The Hoover Institution, in partnership with the Asia Society, launched the groundbreaking new publication Silicon Triangle: The United States, Taiwan, China, and Global Semiconductor Security before an audience of policy leaders, media, and the business community at Hoover’s Washington, DC, center on Tuesday, July 18.
Speakers during the program included the study’s coeditors Larry Diamond, Admiral James O. Ellis Jr. (USN, Ret.), and Orville Schell, as well as contributing authors Glenn Tiffert, Matthew Turpin, and H.-S. Philip Wong. Sen. Dan Sullivan (R-AK) provided keynote remarks.
Diamond, the Hoover Institution’s William L. Clayton Senior Fellow, started the session by providing an overview of the eighteen-month-long study’s purpose and recommendations. As he explained, Silicon Triangle is driven by three central questions: (1) How can the United States mitigate risks of disruption in the global semiconductor supply chain? (2) How can the US do so in a way that it doesn’t disengage with Taiwan or heighten that democracy’s exposure to an assault from China? (3) And how can the US work with allies and partners to reduce potential vulnerabilities from China’s state-directed ambitions in semiconductor production?
Diamond said that the United States was once one of the leaders in the semiconductor industry—producing 37 percent of all chips in the 1990s. Today, despite considerable strengths in other steps of the semiconductor supply chain, US manufacturing represents just 12 percent of global market share.
The study describes how the CHIPS and Science Act of 2022—which invests $39 billion in subsidies to build up US semiconductor capacity—provides a good start in strengthening America’s supply chain resilience. But it is not enough. The total subsidies are $1 billion less than the private investment by TSMC (Taiwan Semiconductor Manufacturing Company) into its expected chip fabrication plants in Arizona alone.
“For the long run, we can’t rely on subsidies,” Diamond said. “We have got to harness and energize American capitalism the way it has traditionally been done by creating a more cost-competitive, business-friendly environment for investment in the United States.”
Accordingly, Silicon Triangle advocates extending 100 percent tax depreciation beyond the 2022 sunset for short-lived capital assets, especially for highly expensive equipment needed to operate semiconductor plants. The study also recommends providing full tax depreciation for R&D expenses in the year they were incurred and drawing out the 25 percent chip manufacturing tax credit past 2027.
Diamond stressed that policy makers should address the immense delays imposed by heavy-handed government regulations. Under existing environmental laws at the state and federal levels, for example, it could take more than eighteen months to receive permission to build new fabrication plants, or “fabs.” While environmental considerations should not be ignored, for the United States to compete effectively with China, processes need to be expedited under a regulatory shot clock, and resources need to be efficiently mobilized to create leading-edge manufacturing facilities.
Diamond underscored the study’s strong endorsement of the talent dimension in building resilience in semiconductor production. In addition to increasing STEM talent in K‒12 education and incentivizing university engineering graduates to choose careers in the semiconductor field, Diamond and his colleagues are strong proponents of granting H-1B visas to all foreign students pursuing advanced degrees in STEM fields.
“As the late George Shultz, secretary of state and our longtime colleague at the Hoover Institution, said, ‘Bring the best talent from all over the world to the United States, educate them in the best universities, and then staple a green card to their diploma,’” Diamond concluded.
The US Needs to Build Strategic Confidence for Taiwan’s Defense
In his remarks, Senator Sullivan underscored that the United States needs to confront aggression posed by authoritarian forces with “strategic confidence” and by using all instruments of American power. In this effort, he said that the US should exploit Vladimir Putin and Xi Jinping’s biggest vulnerability—each leaders’ fear of his own citizens.
Sullivan recalled a series of historical examples to underscore America’s ability to help deter a People’s Liberation Army (PLA) attack on Taiwan.
In the early part of the Cold War, for example, the United States came very close to war when it successfully protected West Berlin from Soviet aggression.
Further, the US has indeed proved its resolve for Taiwan’s security in several instances. President Dwight Eisenhower prevented a PLA attack against Taiwan in 1954‒55 and again in 1958—events known as the first and second Taiwan Strait crises, respectively. Despite normalization of Sino-American relations in 1979, Congress that same year passed the Taiwan Relations Act, authorizing the delivery of defensive arms to the Taiwanese people and support of the United States to “resist any resort to force or other forms of coercion.”
Sullivan remembered being deployed as a young Marine in 1995‒96 to the Taiwan Strait, following PLA missile tests in the waters near Taiwan. During what became known as the Third Taiwan Strait crisis, the US Navy responded with the biggest display of military power since the Vietnam War by deploying two carrier battle groups to the region. During that event, then rear admiral Ellis led contingency response operations in the strait.
In the current threat landscape, Sullivan advocated a three-tiered strategy of deterrence against China. In the first tier, Taiwan is armed in a so-called porcupine strategy with small and mobile weapons. The second tier is the assurance of US military power. And the third tier is a massive financial and energy sanctions package against an aggressor that would be triggered by the United States and its partners, who represent 70 percent of the global economy.
Bolstering Security for Taiwan and Semiconductors
In a panel discussion chaired by Diamond, Philip Wong, professor of electrical engineering at Stanford University, explained how semiconductors are foundational to the twenty-first-century economy—powering everything from computers and cellphones to critical technologies including artificial intelligence, quantum computing, and 5G networks.
Wong posited that geopolitical challenges that are shaped by the race for dominance in semiconductors are different from those over natural resources that have characterized past and current state rivalries. Unlike in those contests, the technology behind chips has to be continually advancing to sustain its value in the global economy.
Wong stressed the importance of American investment in the R&D aspect of semiconductor production. He maintained that the United States can’t lead on R&D in this sector by itself; it will need partners with demonstrated success across different parts of this supply chain, especially Taiwan.
“R&D is really a global effort. No one country or region has all the techniques, all the people, and all the knowledge required to develop the next generation of chips,” Wong said. “Partnering with our like-minded countries to advance technology is clearly an important part, and Taiwan being the technology leader in semiconductors today has a clear role to play in our quest to be a technology leader.”
In agreement with Wong, Ellis maintained that diversification of semiconductor manufacturing doesn’t inevitably mean that the United States will loosen economic ties with Taipei or abandon the democracy in the face of threats posed by Beijing.
Ellis relayed a conversation he had with Taiwanese President Tsai Ing-Wen in August 2022 in which they agreed that deepening collaboration on semiconductor production would benefit both America and Taiwan. He also underscored that this challenge has to be thought of in broader economic terms.
“Clearly this has to be done in a way that supports a global ecosystem, if not to deglobalize, at least re-globalize without China that has an economic underpinning that makes sense,” Ellis maintained, adding, “We can’t subsidize ourselves out of this challenge. We have to create an opportunity for everyone to make a profit.”
According to Distinguished Visiting Fellow Glenn Tiffert, China’s quest for dominance in semiconductors is driven by both ambitions and political insecurities. Semiconductors power the technology behind Beijing’s surveillance state. Moreover, the West’s response to China’s wolf-warrior diplomacy in the form of export controls has prompted officials in Beijing to seek self-sufficiency in semiconductors.
Even though semiconductor production is an archetype of the highly specialized global economy, Beijing has attempted to dominate all aspects of the production chain by spending hundreds of billions of dollars on domestic capabilities. Although recent US export controls have further limited China’s ability to manufacture advanced semiconductors, Beijing has redirected its investments toward high-volume production of legacy chips.
“That’s something we need to think about very carefully, because—as we have seen—China has used whatever economic leverage it has been able to obtain over other countries in really coercive ways,” Tiffert explained, adding, “China has absolutely every right to develop its economy, but not at the expense of our jobs, our industry, and our security.”
Visiting Fellow Matt Turpin said China’s strategy is to essentially engage in price dumping of legacy chips to deprive competitors in the United States and elsewhere from revenues that can be reinvested into R&D to drive innovation.
“That is a scenario we should be guarding against now and thinking about preemptively as opposed to waiting for that to materialize,” Turpin said.
He advanced potential US responses, including establishing anti-dumping measures and countervailing duties, blocking imports of legacy chips, and encouraging the shift in manufacturing of electronics to third countries.
Orville Schell, Arthur Ross Director of US-China Relations at the Asia Society, the co-presenter of the study, asked whether it was in China’s interest to destroy the relationship built up with its US partners over the past fifty years and trigger Americans to think about ways in which to reorder its economic partnerships to foster stability in the global supply of semiconductors.
“The startling thing for me is the degree to which this problem that we are talking about is simply one aspect of the overall fact that China has changed the terms of the game in a myriad of ways,” Schell said. “This is just one snarl, a particularly important one, because microchips are so fundamental to every aspect of human life.”
