Coordinating with allies and partners is a critical pillar of the United States’ semiconductor strategy. To date, the United States has engaged with allies and partners through a constellation of bilateral and plurilateral coalitions, including Chip 4, the Quad, the U.S.-India initiative on Critical and Emerging Technology (iCET), the Indo-Pacific Economic Framework, and the EU-U.S. Trade and Technology Council, among others. While a piecemeal approach works for some technologies, this approach does not work for technologies with a global supply chain, such as semiconductors. The United States needs to reboot its strategy and form an alliance of semiconductor-producing nations to foster geographic diversification of the necessary supply chains.
The United States’ current two-pronged approach suffers from the Goldilocks problem. On one hand, the existing bilateral and plurilateral coalitions have too few countries in the room and lack visibility into segments of the value chain and the activities of key semiconductor producing nations. On the other hand, current multilateral dialogues have too many countries with a seat at the table. Broad-based initiatives – such as through the OSCE and WTO – make consensus impossible, as different stakeholders have different goals. The United States needs to strike a balance and find the middle ground in its approach, and an alliance of semiconductor-producing nations would do just that.
Revising the United States’ current approach is imperative given the global nature of the semiconductor supply chain. The United States should form the “Semi7.” Such an alliance would prioritize those countries making meaningful contributions to the value chain and that share similar goals. The alliance should consist of the following seven countries: the United States, Taiwan, South Korea, Japan, Germany, the Netherlands, and the United Kingdom. Additionally, the European Union should be part of the group as an observer.
A common critique of such an alliance is that reaching consensus will be challenging, as the seven countries might not share the same goals. Oftentimes, critics of such an approach point to how divergent risk assessments of the China challenge across these countries could hobble agreement on shared objectives. Specifically, critics point to different perceptions of the risk of China’s indigenous semiconductor development.
However, rather than concern over Chinese chip development, the greater concern is over a contingency in the Taiwan Strait. Short of an invasion, China could also use gray zone tactics that seek to erode Taiwan Semiconductor Manufacturing Company (TSMC)’s neutrality and control, ultimately increasing China’s position in the semiconductor value chain. A few months ago, CIA Director William Burns stated that intelligence suggests that Xi Jinping has directed the People’s Liberation Army to be capable of a successful military invasion of Taiwan by 2027. As the risk of a Taiwan contingency rises, geographic concentration of the semiconductor supply chain presents a risk to the United States and its allies and partners. While different countries might have divergent policy responses in the event of an invasion of Taiwan, all partners – barring Taiwan – share concerns of the significant geographic concentration of semiconductors in Taiwan and the goal of diversifying their semiconductor supply chains.
To respond to that growing threat, a Semi7 would advance three main goals: develop joint risk assessments; undertake joint defensive actions, such as export controls or investment restrictions; and work toward shoring up supply chain resiliency. As a first step, the Semi7 countries should develop supply chain mapping to form a joint baseline for the grouping. This would also allow them to identify supply chain chokepoints that would be vulnerable during a Taiwan contingency. Only by increasing visibility across the value chain would the Semi7 be able to create contingency plans and begin diversifying away from these chokepoints. Any supply chain mapping would necessitate increased transparency between the countries of their value chain. This measure would be in line with the United States’ and Europe’s mechanism to increase transparency in semiconductor subsidies in the EU-U.S. Trade and Technology Council.
In addition to developing a shared risk assessment, the Semi7 could also undertake joint defensive and offensive action. Joint defensive action is by far the most complicated task of the group. However, the Russian invasion of Ukraine has laid bare challenges with relying on the Wassenaar Arrangement for export controls, as Russia is a member of the grouping. Numerous proposals have been floated for new plurilateral bodies to replace Wassenaar. A group such as the Semi7 is a great first step to get agreement on controls among key semiconductor producing nations. As was clear from the United States’ October 7 export controls on chips to China, such efforts must involve controls from all companies producing in that part of the value chain to be successful. Unilateral controls allow the adversary to still obtain the controlled equipment elsewhere and unduly harms U.S. industry – especially vis-à-vis other countries producing the same products.
The Semi7 should pair a defensive agenda with an offensive one to bolster supply chain resiliency. The most effective way of doing so would be to assess the semiconductor supply chain and determine regions of the world where the industry could expand with allied help. While this is easier said than done, this move is not unprecedented. Several countries are already thinking through ways to diversify their supply chains. Across the globe, countries are heavily investing in bolstering their domestic capacities, including in the United States, Europe, South Korea, and Japan. Already, we’ve seen Germany subsidize TSMC’s plans to open semiconductor manufacturing facilities outside of Taiwan. Coordination of investments would be a helpful step to ensure that countries are not duplicating investments and concentrating their resources on diverse parts of the value chain.
Furthermore, an alliance could ensure that countries not only focus on diversifying production capacity, but on other parts of the value chain, such as the precursor chemicals for production and packaging. While incentivizing the growth of semiconductor fabs is a costly endeavor, the Semi7 could seek to find projects in lower-cost geographies that they could jointly support. For example, this could include funding semiconductor design or assembly/test facilities in countries like Vietnam, Malaysia, the Philippines, and more.
While forming a Semi7 alliance will be a challenge, it is the best option for the United States, Europe, and Indo-Pacific partners to diversify the semiconductor value chain and bolster supply chain resiliency. Only by bringing all the top semiconductor producing nations into one room can the United States, Europe, and the Indo-Pacific adequately prepare for the worst-case scenario.