Diplomatic Techno-Strategy and the Semiconductor Industry

2021 Concordia Indo-Pacific Summit
November 9, 2021
Keynote Address by Center for Tech Diplomacy at Purdue Director Bonnie Glick

Thank you all for being here today, and thank you to Concordia for sponsoring this important Summit on the Indo Pacific, the region that is now the most critical part of the global dialogue around technology and so much more. 

How did semiconductors, also called chips, come to dominate conversations people are having all over the world? They are tiny? We can barely see them. Why are they so important?

Today I want to discuss the current semiconductor shortage worldwide and the ways that allied countries are coming together to look for solutions to what started as another pandemic-related challenge but is quickly becoming a crisis. Before we jump into the semiconductors, though, let me frame this a little bit in terms of the geographic significance and the importance of diplomatic relations as they relate to technology.

We’re here because we care about the Indo-Pacific region. We have seen, over the past few decades, the emergence of the region as a new center of global focus economically, diplomatically, and militarily. We have seen alliances like the Quad between Australia, India, Japan, and the United States strengthen. We have seen ASEAN countries contribute enormously to global markets and the global economy. We have seen the Pacific Islands emerge as a strategic hot spot between democracies and the authoritarian leaders in the People’s Republic of China. We have seen Taiwan take center stage both because of its commitment to democratic values and also because of encroachments into its air and sea space by the People’s Liberation Army. Semiconductors, it would seem, are an infinitesimally small issue as it relates to enormous geopolitical considerations in the Indo Pacific.

Yes, semiconductors are small, but they are also mighty. And they are at the center of these geopolitical flashpoints because they are necessary components in the advanced machinery, weapons, and equipment that have driven all of the above advances. At the heart of the success of the Quad relationship is an increasing dependence on each other for supply chain-driven concerns. Global trade rides on networks that are tied to the global supply chains which and are powered by chips. ASEAN countries are developing the latest and greatest in health technology, fintech, and digital services, all driven by chips. The Pacific Islands are looking for technology solutions to combat climate change – data and delivery are all driven by chips. And Taiwan is one of the world’s largest sources of chip manufacturing in the world.  Small, but mighty indeed.

So if everything depends on chips, how did we end up with a chip shortage? Where are all the semiconductors when you need them?  Why are there delays in deliveries?

These are great questions. At the heart of the issue is a complex, multi-modal, global colossus known as the supply chain. We ran into a chips shortage due to imperfections in the global network that covers everything from critical mineral extraction to chip manufacturing to packaging to shipping to transportation to integration to final products. And there are a number of steps that I left out because the supply chain is just so long. We learned during COVID that one glitch along any step of the supply chain has global repercussions for the manufacturing industry.

In free market societies, business is driven by market demand. The semiconductor business pivoted to supply urgently needed chips to the IT sector in order to manufacture pieces of equipment we all needed to stay connected at the start of covid.  Tablets, laptops, computers. And since we were all working and schooling from home, the automobile and aircraft industries slowed to a crawl.  Until the vaccines came out. And then people were able to resume work in the office, to resume school in the classroom, to resume air travel. And suddenly there weren’t enough chips to make cars.  Or planes.

The supply chain in free markets had pivoted to meet demand for tablets and laptops, and had difficulty pivoting rapidly enough to supply the new economic demands. And that’s where we are today.

There aren’t enough chips, in general, for consumer demand around the world. And the supply chains were additionally impacted by the recognition that the People’s Republic of China added a new wrinkle by disrupting supply chains further, by threatening Taiwan militarily, by mounting an aggressive economic attack on Australia, by pressuring countries in the Indo Pacific and around the world to choose sides in a mounting competition with the United States.

So let’s delve a little bit into the supply chain and take a look at where we stand, and where there are opportunities to make the supply chain more efficient.  Key to this conversation, of course, is the Indo-Pacific region, particularly diplomatic and trade relations within the region and outside it.

Where is the supply chain located, and what flows along it? Well, that doesn’t take much thinking as virtually everything flows along a global supply chain these days. And the supply chain is enabled by semiconductors. A shortage of semiconductors cuts to the heart of global commerce, global trade, and global prosperity. Add to the already destabilized supply chain the politically motivated moves that are deliberately destabilizing by the People’s Republic of China, and you have a recipe for global economic disruption that can impact the world as much or far more than the pandemic itself. And with over 5 million people dead around the world from COVID, the stakes are extremely high.

This is where we need to start thinking about a new type of diplomacy, something I refer to as Techno-Statecraft.  It’s a new category in the global diplomatic toolkit, and it puts technology and the development of technology at the forefront of our diplomatic agenda.  Many of our allies already practice a form of Techno-statecraft.  Israel refers to it as Innovation Diplomacy. Estonia has been practicing techno-statecraft ever since a Russian Denial-of-Service  attack in 2007 impacted everything in this small country whose economy is 96% online. The United States and its allies in the Indo Pacific are waking up to the challenges emanating from authoritarian regimes as well as from rogue actors around the world. And they are learning that Techno-Statecraft is the rules-based democratic approach that must be taken in diplomacy.

China has explicitly stated its intent to indigenize the manufacture of critical technologies, including semiconductors. It has invested in the industry, in developing cutting edge semiconductors and in manufacturing less sophisticated but equally as critical chips. If we know that the PRC is committed to crowding others out of its markets, and to grabbing larger and larger stakes in our markets, shouldn’t we respond? 

Leaning in to the technologies and technology products that have been invented in allied countries is key to this new category of diplomatic engagement. Relying on allied governments and companies in those countries is key – companies like TSMC and Samsung, MediaTek and ASML. And so many others.

Markets will look for any efficiencies available, and it is clear that efficiencies come through trade and diplomatic solutions.

There has been a huge cry in the US for us to reshore our supply chain. Political support for onshoring has reached fever pitch in certain political campaigns and in communities that have been hit hard by COVID and by shortages. But reshoring everything is not a practical or realistic solution.  I prefer to say that there is a pressing need to explore ways to onshore, nearshore and allied-shore production. We all witnessed the tremendous vulnerability of our countries to China’s near monopoly control of everything from processed rare earth elements to simple items like face masks. Policymakers should spend less time focused on reshoring and more time on solutions that allow American and allied firms to control logical portions of the manufacturing process. We should take Chinese leaders at their word and wake up to their plans to dominate markets. And we should respond through enhanced alliances, especially in the Indo-Pacific.

So what is the recommendation coming out of this discussion? I think a key recommendation is that we need to make markets more, not less, interdependent. But we need to pick and choose the interdependencies strategically. And then we need to find ways to help those markets avoid hold ups. Currently the Biden administration is concerned that China could intentionally hold up the production of items that require, for example, critical minerals. But I think the answer is not necessarily to bring production of those minerals home. Bolstering trade ties with our allies, not eliminating them, is an alternative answer to creating a more resilient, and ultimately more dependable, supply chain.

Securing the supply chain for chips will require a variety of approaches: alternative suppliers, diversification of supply geographically, and finding ways to work with multinational suppliers. All of this is happening while the tech industry continues to innovate and iterate and create new products, new solutions, and new technologies that will shape our future.

But here’s the good news. When it comes to innovation, there’s no single country that has a monopoly on that. Great ideas and great technologies are created daily, everywhere in the world.  The very nature of international relations has been transformed in our lifetimes, almost before our eyes. It is no longer enough for diplomats to talk about arms control or treaties or international justice.  Those are still important, of course. But diplomats are now on the front lines of technology as a foreign policy and national security concern, right alongside their partners in manufacturing, mining, technology, and finance. And it’s so exciting. 

For many, this is daunting. I have heard a number of diplomats say things like, “I didn’t study engineering.” Or, “semiconductors are the purview of technologists, not diplomats.” I push back – I hope you will too. Semiconductors have now become part of our everyday conversations. We talk about the global chip shortage at home and at work. We blame it for everything from the stockouts of popular gaming systems to the sky-high prices for new and used cars to the new concern that Christmas presents might not arrive in time for the holiday. I would say that these everyday conversations aren’t just the purview of technologists anymore. American diplomats’ jobs are to promote American interests around the world. The same is true, of course, for diplomats from every country – they have to promote their countries’ interests. COVID brought the world together in a remarkable way. By relying on our friends and allies, by building resilience into global supply chains for everything from food to medicine to building materials to supercomputers, we are practicing techno-statecraft every day.  The sooner we recognize how much we depend on strong relationships in the Indo-Pacific region, the more resilient our countries and our citizens will be. 

Thank you very much.