Friday News Roundup — June 9, 2023
Friday greetings from Washington. Along with much of the northeast, the Canadian wildfire smoke cast a strange haze over the past few days, but the breaking political news is the looming federal charges for former President Donald Trump in the case of classified documents found at the Mar-A-Lago residence. Along with his other legal cases, this continues to raise questions about the 2024 GOP primary and election — but for the most part, Republicans have rallied behind President Trump and accuse the Biden administration and its Department of Justice of persecuting a political opponent. The former president will have his first hearing next Tuesday afternoon in a Miami federal courthouse.
Before Thursday night’s breaking news, the question “what will post-debt-ceiling politics look like?” was answered. Investigations into the Biden family and the withdrawal from Afghanistan have intensified with the threats of contempt of Congress for FBI Director Wray and Secretary of State Blinken ultimately resolved when documents were shared with Congressional committees. But the business of the House came to a halt as conservatives rebelled against Speaker McCarthy and the GOP leadership over the debt ceiling deal. The House recessed, and as we look at tensions within the GOP caucus, perhaps a summer break will help before it becomes time to tackle the list of items due by September 30th: government funding; FAA, Coast Guard, and pandemic preparedness reauthorization, and the farm bill.
In Ukraine, it appears the early stages of the long-awaited Ukrainian counteroffensive have begun, but the horrific breach of the Kakhova Dam has inundated large swaths along the Dnipro River — drowning homes, farms, people, pets, and livestock. With British Prime Minister Rishi Sunak visiting Washington, both President Biden and the PM reiterated their support for Kyiv, while also moving towards an agreement on critical mineral supply chains. In The Hill, Joshua Huminski analyzed how the counteroffensive is important, but likely not decisive. In this week’s roundup, Ethan Brown covers the dam breach, outlining what could be a war crime by the perpetrator and the history of securing or destroying this critical infrastructure in conflict.
The Supreme Court ordered Alabama lawmakers to redraw their congressional map in a surprise ruling on Thursday. The court said that Alabama’s 2020 redistricting diluted the power of Black voters in the state. The ruling will allow Alabama to gain an additional Black majority district. Currently only one of Alabama’s seven congressional districts holds a Black majority, despite the state’s population being 27% Black.
In RealClearHealth, CSPC Presidential Fellows alumnus Dr. Aamir Hussain, MD, urged reform of the H1B visa program to expedite needed doctors for America’s rural communities.
In this week’s roundup, in addition to Ethan’s coverage, Veera Parko asks if the smoke and haze this week presages a hotter, more flammable future. Elise Mizarek, a CSPC summer intern from Hamilton College, makes her inaugural roundup contribution looking at the development of a French EV gigafactory by a Taiwan-based firm. Dan Mahaffee has a longer analysis looking at the “end of the beginning” of reshaped perceptions of the U.S.-China relationship — and how our politicians, private companies, and other countries will navigate this new challenge. Hidetoshi Azuma offers a critique of Japan’s 2023 Semiconductor and Digital Industries Strategy and an alternative strategy for the country’s chip policy in light of the global geotechnological competition.
War Crimes Abound in Dam Destruction
Ethan Brown
Flooding in Kherson — Photo: State Emergency Service of Ukraine
The Ukraine War has, if nought else, has begun to desensitize the global population to the atrocities of war, though attention was recaptured on such front this week with the startling news that the Kakhova Dam was significantly damaged, resulting in severe flooding along the banks of the Dnipro River.
Most of this territory in Ukraine remains under Russian control, and as such, finger pointing has occurred on both sides of the conflict; with NATO and Kyiv asserting continued extreme tactics waged by Russia (believable based on past battlefield atrocities by Russian forces, and not just in Ukraine). Meanwhile, Moscow has accused Ukraine of conducting the attacks which damaged the dam, among other deleterious activities that would exceed tactical mandates, and unfortunately, Ukraine’s defenders are not above reproach when it comes to the atrocities of warfare.
These are the simple facts of the situation: any military action against water infrastructure is expressly forbidden under the articles of International Law set forth under UN resolution. Article 53 states: “In addition to the other protections provided by these Rules, combatants shall not make dams and dikes the objects of attack, even where these are military objectives, if such an attack may cause the release of dangerous forces and consequent severe losses among the civilian population.” Such actions constitute a war crime, and there is little room for interpretation.
Waterways have tragically been a feature piece in recent conflicts, due to the relatively weak oversight of control mechanisms protecting them during armed conflict. The most recent example of this occurred in 2017, when U.S. special operations forces were engaging Islamic State terrorists in and around the Tabqa Dam while preparing to liberate the city of Raqqa. The Tabqa Dam was a key piece of infrastructure which held back the Koban-Tabqa quadrant of the Euphrates River; it was one of the largest water structures in the Middle East and it’s damage would have created an immediate humanitarian crisis, flooding the city of Raqqa and displacing hundreds of thousands of civilians and militants alike. On the day in question, US Special Forces personnel were in a withering close-fight with ISIS combatants occupying the Dam, and an errant bomb penetrated several levels of concrete superstructure, damaging one of the liftgate cranes and creating an immediate emergency. A coalition team which included US, Syrian Democratic Forces, and even ISIS engineers navigated tense hours of repairs amidst the ongoing battle.
In 2003, during the invasion of Iraq, one of the more bizarre strategic maneuvers took place amidst confusion when coalition special operations forces spearheaded a lightning raid against multiple key Iraqi targets, including Saddam Hussein’s Presidential Palace on Lake Tharthar, and the Haditha Dam Northwest of Baghdad. That latter was based on the intelligence that presumed Saddam would blow the floodgates and the dyke, flooding Baghdad in order to slow the advance of the 3rd Infantry Division’s push from Kuwait into Iraq’s Capital. A Company from the U.S. Army’s 3rd Ranger Battalion (75th Ranger Regiment) and three U.S. Air Force Forward Air Controllers would assault the Dam with persistent Close Air Support and wage a week-long battle to secure the Dam against an entire Brigade (more than a thousand personnel) of Elite Iraqi Republican Guard. Ostensibly, Saddam’s General Staff had deployed additional troops to the Dam to protect it: presuming the American-led coalition intended on blowing the Dam to prevent Saddam’s forces from defending the city. (Both this story, and the raid on the Presidential Palace, will be featured in my forthcoming books about the history of Forward Air Controllers in GWOT).
In 1991, during the brief and tragic Croatian War on Independence, the Battle of Vukovar in the heart of Croatian cultural and social reform was waged between those seeking self-determination and the Serbian forces who would surround and bombard the townships throughout the region. Even after capitulation following brutal repression and occupation, civilian casualties abounded, and were largely ignored by the international community. The Tower of Vukovar, a water tower, commemorates the doggedness of the Croatians who sought independence, and was pock-marked with over 600 different direct hits from attackers, directly impacting its performance capacity and harming civilians in the town of Najpar Garden. The tower remains intact today as a memorial of Croatian independence.
Water infrastructure, throughout recent history, has been the unfortunate target of military action and is a circumstance which the international community has failed to give its due attention. In Ukraine, the situation is even murkier and embroiled in controversy while awaiting potential greater crisis if the Dam fails: the United States “could not conclusively state what happened” according to White House Spokesman John Kirby on Tuesday. This statement occurred almost simultaneously to “intelligence which suggests” that Russian was behind the attack. Destruction of a Dam like the one at Kakhovka would require significant firepower, and concentrated to boot, further advancing the possibility that deliberate sabotage would have occurred, and not as a result of an errant HIMARs or artillery strike. Damage was assessed via satellite imagery to have occurred on the land bridge portion of the Dam days before the major structural break, which further complicates judgment or analysis.
Rational minds would conclude that Ukraine would not risk flooding its own sovereign territory and risking its citizen’s lives just to impede Russian activities, but like the other examples on this list, it is not unprecedented: in World War I as the German Army was transiting through Belgium on their way to the French flank, King Albert I ordered the floodgates of the Nieuwpoort open on October 25th, 1914. This was done in order to slow the advance of the German’s who violated Belgium territory with the intent of not creating conflict.
But historical precedents do not justify actions which today constitute violations of international law. It remains too early, and with too little information (or too much that is obscured and obfusticated with conflicting accounts) to effectively assign blame. But the reality remains stark: until this war can begin navigating its way towards some kind of rational, reasonable end state, Ukraine will bear scars that will define the early epoch of this era of strategic competition.
Record Wildfires in Canada, Hazy Smoke in D.C. — a Glimpse into the Future?
Veera Parko
Wildfire smoke from Quebec headed towards the Northeast on Tuesday — NOAA GOES-East Satellite Imagery
This week, Washington D.C. residents have had the unpleasant experience of feeling the effects of record-breaking wildfire smoke on air quality, firsthand. Images of New York City covered in wildfire smoke originating in Canada have been described as “apocalyptic”. On Wednesday June 7, air quality in New York City ranked the poorest among the world’s major cities, surpassing cities like Delhi, India and Lahore, Pakistan.
The reasons behind the Canadian wildfires have to do with heat and drought associated with global warming. Climate change tends to make wildfires more intense and wildfire seasons longer. Canada is fighting more than 400 simultaneous wildfires in different parts of the vast country, an exceptional challenge for firefighting personnel. Such wildfires are rare in Canada so early in the season: the toll of the fires up to this point has reportedly been 13 times worse than the 10-year average, with fires burning about 9.4 million acres of land (an area larger than the state of Maryland).
Canadian wildfires have been described as “unprecedented”. However, more intense and devastating wildfires has long been recognized as a hazard made worse by climate change. In many countries, governments are struggling to prevent and respond to record-breaking wildfires and thinking about how to coordinate and pool resources to respond more efficiently. In Canada, wildfire emergency response management is handled by each of the 10 provinces and three territories, but the exceptional amount of simultaneous wildfires has stretched local resources thin. Some experts have suggested a national firefighting service (which Canada does not currently have) to boost prevention efforts by, for example, sending firefighting assets and personnel to areas overwhelmed with wildfires.
In response to Canada’s request for international assistance, the United States and many other countries are sending international teams of firemen to help Canadian authorities. For emergency management professionals, fighting wildfires is a resource-consuming business, and pooling resources is often a smart thing to do. For example, to better respond to worsening wildfire seasons, the European Union has established a system of pre-positioned firefighting equipment and personnel, ready to respond when another country needs it (and supported by EU funding).
While the Northeastern United States has not experienced air quality this poor in years, it is rather sobering to think about the poor air quality millions of people elsewhere in the world are subjected to, every day. The hazy smoke lingering over New York City and Washington, D.C. could well be a glimpse into a future of more frequent and more intense wildfires — and maybe an incentive to focus more on how to prevent, prepare and respond to these events.
Taiwan-based ProLogium to Open First International EV Gigafactory Site in France
Elise Mizerak
Electric Vehicle Charging Station — Photo: U.S. Department of Energy
On June 5, French president Emmanuel Macron and leading Taiwanese manufacturer of EV batteries, ProLogium, announced plans to construct an EV battery gigafactory at Dunkirk. ProLogium CEO Samuel Yang said that the company was looking to expand beyond Taiwan because of rising geopolitical tensions with China and that it had received multiple offers from France, Germany, and the Netherlands. Ultimately, Yang chose France for the company’s first overseas facility because of the generous subsidies the French government offers EV component developers. In the early days of his administration, Macron also enacted tax cuts for corporations and production facilities, making France an appealing site for manufacturing. ProLogium’s consideration of a European destination also demonstrates the substantial progress the European Union (EU) has made in developing more autonomy in rare mineral extraction and processing.
France has a long history of industrial policy, which created the European space program, a vast nuclear energy base, and a world-class high speed train network. France’s deal with ProLogium continues this tradition and is part of Macron’s extensive plan to transform Northern France from a region known for coal mining into a booming EV industry hub. In October 2022, the French mining company Imerys unveiled plans to develop a new lithium mine in Central France. In addition to this new mine, the company estimates that by 2028, they will produce 34,000 tons of lithium annually from another mine in Northern France — enough lithium to produce 700,000 EV batteries. This slew of EV and mining projects illustrates Macron’s dedication to becoming less dependent on foreign entities to supply critical minerals needed for renewable energy development — a goal shared by the rest of the EU and the United States.
With the passage of the U.S. Inflation Reduction Act (IRA), the EU feared that the Biden Administration’s significant investment ($369 billion) in clean energy development would launch a subsidy war between the United States and the EU. The IRA’s allotted $216 billion in tax credits for qualifying corporations makes clean energy investments more attractive in the United States as opposed to the EU. In response, the EU decided to invest remaining state aid from the pandemic into subsidies for its “Green Industrial Plan.” This legislation allowed France to invest heavily in subsidies for EV manufacturing. In an effort to alleviate fears of a “green subsidy battle,” the EU and United States decided to negotiate a “critical minerals agreement” much like the one that the United States established with Japan. Serving as a small-scale free trade agreement, the critical minerals agreement would make EU-sourced batteries and inputs eligible for the IRA’s tax credits. The agreement would allow the United States and the EU to diversify their renewable energy supply chain — a particularly important task as the climate crisis worsens and China assumes more dominance in the industry. However, hurdles remain: the European Commission has said member states would need to approve any agreement, and the U.S. Congress is split on support for the agreement. Some members see it as an important step toward ally-shoring, while others like Senator Joe Manchin (D-WV), say it undermines the intent of the IRA legislation.
Having invested in subsidies and materials such as solar cells and polysilicon for over a decade, China remains the world’s leading renewable energy manufacturer. In order for the United States and EU to achieve the ambitious climate goals they established, experts claim that all countries will continue to rely on China for clean energy supplies until they expand their own production. While it will undoubtedly take time for the United States and EU to upgrade their capacities in renewable energy production, it is imperative that the United States and EU diversify their renewable energy supply chains, so as to improve their own economic standing without purchasing so much from China. Therefore, the progress in Europe, most notably in France, demonstrates new opportunities for renewable energy development within the United States if a critical minerals agreement comes to fruition.
Defining De-Risking & Navigating U.S.-China Relations
Dan Mahaffee
President Biden speaks at an electric car factory in Detroit, MI, in 2021 — Photo: White House
De-risking has become the term-du-jour when it comes to business with China, and it is now being used to describe how to navigate not only the changing nature of doing business in China, but also the response from Washington. China’s political tightening under Xi, the pandemic, growing hawkishness in U.S. politics, and myriad other factors have reshaped the U.S.-China relationship away from the past consensus on the benefits of economic interdependence.
Amid this paradigm shift in how the two powers see each other, the private sector and third countries are in very similar positions — both forced to navigate the dueling visions that come from Washington and Beijing. As the terms of this competition come into focus, we can now describe the two models and the conundrums, and opportunities, for those navigating the new reality of U.S.-China relations and its impact on global relations and a globalized economy. For some of you who track U.S.-China relations or regularly read this roundup, there is some retread ground. However, this point, to use the Churchillian phrase, “at the end of the beginning” of the changing U.S.-China relationship, it is helpful to provide a level set of how politics and business are interplaying across the Pacific, and around the world.
As we have tracked China’s post-Covid re-opening and the growing U.S.-China tension, visits to China are seen as even more important — especially by foreign leaders or prominent business executives. We have seen plenty of attention paid to the latter recently, as Elon Musk (SpaceX, Tesla, Twitter), Jamie Dimon (JPMorgan Chase & Co.), Bernard Arnault (LVMH), and Jensen Huang (Nvidia) are the most prominent ones who have visited China or are planning to do so. Visits by foreign leaders are also closely watched by U.S. policymakers, with the one by French President Emmanuel Macron and European Commission President Ursula von der Leyen described as “good cop, bad cop” diplomacy. While it was Macron’s off-the-cuff diplomacy that rankled more feathers in Washington, it was von der Leyen that spoke of “de-risking”, a milder version of the “de-coupling” proposed by the more hawkish.
China’s New Model
First, we must remember that China’s new model comes from the political consolidation of power by Xi Jinping and an emphasis on national security that focuses on the United States and its allies as natural competitors and threats to China’s regional and global position. Understanding the importance of technology in prevailing on the modern battlefield, Beijing has sought to close the technological gap with the United States — sometimes through illicit or underhanded means, but also through the legitimate growth of a world-class technology industry. Now with supply chains that in some cases have taken three or even four decades to build, China is firmly part of the global economy in a way that the Soviet Union never was, nor even Russia today — making the Cold War comparisons and the economic response to the Ukraine conflict an unhelpful comparison of economic isolation.
That said, we see that the current Chinese leadership is far more skeptical of the benefits of economic openness, given their emphasis on political control and building military capacity. Long after the West’s vaccination and re-opening, China’s adherence to zero-Covid to the point of economic collapse demonstrated this, and it has been followed by the continued crackdown on private sector activity: domestically focused efforts have cracked down on big tech, finance, real estate, and other high-flying companies and their CEOs; raids on foreign due diligence firms have demonstrated a tightening of control on information; security restrictions on imports like Teslas due to their onboard cameras and now Micron semiconductors show a willingness to target more prominent U.S. firms; and finally more frightening examples of executive detention, hostage diplomacy, exit bans, and other onerous measures by officials — all together these reshape and raise risk within the calculus of engagement. While some Chinese officials still preach about the importance of doing business with the outside world, this business is done on Beijing’s terms. Empowered by vague and expansive national security laws, party officials may see their future careers depending on their arrest or spycatching metrics to a greater extent than economic data. Should the early signs of this worsen, it is an ominous sign for doing business in China, creating a new level of risk, despite the rhetoric surrounding the recent high-profile corporate visits.
Washington’s Response
In the United States, what we are seeing is the response to China’s actions, driven by a political consensus that is rarely seen in these polarized times. First, there is the security response, burnishing our military capabilities while protecting our economic and technological crown jewels. Second, there is the industrial policy response. As U.S. policymakers became aware of how China had moved ahead in 5G technology in the 2010s, telecom and IT equipment became the first critical technology of concern, but this was broadened by the intensification of China’s efforts in areas like AI, quantum technologies, supercomputing, 5G/6G networks, biometrics, and biotech. Furthermore, during pandemic disruptions, supply chains for semiconductors, pharmaceuticals, and critical minerals became a greater concern, while the growth in popularity, and subsequent controversy, of TikTok has reminded our policymakers of the value of user data, the power of algorithms, the importance of privacy and youth protections, and U.S. inaction regarding all of the above — at least when it comes to federal legislation.
The response has been the result of a tricky political consensus, spanning the Obama-Trump-Biden administrations and multiple Congresses, maturing in the Biden administration efforts led by National Security Advisor Jake Sullivan and Secretary of Commerce GIna Raimondo, and Congress has its increasingly prominent U.S. House Select CCP Committee led by Rep. Mike Gallagher (R-WI) and Rep. Raja Krishnamoorthi (D-IL) and discussions of a future China legislative package being discussed in the Senate.
We have already seen a bipartisan and historic consensus behind investments like the CHIPS and Science Act, and a more partisan though no less monumental approach in the Inflation Reduction Act. However, U.S. politicians have far less influence over the choices of private sector leaders compared to China. There is also the frequent temptation to focus on social or political priorities via industrial policy, a distraction from supporting R&D, production, and commercialization.
How do we de-risk? Who defines it?
Until rhetoric becomes regulation or law, much of what U.S. policymakers can still do is to focus on the strengthening of existing tools that may complement future efforts. While the U.S. looks to protect, for example, its technological advantages and work with allies on developing critical technologies, it is important to understand how existing tools can be used and strengthened. For example, export controls can be reformed (our colleagues at CSIS have started an excellent project on just that), while the long-awaited regimen for outbound investment review will need to be carefully implemented. Here a “do no harm principle” is important, because there is a temptation to “out-China, China.” The best we can hope for is that policymakers emphasize a consistent approach, coordinated with allies and the private sector, and remain consistent about what engagement with China is off-limits, what requires caution, and what is acceptable risk.
The politics around China, however, are likely to become more heated, even as we have seen the Biden administration attempt to put some form of a floor beneath a decline in U.S.-China relations. Biden Administration efforts to create space for cooperation — launched with speeches by Yellin and Sullivan — have elicited a two-track response: slapping the outreached hand at Shangri-la while accepting meetings with US economic officials for the purpose of winning concessions from the United States. The question is, what can the U.S. gain from its unilateral outreach? China hawks worry rightly about engagement for the sake of engagement, but we also must remember that diplomacy is not a reward. It is one of the tools of statecraft to be used with friends and against adversaries.
When it comes to business, Washington sets itself up for a failure when creating a binary about doing business or not doing business in China. Beijing then looks like a winner when companies face the economic reality that they can’t replace revenues or withdraw rapidly from China. Despite that 2024’s looming political battle could augur a competition among U.S. candidates to be tougher on China — or China could very well become an afterthought in the heated domestic debate about a Trump return to the White House.
Between these two models, we see that the private sector and the leaders of countries not aligned one-way or another must navigate the growing disruption of economic ties and deepening political tension — and the unthinkable prospect of military conflict. While more complicated in diplomacy and politics, private sector leaders see it as a calculus of profit-versus-risk. Despite the efforts of lawmakers in Washington, few companies are going to be able to precipitate a sudden withdrawal from such an important economy and supplier. If recent events — Hong Kong, Xinjiang, Covid — have not been enough to convince them to do so, little will, short of the unimaginable war over Taiwan or some other flashpoint where I doubt our immediate worries will be share value.
Short of the unthinkable, the reality is that while Beijing exerts pressure to change China’s economic model and employ the range of incentives and strong-arm tactics to do business on its terms, U.S. policymakers can and will highlight the risks of doing business in/with China, all the while doing what they can to protect our technological capabilities. This process, however, will take years to replace a Chinese-centric supply chain, and the consensus on a blank check for industrial policy may have been short-lived. Still, while an imperfect comparison, the invasion of Ukraine is a useful reminder to the C-suite that geopolitics never goes away and can make a sudden and costly return. Some factors we cannot control, but minimizing what could become self-injurious legislation or regulation is critical to this.
For companies, the challenge is tracking where the U.S. government promotes onshoring, nearshoring, or friend-shoring to set up alternative supply chains, as well as watching how major companies navigate by creating supply chains that are increasingly one for the Chinese market, one for the global market, and one meeting U.S. and other allied standards. Working with U.S. allies and partners to harmonize standards, rules of the road, joint R&D, and other economic sinews is important — but nothing will replace the impact of true trade engagement with allies, domestic political challenges notwithstanding.
All involved in this discussion face turbulent waters ahead. China’s leaders see myriad looming crises — debt, demography, and degradation — where the financial, human, and environmental costs of past decades’ rapid growth come due. Whether a greater consolidation of party authority and a more statist economy is the answer to this remains to be seen, but Xi has chosen his course. Still there are questions: Has Xi consolidated power to overcome the challenges ahead? Has he been successful in consolidating power, or will cliques and factionalism inevitably return to Chinese intra-party politics? If Xi has consolidated power successfully, has he created a system where reform is impossible because no one can tell the emperor of his nudity?
As I have described, the United States will have to navigate its own political tumult and the choice ahead in 2024. And no matter that outcome, the recent debt ceiling debate is a reminder of the fragile financial footing of U.S. power and raises legitimate questions about what resources will be available for defense, industrial policy, and other priorities moving forward.
U.S. allies and many other countries around the world seek to balance their ties with Washington and Beijing, or benefit by playing one off the other. However, both Washington and Beijing will increasingly urge a choice, towards one-power-or-another, when it comes to the development and sharing of critical technologies — especially those related to military purposes. For private sector leaders, the basic challenge will be navigating this complex environment, all the while understanding the financial and reputational risks that come from changing U.S. domestic politics around perceptions of China. The balloon overflight and the video we now see of dangerous air and sea intercepts by PLA forces remind us how perceptions can quickly harden and miscalculation threatens to spiral into open conflict.
One of my favorite Yogi Berra quotes is “predictions are hard to make, especially about the future.” What we see now, at what can be considered the end-of-the-beginning of the shift in U.S.-China relations, is not prediction, but clearer contours for how the dueling models of systemic competition will shape global politics and economics.
Japan’s Semiconductor Pipe Dream
Hidetoshi Azuma
The Japanese Prime Minister Fumio Kishida addresses the annual SEMICON Japan conference in December 2022 (Photo Credit; The official Twitter account of the Office of the Prime Minister of Japan)
The Japanese government unveiled its 2023 Semiconductor and Digital Industries Strategy on June 6. The 273-page new strategy document provides an essential upgrade to its 2021 version by reflecting the fundamental geotechnological transformations following Russia’s expanded invasion of Ukraine beginning in February 2022. It revolves around the ambitious agenda of increasing Japan’s chip sales to more than 15 trillion yen (US$108 billion) by 2030, tripling the goal set a few years earlier. In other words, Tokyo’s new chip strategy reaffirms its long-held vision for the resurrection of Japan’s domestic industry this time under the banner of economic security. Such a vision appears to ignore the practical issues surrounding its implementation. Indeed, Tokyo’s dubious emphasis on government subsidies as a panacea for Japan’s chip agenda is no guarantee for its long-term success, especially given the country’s abysmal track record of government-led initiatives since the late-1980s.
Tokyo’s latest chip strategy is the culmination of its growing focus on reviving Japan’s semiconductor industry as the foundation for the country’s economic security policy. In fact, such a focus persisted long before the COVID-19 pandemic which led to an acute supply shortage of chips and consequently spurred a rethink on their supply chains. This was largely due to the bitterness shared across Japan’s chip industry after the country yielded its unrivaled global market share to other emerging players, especially Taiwan and South Korea following the end of the Cold War. Indeed, Tokyo frequently exploited such a sentiment to justify its statist programs of reviving the Japanese chip industry, only to discover Japan’s lost advantage vis-a-vis its Asian competitions followed by multiple bankruptcies of state-sponsored ventures. The pandemic rekindled Tokyo’s drive for Japan’s chip revival, leading its 2021 chip strategy to position the country as a global hub for semiconductor manufacturing backed by lavish state subsidies. Against this backdrop, the 2023 chip strategy essentially calls for additional government subsidies to expedite the revival of the Japanese chip industry to prevail in the great power competition increasingly fueled by emerging technologies, such as generative artificial intelligence (AI).
The underlying assumption inherent in Tokyo’s 2023 chip strategy is that state subsidies would inevitably be conducive to the projected 15 trillion yen chip sales by the end of this decade. To reach this goal, Tokyo has revealed a three-step strategy for Japan’s chip revival consisting of 1) securing basic manufacturing infrastructures; 2) consolidating next-generation technologies; and 3) supporting research and development (R&D) on future technologies. These steps are to guide the production of Japanese chips, ranging from advanced logic semiconductors to manufacturing equipment and materials. Moreover, these initiatives are supported by government commitment to growing future talents, strengthening international partnerships, and ensuring environmental sustainability. These efforts are touted as conducive to the creation of a “value-added ecosystem” driven by innovation, expanded domestic investment, and income increase while achieving sustainable economic growth through digital transformation (DX), green transformation (GX), and economic security, supposedly generating 15 trillion yen by 2030.
Predictably, central to such an ambitious chip strategy are the two major state-sponsored projects, namely the Taiwan Semiconductor Manufacturing Company (TSMC) plant in Kumamoto and the Rapidus venture in Hokkaido. The TSMC plant in Kumamoto emerged against the backdrop of the global shortage of 28nm chips in 2021 amidst the pandemic which heightened the sense of urgency for Japan’s chip revival in Tokyo. Tokyo quickly revised the domestic legal system to allow for state subsidies to be pumped into new semiconductor manufacturing plants and authorized approximately 500 billion Japanese yen (US $3.5 billion) for the construction of a TSMC foundry in Kumamoto. TSMC later added 12–16nm chip manufacturing capabilities after the Japanese automobile parts manufacturer, Denso, joined the project. In November 2022, Tokyo launched Rapidus to obtain domestic manufacturing capabilities to produce 2nm advanced chips. Rapidus is a joint consortium consisting of eight of Japan’s foremost manufacturers, such as Toyota and Sony, and has received state subsidies totaling 330 billion Japanese yen (US $2.4 billion). Tokyo’s latest venture is set to become operational in 2027 in Hokkaido.
The reality, however, increasingly looks ominous for Japan’s semiconductor gambit. First, the original rationale for Japan’s chip revival is no longer valid as the very problem of supply shortage has been largely remedied over the last few years. This directly challenges the raison d’etre of the TSMC plant in Kumamoto which was specifically launched in response to the supply crisis surrounding 28nm chips. Moreover, the highly-anticipated TSMC foundry would do little to boost Japan’s economic security because it would relocate only a portion of the entire semiconductor supply chains to Japan. Crucially, the design and manufacture phase of photomasks would remain in Taiwan while packaging and assembly would be conducted in China. Finally, TSMC is ultimately a Taiwanese company earning the majority of profits while Japanese workers collect the meager rest. Likewise, despite its domestic origin, Rapidus is all but doomed from the beginning due to Japan’s lack of indigenous technical experience for micronization needed for producing 2nm chips. Indeed, Japan’s micronization expertise remains at the level of 40nm, and the obvious lack of domestic talents well versed in 3nm-40nm chip production would further exacerbate the problem.
The enigma of Tokyo’s chip agenda in fact derives from its erroneous interpretation of Japan’s loss of global market dominance beginning in the late 1980s. Indeed, various dubious theories proliferate in Japan as to the cause of Japan’s defeat, ranging from the 1986 US-Japan chip agreement to even the clandestine economic warfare allegedly conducted by the Central Intelligence Agency (CIA). Common to such theories is the attribution of Japan’s downfall to Washington’s policy, leading to rancorous economic nationalism blaming the US for every ill afflicting the Japanese chip industry. The upshot has been the national failure to reflect on its own strategic fiasco of disregarding the changing geotechnological environment following the end of the Cold War. Indeed, Japan’s semiconductor dominance was possible thanks to its focus on producing high-end chips, a strategy which ironically became counterproductive with the advent of personal computers (PC). Ultimately, the root of all evil in Japan’s chip downfall was its statist approach resting on laurels of the country’s past success and the delusions of grandeur that the industry can be revived again under Tokyo’s benevolent guidance.
In this sense, Japan’s 2023 chip strategy is no silver bullet capable of restoring the country’s former glory. It is more of a blueprint for regional economic revitalization masquerading as a game plan for boosting Japan’s economic security. Indeed, Kumamoto and Hokkaido, the two rural regions which would have otherwise faded into obscurity due to neglect, are now set to receive a historic opportunity to revitalize their economies. Such rural economic revitalization would be crucial to the election strategy of the ruling Liberal Democratic Party (LDP). The emerging agenda of creating technology hubs in the two regions would certainly enrich the areas and likely bring about fundamental changes to the local geoeconomic landscapes. For example, Hokkaido is projected to receive 5 trillion yen (US $35 billion) in investment related to the construction of a Rapidus foundry in coming years, leading to other possibilities, such as the highly-anticipated “Hokkaido Valley” project. In the end, the LDP and local special interests would be the largest beneficiaries while Japan’s economic security remains far from secure.
Japan’s real competitive edge resides in its market dominance of chip equipment and materials. Indeed, Japan is the world’s leading provider of chip materials, such as wafers and resists, and dominates the production of chip manufacturing equipment. This reality suddenly became palpable for Beijing when Tokyo recently introduced a new set of economic sanctions on Japan’s chip equipment and materials exports to China. The upshot has been an added pressure on China’s chip industry already crippled by Washington’s economic sanctions introduced in October 2022. In other words, Japan’s position commands an enviable position as the unrivaled exporter of chip equipment and materials, essentially beholding the rest of the world to Tokyo’s policy. Such a perspective on Japan’s competitive edge would urge a rethink of Tokyo’s new chip strategy, which merely expands the scope of its dubious focus pouring government subsidies across Japan under the banner of economic security. A more sensible strategy would emphasize Japan’s real advantage and seek to transform the country into a regional hub for chip equipment and materials.
Japan’s 2023 chip strategy is an ambitious document seeking to revive the country’s chip industry supposedly to prevail in the simmering global geotechnological competition today and tomorrow. Its ace up its sleeve is the massive amount of yen sanctioned for use as government subsidies to be poured into erecting foundries one after another. Inevitably, the entire enterprise has become state-driven. While state subsidies are not necessarily evil in the capital-intensive chip industry, Tokyo’s misguided focus is already leading its agenda astray. No amount of economic nationalism would cure a strategic-level error. In fact, the emerging reality of Tokyo’s chip agenda eerily evokes the bitter memories of the Battleship Yamato, which emerged despite the advent of naval aviation and succumbed to the all but inevitable fate in the Pacific. The key lesson from Yamato’s tragic denouement was Japan’s cultural failure to effect a course correction once a decision is made. Tokyo’s lingering obsession with Japan’s chip revival only implies that it never learned the lesson after 1945, let alone 1986. The architects of Yamato might be roiling in their graves as Tokyo inexorably proceeds headlong into an uncertain future in today’s simmering global chip war.
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The views of authors are their own and not that of CSPC.