The U.S. focus on building domestic fabrication plants (fabs) is misguided because fabs represent a lower value-added, highly capital-intensive part of the semiconductor value chain. National security and economic strategy would be better served by focusing on downstream activities like testing and packaging, which are closer to the end consumer.
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Semiconductor equipment makers like ASML are largely shielded from China-specific export controls. Their business is driven by total global demand for chips, not the location of production. A fab not built in China due to sanctions will simply be built elsewhere, leading to a substitution effect where the equipment sale still occurs.
The idea that the US is intrinsically uncompetitive in certain manufacturing areas like consumer electronics is 'crap.' Automation allows high-wage countries to compete. Ceding entire sectors is a strategic error; the US has every advantage needed to compete if it chooses to.
To compete with China in manufacturing, the US can't rely on labor volume but on productivity from AI and robotics. This requires eliminating the friction of distance between R&D talent (in the Bay Area) and factory floors, making talent-proximate manufacturing parks a strategic necessity.
The U.S. industrial strategy isn't pure "reshoring" but "friend-shoring." The goal is to build a global supply chain that excludes China, not to bring all production home. This creates massive investment opportunities in allied countries like Mexico, Vietnam, Korea, and Japan, which are beneficiaries of this geopolitical realignment.
Arm's CEO argues the US has lost its 'muscle memory' for 24/7 manufacturing. The core issue is cultural: manufacturing isn't seen as a prestigious career, unlike in Taiwan where working for TSMC is highly esteemed. This cultural gap is a major hurdle for onshoring efforts.
China does not oppose the migration of labor-intensive manufacturing to ASEAN countries. With an aging workforce, its strategic focus is shifting up the value chain to high-end industries like green energy. This indicates a deliberate industrial policy to cede low-cost production rather than a desire to control all levels of manufacturing.
To build a new American semiconductor foundry by 2028, Substrate is rejecting the modern specialized model. Instead, it's vertically integrating by designing and building its own lithography tools. This return to the industry's roots is aimed at reducing complexity and cost, enabling them to move faster.
Taiwan's TSMC dominates advanced chip manufacturing not only through technical excellence but also its business model. By acting as a pure-play foundry that doesn't compete with its clients (unlike Intel or Samsung), it fostered unique trust and partnerships, making it the central hub of the semiconductor ecosystem and a critical geopolitical asset.
China's semiconductor strategy is not merely to reverse-engineer Western technology like ASML's. It's a well-funded "primacy race" to develop novel, AI-driven lithography systems. This approach aims to create superior, not just parallel, manufacturing capabilities to gain global economic leverage.
The primary benefit of a robust domestic manufacturing base isn't just job creation. It's the innovation that arises when diverse industries physically coexist and their technologies cross-pollinate, leading to unexpected breakthroughs and real productivity gains.
