US, Japan in talks to reduce dependence on Chinese legacy chips

Posted on : 2024-04-03 17:28 KST Modified on : 2024-04-03 17:28 KST
Biden and Kishida are slated to discuss the matter at their upcoming summit in Washington next week
US President Joe Biden speaks with Japanese Prime Minister Fumio Kishida and in San Francisco in November 2023. (courtesy of the Prime Minister’s Office of Japan)
US President Joe Biden speaks with Japanese Prime Minister Fumio Kishida and in San Francisco in November 2023. (courtesy of the Prime Minister’s Office of Japan)

The leaders of the US and Japan are reportedly preparing to agree on a plan for reducing reliance on China for legacy semiconductors used in automobiles and home appliances.

With the US turning its attention to legacy semiconductors after its previous regulations against China on the use of advanced semiconductors, Japan now appears to be joining in.

In a report Tuesday, the Yomiuri Shimbun newspaper said the US President Joe Biden and Japanese Prime Minister Fumio Kishida “solidified plans for discussions at a scheduled summit in Washington on April 10 toward cooperation on building supply chains that reduce reliance on specific countries for semiconductor procurement."

The same report said the target was to “reduce skewing toward China by transitioning toward [procurement from] their own countries or from allies and friendly nations.”

A joint document at the summit is expected to include content referring to the bolstering of semiconductor supply chains through cooperation with like-minded nations, including allies and friendly nations.

The US and Japanese governments are specifically targeting China’s legacy semiconductors. The current plan is for their leaders to gather opinions on lowering reliance on China for semiconductors, after which they would expand the framework to the G7 level.

The Japanese government is considering plans to offer subsidies to Japanese companies that have procured their legacy semiconductors from China in the past if they switch their source to a different country. US Secretary of Commerce Gina Raimondo and Japanese Minister of Economy, Trade and Industry Ken Saito plan to conduct follow-up discussions on the specifics after the upcoming US-Japan summit.

Legacy chips are less specialized than advanced semiconductors but are put to a wide range of uses in areas including electronics, automobiles and defense.

The Biden administration is concerned about China growing its global market share as it bolsters its legacy semiconductor manufacturing capabilities. Since January, the US Commerce Department has targeted China with a Bureau of Industry and Security-led investigation into the uses and sources of legacy semiconductors for US businesses in major industry areas such as automobiles, aerospace, defense and communications.

Since the Biden administration ratcheted up regulations against China with measures targeting advanced semiconductors in October 2022, the Chinese government has been channeling focused investment into the legacy semiconductor sector, which it has viewed as a strategic loophole outside the scope of sanctions.

Legacy semiconductors require less in the way of advanced technology, and China has come to account for a growing proportion of their market.

Findings announced in March 2023 from a study by the Rhodium Group, an independent US think tank, showed China accounting for around 30% of the global market for legacy semiconductors in the 50–180 nanometer process node range (one nanometer is one one-billionth of a meter), which are used in automobiles and appliances.

As China continues to expand factory construction, it is expected to increase its manufacturing capabilities by around 46% in the next 10 years.

The Yomiuri Shimbun commented, “As different countries come to depend more on China to procure semiconductors, this presents the risk of being exposed to economic pressures through trade.”

“The US and Japanese leaders have made it clear that they view this economic pressure as a problem and intend to combat it,” it continued.

Remarking on the moves by the US and Japan, a key official with the South Korean Ministry of Trade, Industry and Energy said, “The aim is to cooperate to reduce reliance on China, and it isn’t clear yet whether the US and Japan will be taking action to control trade directly.”

“We’re watching the situation closely,” they added.

Over the past five years, South Korean imports of Chinese semiconductors have averaged US$21.3 billion per year.

They are commonly used by smaller automobile component and appliance companies, which produce industrial items for which cost-competitiveness is relatively important. Larger corporations such as Hyundai Motor or LG Electronics have comparatively low rates of use.

An official with one South Korean automobile company explained, “We’ve been steadily reducing our reliance on Chinese automobile-use semiconductors for several years now.”

“At present, we mainly use semiconductors from Japan or Germany,” they said.

Another official said, “We don’t use the old-model [Chinese] semiconductors in new automobiles.”

Some have voiced concerns that SK Hynix — which has production bases in Chinese cities such as Wuxi and Dalian — could end up being sacrificed amid the US and Japan’s strategy for hemming in China. But the company itself dismissed the speculation.

“Memory semiconductors are not going to be included in the scope of the US and Japan’s supply chain cooperation,” an official with SK Hynix said.

“Under the current situation with memory prices rising sharply as demand explodes, applying controls to [SK Hynix’s] production at Chinese factories would cause serious issues for global memory semiconductor supplies,” they predicted.

By Kim So-youn, Tokyo correspondent

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