Semiconductors are at the centre of the new cold war. US President Joe Biden’s signing of the CHIPS and Science Act in August 2022, followed by the Department of Commerce’s announcement in October of complementary export controls, made clear Washington’s concerns about China.
More broadly, high-tech competition is a driver of foreign policy for the United States, and its national security is dependent on maintaining a technological advantage over its adversaries. The Biden administration has assessed the risk China poses to that technological advantage and drawn a line in the sand. This high-stakes reality has informed Washington’s preparedness to not only deny China access to advanced chips but also limit access to the machinery and expertise required to make them.
This isn’t the first time America’s leadership in high tech and semiconductors has come under threat. Throughout the 1980s, Japan’s rise in efficient and low-cost production of dynamic random-access memory chips forced Silicon Valley companies, such as Intel, to pivot to the production of microprocessors in order to stay competitive. At the time, research and development grants for leading manufacturers and universities from the Defense Advanced Research Projects Agency, and deft trade diplomacy by Washington in the form of coordination with new partners such as South Korea, helped the US maintain leadership in semiconductor design and prevent Japan’s low-cost chips from undercutting the US market. Collaboration across supply chains with partners sharing mutual interests enabled US market dominance and national security. Preserving these wins remains vital in today’s strategic competition with China.
Australia—like South Korea in the past—can help fill the gap in the US semiconductor supply chain. Looking outward to collaborative opportunities with partners, particularly trusted allies such as Australia, will be key in ensuring the US maintains its tech advantage and, in turn, its national security. For Washington, Australia represents an opportunity to develop a secure semiconductor supply chain that supports US sovereign industry and export policies. Australia is not yet entrenched in the global semiconductor ecosystem and therefore can support alliance interests without having to weigh trade against geopolitics, which is a major concern for semiconductor manufacturers such as South Korea’s Samsung and Taiwan’s TSMC. Both companies rely on supply relationships with China.
In the context of China developing technology capabilities in artificial intelligence and quantum powered by advanced semiconductors, Australia and the US should be seeking to collaborate on how the alliance network can be leveraged to both slow China’s access to these advanced chips and ensure mutual semiconductor security.
Australia along with the rest of the world is closely watching how the US engages with its global partners. Commerce Secretary Gina Raimondo recently stated that the US is ‘working very closely’ with like-minded countries and is confident that countries such as the Netherlands and South Korea will ‘work in concert’ with it due to mutual national security interests. Some linchpins in the global semiconductor supply chain, such as Dutch company ASML Holding—a global leader in lithography—already appear poised to align with US policies.
The Japan–US R&D collaboration announced in earlier this month shows that other major semiconductor players are recognising the mutual security that is gained through friend-shoring semiconductor supply chains. Significantly, it is occurring through public–private partnership, with US company IBM and Rapidus, a new Japanese government-backed company, partnering to develop next-generation chips.
This development signals that Washington is prepared to engage and back cross-sector collaboration with aligned partners and is a trend on which Canberra should seek to capitalise. The advanced-capability sharing under pillar two of the AUKUS agreement is indicative of the partners’ recognition of the benefits of streamlining technology sharing. AUKUS pillar two is dependent on public–private sector collaboration, which has also been identified as necessary for Australia to grow its semiconductor industry, as outlined in the 2022 ASPI Australia’s semiconductor national moonshot report.
Semiconductor production should be integrated into AUKUS discussions as partners work to address the challenges of developing a shared defence industrial base and adjusting barriers, such as the US International Traffic in Arms Regulations, to achieve the agreement’s goals. The advanced technologies identified as critical under AUKUS are all dependent on semiconductors and therefore should explicitly consider how this enabling technology can be secured to begin with.
For Australia, the urgency driving US export polices and diplomatic coordination with allies incentivises complementary development of a sovereign industry capability. Australian governments have recognised the security benefits of developing a sovereign semiconductor capability in recent years. The publication in 2020 of a report commissioned by the office of the New South Wales government chief scientist and engineer on the capabilities, opportunities and challenges in Australia’s semiconductor industry provided a signal as to what the development of the industry could look like.
Australia’s nascent semiconductor industry offers an alternative capacity to secure ‘trailing edge’ technologies and compound chips, as opposed to the advanced silicon chips that the US specialises in. ‘Trailing edge’ refer to less advanced chips that are larger and slower but crucial in legacy systems such as household appliances and weapons. This differs from the advanced semiconductors used in cloud computing and AI systems that the US export controls primarily concern.
Compound semiconductor production is also a ripe opportunity for Australia given the limited US production of these chips. Compound chips are a strategic investment due to their utility in supporting wireless communication technology and renewable technology such as solar panels. The expertise and base-level production capacity in Australia held by companies such as Morse Micro enhance the practical focus on this aspect of semiconductor production.
The start-up investment required is significant. ASPI’s moonshot report estimated that $1.5 billion is needed to stimulate $5 billion in compound semiconductor foundry manufacturing activity. In the long term, such an investment would help ensure Australian security in a critical industry and assuage any concerns about Australia’s technical capability to support the US–Australia alliance in this critically important field.
Harnessing diplomatic and trade relationships built on existing security alliances and decades of trust offers an attractive and comparatively reliable policy avenue for addressing the unknown risks associated with the global scramble for semiconductor security.