in North America. 

By contrast, among the top ten APT firms worldwide, six are Taiwanese, including ASE, Sigurd, and Powertech. As a result, despite TSMC’s forthcoming production in Arizona, it will have to ship most of its U.S.-made chips back to Taiwan. U.S. Representative Jay Obernolte correctly diagnosed the problem: “It wouldn’t matter if we did 100 percent of our chip manufacturing onshore if the packaging is still offshore.” 

 The U.S. Commerce Department is launching a $3 billion program aimed at building a domestic APT industry. Yet, the U.S. attempt to establish a domestic APT cluster is likely to fail. That is not only because of how far behind the United States is in this ever-advancing segment of the supply chain, but also because of the shortage of skilled labor in the country. A new survey indicates that 58 percent of the 115,000 new jobs in the U.S. chip industry could remain unfilled by 2030.

Behind this emerging debate is China’s ascendant APT strength. The United States rightfully fears that an increasing number of manufactured chips will end up in China to be packaged for commercial purposes, giving Beijing growing clout in this technology race. Yet, a more imminent risk lies in the overconcentration of APT services in Taiwan, which faces the rising threat of a Chinese blockade and military conflict. The deteriorating geopolitical environment there makes reducing U.S. reliance on Taiwan’s APT industry an urgent issue. 

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Instead of trying to build a domestic APT cluster from the ground up, the United States should tailor incentive programs to encourage U.S. chip firms to invest in Southeast Asia. The member states of the Association of Southeast Asian Nations (ASEAN) already have an extensive APT network; as a collective, ASEAN commands a 22.5 percent share of global chip exports, the second largest in the world. The more U.S. chip companies expand their footprints there, the more Taiwanese APT firms will join, driven by the desire to use geographic concentration to reduce costs, thus diversifying the island’s APT operations. 

In fact, major Taiwanese and U.S. chip companies are already joining forces in Singapore and Malaysia. These two countries share three characteristics: mature semiconductor ecosystems, a sustained inflow of chip-related FDI, and low geopolitical risks.

Malaysia, once known as the East’s Silicon Valley until the technological rise of Taiwan and South Korea, has launched a comeback in recent years. Located at the heart of Southeast Asia, Malaysia controls 13 percent of the global market for APT services. That figure will continue to rise in the coming years. Intel, for example, is now constructing its first overseas facility for advanced 3D chip packaging in the country. 

ASE, the world’s leader in APT, has been operating in Malaysia for over 30 years. The Taiwanese company plans to further invest $300 million in the country in the next five years. At the same time, Marketech International, a leading Taiwanese equipment supplier to TSMC and ASML, is finalizing a project to build new production sites in Malaysia.

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Singapore, though more widely known as a financial hub, is also a sophisticated player in the semiconductor industry. Given its well-developed chip cluster, it has been a prime beneficiary of the industry’s diversification trend. In September, U.S. chipmaker GlobalFoundries opened a $4 billion manufacturing plant in the country. Vanguard International Semiconductor, an affiliate of TSMC, is planning to build its most advanced manufacturing facility ever in Singapore. Its Taiwanese counterpart United Microelectronics Corporation, the world’s third-largest chipmaker, is building a $5 billion plant nearby. 

Moreover, Applied Materials, a U.S. semiconductor equipment maker, has started construction of a new $450 million factory in the city-state. As part of its eight-year expansion plan named “Singapore 2030,” the company will increase its workforce there by around 40 percent to more than 3,500. 

The two countries’ proximity helps combine and amplify their distinct strengths in the semiconductor industry. Essentially, Malaysia’s growing APT cluster and Singapore’s increasing share in semiconductor manufacturing allow a chip to be produced and packaged for commercial applications at a close distance, hence insulating these clusters from supply chain disruptions. Furthermore, the countries’ domestic political stability and relative geopolitical neutrality further enhance their attractiveness as an FDI destination for chip companies. 

The Biden administration should seize this joint U.S.-Taiwan diversification trend toward ASEAN to reduce American dependence on the island’s APT industry. It should utilize targeted subsidies to incentivize U.S. chip firms to sustain this inflow of FDI into Singapore and Malaysia. A growing U.S. presence there will serve as a magnet to attract other Taiwanese firms to follow suit, thus diluting the island’s APT concentration. Over time, that will enhance ASEAN’s attractiveness for other integral chip suppliers, making it a new hub of the semiconductor supply chain. 

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For the United States, this is a more realistic, cost-effective strategy to reduce its reliance on Taiwan’s APT cluster than fostering one at home. For ASEAN countries, this trend can serve as an essential stepping-stone to climb up the value chain. For Taiwanese companies, it represents an opportunity to mitigate their operational risks in Taiwan and expand their business landscape beyond the island to promote long-term growth.

ASEAN Chip Dependence Holds Industry key reducing Taiwans
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