The shortage of semiconductors and the dependence on China for their manufacture has caused significant disruptions in the world’s production system in recent years. As a result, the most significant industrial sectors, such as the technology and automotive industries, were forced to suspend or considerably reduce their production.

As the global supply chain was affected, the economic consequences were catastrophic and are still being felt today.

Faced with this situation, the United States and other world powers are implementing various measures to counteract the impact, secure supply chains, and prevent China from becoming the central chip producer.

Accordingly, the United States and Japan have established a strategic alliance based on “commercial diplomacy,” They seek to strengthen each other and thus generate stronger competition against China, especially in the production of technology, chips, batteries and energy. 

The two countries agreed last week to establish a new joint research center for next-generation semiconductors. In addition, according to the commitment made between the parties, both the U.S. and Japanese governments will invest significant sums of money to finance private companies to boost the production of key goods for productive development. 

In a joint statement on Friday, July 29, U.S. and Japanese officials said they oppose “economic coercion.” However, they did not make specific references, but it is understood they were talking about the Chinese regime. 

“There’s a pattern here: if they don’t like what you say politically, they put the muscle on you economically,” said the current U.S. Ambassador to Japan, Rahm Emanuel. He cited Japan’s experience more than a decade ago when Beijing restricted export quotas for rare earths after a territorial dispute.

U.S. Secretary of State Antony Blinken was even more blunt. At a press conference, he said, “the coercive and retaliatory economic practices of the People’s Republic of China force countries into choices that compromise their security, intellectual property, and economic independence.”

Global semiconductor crisis

Semiconductors are the materials used to create chips, one of the essential components of almost every electronic device we use today. As a result, these are in high demand in practically all modern industry.

With the rise of the Internet and the general reliance on new and increasingly complex technologies, the value and need for large-scale chip manufacturing developed exponentially in the last decade.

Today, the world is in the midst of a major shortage that is not expected to go away for a long period of time, but how did it get here and what are the effects?

This crisis is the result of a very deep imbalance between semiconductor supply and demand. Several factors led to this imbalance deepening over the last few months.

The increase in the number of chips incorporated in cars (both thermal engine and electric cars), the increase in demand for computer equipment triggered by the proliferation of teleworking during and after the coronavirus pandemic, and the maelstrom involving hardware that allows “mining cryptocurrencies” are the key factors in the recipe that has led to the semiconductor crisis.

At first glance, the solution to the high-demand problem would not seem very complex; one would have to produce more semiconductors and chips. But the reality is that the fabricators have been producing at maximum capacity for years and it is impossible to put through more production. 

The only viable solution currently seems to be to create new manufacturers to produce more semiconductors. But according to experts, setting up this type of production enterprise requires several years of investment and preparation.

In this regard, China is at the forefront in its efforts to further boost its semiconductor chip production and monopolize the market it currently leads. This is precisely why an alliance between Japan and the United States is so valuable in the medium term to prevent a communist and dictatorial regime from advancing in its plans to monopolize the market for goods that are so precious to world industry. 

US Senate approves $280 billion to manufacture semiconductors

The U.S. Senate approved at the end of July a bill under the name “Chips and Science”, through which it seeks to boost the national semiconductor industry, which opens a new front in the chip war with the Chinese regime.

The legislation received the approval of the Upper House with 64 votes in favor and 33 against and contemplates a total investment of $280 billion, of which $52 billion are intended to promote the installation of domestic semiconductor factories.

The new legislation also includes tens of billions of dollars to fund scientific research and development, and to stimulate innovation and development of other U.S. technologies.

Proponents of the bill claim that it is vital for the entire world that the U.S. increase its semiconductor production to restore normalcy to the global supply chain.

Many claim that the sustained inflation in the U.S. has to do with the shortage of semiconductors, among other issues such as increased government spending. 

The lack of chips has caused many key sectors of the economy to reduce their production capacity, causing demand to tie up supply and allowing producers to raise their selling prices. 

Many Republicans supported the concept of helping the semiconductor industry, particularly because it was seen as an effort to counter the Chinese regime, which has invested heavily in its own microchip industry.

Reaction from the Chinese regime

Following the bill’s passage, the Chinese Communist regime expressed its “firm” opposition to the U.S. Senate’s decision, criticizing a move that could deal a blow to Beijing’s edge in this sector.

“China firmly opposes” the new law, Foreign Ministry spokesman Zhao Lijian told Chinese propaganda media during a press conference.

They also expressed concern that strong U.S. entry into the sector could hinder China’s access to international resources.

According to Xi Jinping’s regime, the draft “contains provisions that restrict scientific and technological cooperation between China and the United States.”

For his part, Gu Wenjun, senior analyst at semiconductor consulting firm ICWise, said that U.S. efforts to “stimulate indigenous semiconductor manufacturing capabilities will weaken China’s scope for accessing international resources.”

The communist regime currently invests far more than the U.S. in semiconductor production, even considering the new legislation.

Thus, the trade war between the United States and the Chinese regime adds a new chapter in which the Western power seeks, together with its allies, to find a solution to many problems suffered worldwide since the lack of semiconductors became notorious. Those that stand out are the sustained increase in prices, the shortage of goods, and the paralysis of specific critical sectors for world economic development, such as the automotive sector. 

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