India and the US-China chips war
Context- The expansive new US-India technology partnership forged during Prime Minister Narendra Modi’s visit to Washington DC identifies technology as the new geopolitical frontier. A key element of the partnership is the resolve to diversify the global semiconductor supply chain, which is at the centre of the rivalry between the world’s number 1 and 2 economic powers, the US and China.
(Credits- Televisory)
Chips, the ‘new oil’
- Semiconductors or chips are essential to almost every modern device, from a phone to advanced defence systems, not to speak of advanced artificial intelligence-powered machines. But only a few countries are in the business of making chips, among the world’s most advanced technologies, and some specialise only in some aspects of it.
- The Covid-19 pandemic exposed the US dependence on supply chains in Asia — four of the top chip makers in the world are Taiwanese — at the same time as the trade and diplomatic war between Washington and Beijing and military tensions in the Taiwan Strait spiked.
- Since 2020, the US has taken a number of steps aimed at
- 1) denying semiconductor technology to China to prevent it from gaining high tech dominance over the world, and
- 2) pumping up its own domestic capacity for making chips.
- The Trump Administration listed the Chinese telecom giant Huawei and several ancillaries as a threat to US national security, and restricted their access to chips from US companies.
- The Biden Administration retained restrictions on Huawei — and introduced its own — effectively cutting off the world’s largest manufacturer of 5G phones and other Chinese companies from semiconductors made using American tools and software.
- In August 2022, Congress passed the CHIPS and Science Act, providing $280 billion in new funding for domestic research and manufacturing of semiconductors in the US.
- The US also moved towards semiconductor friendshoring in the Quad, where the leaders of Australia, Japan, India, and the US committed themselves to building “resilient, diverse and secure supply chains of critical and emerging technologies” over two summits in 2021 and 2022.
India-US iCET
- Also at the 2022 summit in Tokyo, President Biden and Prime Minister Modi announced the US-India Initiative on Critical and Emerging Technologies (iCET). In January this year, National Security Adviser Ajit Doval and his US counterpart Jake Sullivan met in Washington to discuss the broad areas for cooperation under iCET.
- The initiatives listed in the US-India joint statement in the technology basket during the Modi visit flow from the January meeting during which the two countries agreed to enhance bilateral collaboration on resilient supply chains, support the development of a semiconductor design, manufacturing, and fabrication ecosystem in India, and promote development of a skilled workforce for the industry.
- A task force set up jointly by the US Semiconductor Industry Association and India Electronics Semiconductor Association together with the government’s Semiconductor Mission was to make a “readiness assessment” to identify “near term opportunities and facilitate long-term strategic development of complementary semiconductor ecosystems”.
- A task force set up jointly by the US Semiconductor Industry Association and India Electronics Semiconductor Association together with the government’s Semiconductor Mission was to make a “readiness assessment” to identify “near term opportunities and facilitate long-term strategic development of complementary semiconductor ecosystems”.
India’s chip challenge
- India has allocated Rs 76,000 crore ($10 billion) for the semiconductor industry. While there is plenty of optimism, the mission has been beset with difficulties.
- Three companies that applied to set up fabrication plants with the first tranche of government support — a Foxconn -Vedanta joint venture, Singapore’s IGSS, and a joint venture between Next Orbit and chip consortium ISMC that was banking on Israel’s Tower Semiconductor as a tech partner — all failed to get off the ground for separate reasons.
- Three things are essential for chip making: uninterrupted and uninterruptible power; unlimited pure water supply; and chip making infrastructure — the “fabs” or fabrication plants that are highly specialised units. At the moment, there is no place in India that can guarantee 24×7 power or water supply. Chip manufacturing also requires a highly skilled workforce.
- The absence of a “chip ecosystem” is why, despite the political will, no big international chip makers have yet shown interest in India. Other than requirements for chip making itself, a huge set of ancillary industries have to take shape, including electronics manufacturers who can create a domestic market for chips.
- Taiwan has long been pushing India for a free trade agreement and a bilateral investment agreement to make it more attractive for TSMC, the world’s biggest chip maker, to set up base here, but Delhi has been reluctant.
State of the chip wars
- In 2020, China was the biggest market for semiconductor machines. Beijing’s “Made in China 2025” plan, launched in 2019 had prioritised achieving self-sufficiency in semiconductors. But the export controls set in motion by the US — and more are in the pipeline — have made China’s mission look difficult if not impossible.
- Japan, has also announced restrictions on semiconductor exports to China. The Japanese restrictions will take effect from July. China has lashed out at the move and warned of “consequences”.
- As US works with key partners to restrict Chinese access to chip tech, China’s chip imports from Japan, South Korea and Taiwan, part of the US-led “Chip 4 Alliance”, fell by 20 per cent in the first five months of 2023, according to the latest trade numbers.
Conclusion- India could take 10-20 years to establish itself as a serious player in the semiconductor industry. For now, New Delhi has positioned itself in the global chip war, with a technology partnership that promises to take bilateral ties with the US to the next level.
Syllabus- GS-2; International Relations
Source- Indian Express
