Semiconductors are at the center of the new cold war. President Joe Biden’s signing of the CHIPS and Science Act in August 2022, followed by the U.S. Department of Commerce’s announcement in October of complementary export controls, made clear U.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 is not the first time America’s leadership in high tech and the semiconductor industry has come under threat. Throughout the 1980s, Japan’s rise in efficient and low-cost production of dynamic random-access memory (DRAM) chips forced Silicon Valley companies, such as Intel, to pivot to the production of microprocessors for PCs in order to stay competitive. At the time, research and development (R&D) grants for leading manufacturers and universities from the Defense Advanced Research Projects Agency (DARPA), and deft trade diplomacy by Washington in the form of coordination with new partners such as South Korea, helped the United States maintain leadership in semiconductor design and prevent Japan’s low-cost chips from undercutting the U.S. market. Collaboration across supply chains with partners sharing mutual interests enabled U.S. 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 U.S. semiconductor supply chain. Looking outward to collaborative opportunities with partners, particularly trusted allies such as Australia, will be key in ensuring the United States 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 U.S. 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 existing semiconductor manufacturers such as South Korea’s Samsung and Taiwan’s TSMC. Both companies rely on semiconductor supply relationships with China.
In the context of China developing technology capabilities in artificial intelligence (AI) and Quantum powered by advanced semiconductors, Australia and the United States 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 United States engages with its global partners. U.S. commerce secretary Gina Raimondo recently stated that the United States 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 the United States 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 U.S. policies.
The Japan-U.S. R&D collaboration announced in early January is indicative that other major semiconductor players are recognizing mutual security that is gained through friend-shoring semiconductor supply chains. Significantly, it is occurring through public-private partnership, with U.S. 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 capitalize. The advanced capability sharing under pillar two of the AUKUS agreement is further indicative of the existing recognition of the benefits of streamlining technology sharing between trusted partners. 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 Australian Strategic Policy Institute’s (ASPI) “Australia’s semiconductor national moonshot” report. Semiconductor production should therefore be integrated into AUKUS discussions as partners work to address the challenges of developing a shared defense industrial base and adjusting barriers, such as 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 U.S. export polices and diplomatic coordination with allies incentivizes complementary development of a sovereign industry capability. Australian governments have recognized the security benefits of developing a sovereign semiconductor capability in recent years. The publication of a 2020 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 advanced silicon chips that the United States specializes in. “Trailing edge” technologies refer to less advanced chips that are larger and slower, but crucial in legacy systems such as household appliances to existing weapons systems. This differs from the advanced semiconductors used in cloud computing and AI systems that the U.S. export controls primarily concern.
Compound semiconductor production is also a ripe opportunity for Australia given the limited U.S. 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 existing expertise and base-level production capacity within Australia 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 U.S.-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.
Bronte Munro is an Analyst at the Australian Strategic Policy Institute in Washington, DC, with a focus on critical technology and cyber.