One of the current escalating issues between the two major powers, China and the US, is the global semiconductor race. It has caused divisions within the global supply chains, such as the increased reshoring of manufacturing processes. 

As a result, countries globally are making readjustments and competing for a more significant role in this growing technology sector. This is just the beginning of a global race that would affect several ASEAN countries like Malaysia, the Philippines, Singapore, Thailand, and Vietnam, which are currently navigating this complex semiconductor competition.

Semiconductors serve as critical parts for several industries, including artificial intelligence (AI) applications, electric vehicles, and other advanced technologies. In terms of market dominance, the US accounted for 47 percent of the global semiconductor market in 2020, followed by South Korea (20 percent), Japan (10 percent), the EU (10 percent), and Taiwan (7 percent). (Statista, 2021)

Globally, the major players in terms of market revenue include Samsung, Intel, SK Hynix, Qualcomm, and Micron Technology in 2022.

The global semiconductor race between the US and China has escalated since October 2022 when the US announced an export control policy on artificial intelligence (AI) and semiconductor technologies to China. 

Through these restrictions, the US aims to limit China’s access and ability to produce certain advanced chips. The US does not only ban China’s access to high-end AI chips, but also choke point technologies, such as AI chip design, electronic design automation software, semiconductor manufacturing equipment, and equipment components. 

The new rules will not only hinder China from enhancing its capabilities in the semiconductor industry but also make China more reliant on its domestic suppliers to maintain its growth. Responding to the US export controls, Japan and the Netherlands have also implemented new rules to control semiconductor technology exports to China, citing national security reasons.

In retaliation, the Ministry of Commerce of China placed restrictions on the exports of key semiconductor raw materials, namely gallium and germanium, on 3 July this year. 

The two materials are mainly used in the manufacture of several high-tech productions such as chips, solar panels, and electric vehicle (EV) batteries. 
While the magnitude is seen as narrower in scope than the US’ restrictions, China’s export ban on these three elements will have a bigger impact on the market and supply chains.

Amid the ongoing global semiconductor race, ASEAN, a grouping of nations that together constitute the world’s fifth-largest economy, has the potential to play a significant role as the economic bloc offers strengths that can enhance its position in the semiconductor industry. 

ASEAN represents a region with several advantages such as growing manufacturing capabilities, skilled workers, and supportive government policies, which can further attract investments to become a vital production hub for semiconductors.

While American and Chinese exports for semiconductors globally accounted for $28.4 billion and $220 billion in 2022, respectively, the ASEAN region’s semiconductor exports accounted for more than $165.3 billion in 2022, compared to $52.3 billion in 2017. 

In addition, the revenue of the ASEAN region’s semiconductors market is projected to reach $101.8 billion this year, illustrating its vast potential in this specialized supply chain. 

In particular, countries such as Singapore and Malaysia are already playing a significant role in the global supply chain, accounting for 11 percent and 7 percent of the global semiconductor market share, respectively. Singapore has built up notable capabilities in wafer fabrication constituting 5 percent of global wafer capacity, whilst Malaysia is a key global player in assembly, testing, and packaging activities.

In 2021, ASEAN’s Foreign Direct Investment (FDI) inflows increased by 42 percent to $174 billion, after a sharp decline in 2020. FDI in electronics, including semiconductors, provided a strong investment growth to record in 2021. 

The global disruption in the semiconductors supply chain led to a further expansion of ASEAN’s electronic and semiconductor operations, particularly in Malaysia, the Philippines, Singapore, Thailand, and Vietnam.  

Trade between the bloc’s member states and the US surged from $135.1 billion to $452.2 billion. ASEAN exports to the US nearly quadrupled from $87.9 billion to $356.7 billion over the same period with its semiconductor exports increasing by around 80 percent reaching $9 billion. 

At the same time, trade between ASEAN and China reached $975.3 billion in 2022, an astounding 24-fold increase from 2000. ASEAN countries’ exports to China increased by a factor of 18 during this period, from $22.2 billion to $408.1 billion with semiconductor exports in particular rising to $26.6 billion in 2022, a 176 percent increase from 2017. 

Thus, the strengthening trade and investment relationships with both the US and China and the growing geopolitical tensions between these major powers put ASEAN countries in an advantageous situation.

Navigating the complex US-China rivalry is a daunting challenge for ASEAN. Therefore, for ASEAN, choosing a side is not a viable option. Given that ASEAN economies are heavily interconnected with the US, Europe, China, and other East Asian markets, the bloc must maintain a neutral stance, avoid taking sides, and instead, enhance collaboration. Diverse trade and economic partnerships could enhance ASEAN’s opportunities as well as improve ASEAN’s trade and investment.

Indeed, ASEAN needs to keep its position as a neutral ground, not only in the semiconductor industry but also in all sectors. ASEAN needs to prioritize further its investment in research and development, manufacturing capabilities, production capacities, and skills to enhance its potential for semiconductor innovation and manufacturing. 

However, for ASEAN to capture a part of the high-tech equipment and supply chain, strategic moves focused on its foundation are also important. 

First, investment in research and development, particularly AI research, could support ASEAN’s semiconductor production capability and capacity. Second, ASEAN needs to improve and streamline its regulations and standards as a region to establish clear regulatory frameworks and facilitate trade. Last, with ASEAN’s population dividend, investment in education and training programs is the key strategy for ASEAN to develop a skilled workforce to unleash ASEAN’s potential in the long-term development of the semiconductor industry in the region.

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Dr. Lili Yan Ing is the Secretary General of the International Economic Association (IEA) and the Lead Advisor (Southeast Asia Region) at the Economic Research Institute for ASEAN and East Asia (ERIA). 

Ms. Ivana Markus is a Research Associate at the Economic Research Institute for ASEAN and East Asia (ERIA).

The views expressed in this article are those of the authors.