The Chip Alliance set up is now backfiring on the USA and the West. They are now at sixes and sevens with the Chinese market getting smaller as China ramped up production of matured chips. Samsung just reported a 96% drop in profit in lst quarter, amid shutting down capacity. They blamed it on COVID and the lockdowns resulting in demand for consumer products, but still will not admit the loss of business in the Chinese market as a contributing factor. Let them fool themselves silly.
China is clamping down its export of refined rare earth materials, essential for chip manufacturing and weapons manufacturing. The USA and the West are now forming another alliance to refine rare earth. Would rare earth refiners outside China, or what is left of them, be coaxed to set up factories in USA like the Chip Manufacturers, with promises of subsidies. Ask TSMC what happened to those subsidies and how TSMC had been taken to the cleaners trying to build a chip manufacturing plant in Arizona. A supposedly US$10 billion plant is now turning into a US$40 billion black hole, just to take advantage of the reported US$15 billion subsidy that is still not forthcoming. And that is not factoring in the problems trying to integrate USA workers with hardworking Taiwanese workers with different work ethics.
Actually, rare earth is not rare, and is available in large quantities in many countries and Australia in particular is one big source, and they are just looking at availability of the raw ores thinking the alliance will again solve the issue. But it is the expertise in refining the raw ores that is the big problem for them. Depending on China with such environmental unfriendly facilities to let China pick up the pollution demonisation is just like forcing China into the opium trade to destroy the country, and trying to save their own backyard, which is now backfiring on them as well. Decoupling from China is not as simple as 'trade wars are easy to win'.
Setting up such new refining facilities from scratch is going to take years and environment issues will definitely surface. Australia tried to shift some of its rare earth refining facilities to Malaysia and faced plenty of flak from the Malaysian public. The refining facilities pollute rivers and contaminate fertile land, and is a health hazard for those living close to those facilities.
Setting up refining facilities is estimated to take as long as 10 to 15 years. Of course it can be ramped up faster, but the most important question of all is where are they going to get the expertise to run the refining facilities for the ores from scratch. 85% of all global rare earth processing are now done in China, and China is said to produce the best rare earth elements in terms of purity. Just like the shortage of chip innovation talents in the USA after formation of the Chip Alliance, they had to resort to force to bring back talents from foreign chip makers to the USA, with loss of USA citizenship if they refuse. Would the USA do the same for rare earth?
Right now, even the USA has to send its rare earth ores to be refined in China. Think about that!
Anonymous
PS. What is the point of making more chips while cutting off your biggest buyer?
Understand there is now a chips fire sale trying to clear overstocking by Samsung, TSMC and many other USA chip makers. Very cheap, but China is not buying. Prices of some chips have tanked more than half, which is why Samsung suffered a 96% profit drop. What about others? They are hoping this will be temporary, but is it so?
ReplyDeleteWith chip makers congregating in USA and building more factories, it looks like more chips will flood the market. And with China making more and more of its own matured chips, wonder where all those USA made chips will go to? Wait a minute, there is also the potential problem of Chinese chips coming on to the global market in a few short years to come - cheaper than most. Who do you think tech companies and equipment manufacturers will source for their chips under such competition. If they sell them cheaper than those chips at MacDonalds, maybe there will be takers, LOL.
The clowns in Washington think of nothing else but bringing down China. What they did not see or refused to see is that their sanctions would end up killing all the chips manufacturers in the USA. How clever.
ReplyDeleteChina must be thanking the Americans for taking down all the competitors and with China emerging as the world's number one chips manufacturers.
TSMC is likely to be the first to go down as the Americans would treat TSMC as the last choice to buy their chips from.
All the foreign chipmakers flocking to USA will just be collateral damage in the eyes of the USA. They are expendable, all at the expense of keeping USA home grown chip giants like Intel, Micro, Nvidia and other alive.
ReplyDeleteAmid all the attrition already inflicted on Samsung and Hynix, Biden is trying to force them not to break the chip sanctions against China by filling the gap left by USA chipmakers. Yeah, just die for the USA, nothing wrong with that is it?
All the chips giants need a very big market like China to sell their chips.
ReplyDeleteIf cannot sell to China, they would have to sell over the counter at the MacDonalds.
Many would have to downsize or close down soon.
All that the USA is doing is asking the doggies to cut off their noses to spite China. And they followed obediently.
ReplyDeleteWhen things fail, trying to put back their cut off noses into position is not going to work. This is exactly what is going to happen with the Chips Alliance. And it is going to be the same with the Rare Earth Alliance being put into the minds of the doggies. Going back and trying to compete in a handicap position vis a vis China is not the way to go.
Sohai TSMC got conned opening factory in USA. Now in order to qualify for subsidy, have to give away trade secrets to Muricunt gahmen. Add on top a lack of qualified Muricunt workers.
ReplyDeleteThat's the price TSMC pay for being a traitor. Huawei wont come to your rescue.
Since Finland joined Nato, Russia is giving the Finns the first taste of Nato membership by seizing two Finnish investments in Russia to be followed by others. These are investments in energy, now deemed of national security concerns to Russia and they are taking over.
ReplyDeleteWell, as they say, what the USA and the West can do, the Russians can also do. You can say that when it comes to China too. USA assets in China are no small potatoes.
Correction- One entity was Finnish and the other German.
ReplyDeleteMy apologies - Anon 11.17