According to the Nikkei Asian Review, U.S. President Biden signed an executive order earlier this month to cooperate with Taiwan, Japan and South Korea to accelerate the establishment of a supply chain that does not rely on chips and other strategic products from mainland China. Hard work.

The document will mandate the development of a national supply chain strategy and is expected to make recommendations for supply networks that are not vulnerable to dangers such as disasters and sanctions in friendly countries. A draft obtained by the Nikkei shows that measures will focus on semiconductors, electric vehicle batteries, rare earth metals and medical products.

The order stated that “cooperating with allies can build a strong and flexible supply chain”, which implies that international relations will be the core of the plan. The United States is expected to seek rare earth partnerships with Taiwan, Japan, and South Korea in chip production and Asia-Pacific economies including Australia.

The United States plans to share information with allies on the supply network of important products and will seek to use complementary production. It will consider a framework for quickly sharing these items in emergency situations and discuss how to ensure inventory and spare manufacturing capabilities. This may require partners to reduce their business with mainland China.

This year's chip shortage has severely hit automakers, making this problem even more urgent.

According to the Boston Consulting Group, the share of the United States in global semiconductor manufacturing capacity has plummeted in recent decades. From 37% in 1990, it has dropped to 12% now. Although it requires Taiwan, China (22% of the highest output) to increase production, the factories there are already fully operational and there are few options to increase supply in the short term.

At the same time, the Boston Consulting Group predicts that by 2030, with the help of approximately US$100 billion in government subsidies, China will lead the world with a share of 24% by 2030.

It is reported that the United States imports about 80% of rare earths from mainland China and relies on 90% of certain medical products in the country.

However, restructuring the supply chain can take a considerable amount of time, especially in the semiconductor field. Due to the limited number of top chip manufacturers in the world, these companies have their own decision whether or not to follow the US approach.

A Japanese government source said: "As far as I know, the United States will currently conduct an in-depth review of its supply chain to clarify how much it depends on which country produces semiconductors and rare earths." "Then it will discuss with allies. Countermeasures."

The United States has already begun to act. Since last fall, it has called for the elimination of the tense supply chain relationship with mainland China along with the economies of Taiwan, Japan and Australia that possess valuable technologies or resources.

Senior officials from the United States and Taiwan of China signed a memorandum of understanding in November to promote technical cooperation in seven areas, including semiconductors and fifth-generation wireless technologies and "safe and reliable supply chains."

TSMC, the world's largest chip foundry, agreed to establish a manufacturing plant in Arizona last spring, which is likely to become a symbol of this bilateral relationship. The chip maker will invest 12 billion U.S. dollars in the plant, which will produce semiconductors for the military, which is scheduled to start production in 2024. The US government is providing subsidies for the project.

Since last year, the Ministry of Economy, Trade and Industry of Japan has been working hard to attract TSMC into Japan, not only establishing a more solid three-way supply network, but also providing Japan with a reliable source of future cutting-edge chips. The Japanese government has budgeted 200 billion yen (US$1.9 billion) to pave the way for manufacturing plants with a view to possible cooperation with Japanese companies.

This seems to be quite effective. Nikkei learned this month that TSMC is planning to establish a 20 billion yen R&D center in Japan.

In the field of rare earths, the United States is cooperating with Australia to work on the dominance of mainland China. Australian rare earth miner Lynas, with financial support from the US Department of Defense, is building a processing plant in Texas.

Electric vehicle batteries are another area where action is needed, because Panasonic and South Korea’s LG Chem lost out to competitors in mainland China.

But in other areas (such as 5G), the new supply chain may increase costs for US and Japanese companies, but they cannot obtain cost-competitive mainland Chinese suppliers like Huawei.