Samsung factory delay shows the nature of US protectionism

Tom Fowdy
US semiconductor policies are being motivated not by advancing the needs of their companies but in fact attempting to control global supply chains by force.
Tom Fowdy

As reported by Bloomberg and media in South Korea, "Samsung Electronics Co has delayed mass production plans at its new chip plant in Taylor, Texas." The plant says it is "unable to confirm its mass production schedule for now," but it is understood that it has been pushed back to 2025 and is described as a "setback to US President Joe Biden's grand plan to boost chip production on American soil."

Samsung is not the first plant to have delayed production in the US, with TSMC having also delayed its Arizona factory opening until 2025.

What do these two plants have in common? They are politically motivated projects, produced by the US strongarming semiconductor firms and forcing them to build capacity in the United States even when there is no business incentive or logic in doing so. America is always attempting to control the entire semiconductor supply chain, but the fact that these firms are struggling even with US-pushed subsidies shows how unfeasible and counterproductive this strategy is, and will not increase American competitiveness on the global stage in any way.

US semiconductor policy

In a nutshell: American foreign policy revolves around attempting to assume political control over key global supply chains, while simultaneously trying to isolate China from them. Nowhere has this been more critical for the United States than the field of semiconductors and computer chips.

To this end, the US has blacklisted the entirety of China's semiconductor industry, unleashing a growing embargo on thousands of technology companies, has placed ever-growing restrictions on the export of chip equipment to China, and has also coerced third-party countries such as the Netherlands and Japan into following these restrictions. However, these policies are unsuccessful in preventing China's progress.

In addition to that, the US has also intervened overseas to block Chinese acquisitions of semiconductor firms, while also at home pushing global semiconductor brands relentlessly, such as Samsung and TSMC, to build capacity in the United States. This "America First" logic began with the Trump administration and seeks to reverse globalization, selling these investments as a win for American jobs and manufacturing.

Why the policy isn't working

However, as seen by the Samsung and TSMC announcements, this policy is flawed. First of all, supply chains are built around the logic of effectiveness, cohesion, concentration of resources and talent, in all which all associated businesses for a given product pool around.

After all, to build a successful product requires many, many specialist components, and an effective supply chain has everything it needs. The more deeply knit a supply chain becomes, the cheaper and therefore more competitive it is. Therefore, it makes zero sense, even when having capital, to build a factory in the middle of nowhere and attempt to forcibly place manufacturing of a product in an unsuitable location.

But this is precisely what the US has done. The Samsung and TSMC factories have been pushed into areas, largely states where the given politicians want to win votes or favor (such as Arizona) which do not have the talent, component specialization, logistical advantages, or access to raw materials that the integrated and established semiconductor supply chains of Asia have. This has made it impossible to start production on time in these plants and even then, the final product will not be as affordable, desirable, or competitive as its peers, let alone matching in capacity.

One of the most self-defeating aspects of US semiconductor policy right now is that it is bent on cutting off access to its firms and products, to China. China, however, is the world's largest semiconductor market and as a rapidly developing country, has more demand than anywhere else in the world.

These policy decisions are already costing American firms billions, and the US government is out of touch with industry experts and outsiders who repeatedly warned their plans are not feasible. While the US hopes to try and hobble China's high-tech industries, the reality is that China's push for self-sufficiency is too determined and the outcome is likely to increasingly make American companies obsolete in the market.

In summary, protectionism is a self-defeating and uncompetitive path, US semiconductor policies are being motivated not by advancing the needs of their companies but in fact attempting to control global supply chains by force and build factories that are not needed. The delaying of the Samsung and TSMC plans are a reality check which highlight the costs and feasibility of such a move.

(The author, a postgraduate student of Chinese studies at Oxford University, is an English analyst on international relations. The views are his own.)

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