Inviting the Philippines to the Microchip Alliance
Reading between the lines suggests the true ties that will bind the Philippines and America
In 1982, President Ferdinand Marcos stayed in the Quezon Suite in the Shoreham during his state visit to Washington. In 2023, his son, President Ferdinand Marcos Jr. stayed at the St. Regis: he does, after all, belong to a different and not the wartime, generation. But in other ways, as my column this week points out, he (and his host) called attention to the last Marcos Oval Office visit. From Randy David in 2022 came this sober conclusion:
Those who expected Marcos Jr. … to express even a small hint of bitterness over those exile years, or to adopt the same anti-US rhetoric that his predecessor routinely spewed, probably misunderstand the whole purpose of the Marcos bid for political redemption. Yes, it is to protect the family’s wealth and privileges. But it is also—and this is perhaps particularly true for the more stoically-inclined Bongbong Marcos—to reclaim for the Marcos name the image of the responsible statesman…
Whatever resentment he might have harbored against America when, as exiles, they felt more like prisoners than guests, completely vanished as President Marcos Jr. reiterated the traditional Filipino politician’s abiding faith in America.
“We are your partners, we are your allies, we are your friends. And in like fashion, we have always considered the United States our partner, our ally, and our friend,” Marcos Jr. effusively told President Joe Biden. Visibly pleased by his Filipino visitor’s earnest manifestation of loyalty, Biden could only say: “That’s beautiful.”
Foreign media noticed that there wasn’t a joint press opportunity. Likely a tactful solution considering embarrassing questions all around. I did notice a proliferation of yellow flowers, both in the Oval Office (FM Jr. and Biden) and in the Blue Room (the two First Ladies).
My column this week looks at the Marcos Jr. visit and proposes an angle not pursued by other observers: aside from ramping up military aid, what the Philippines has been invited to do, is form part of the American-led Microchip Alliance. That’s my term to describe the American pursuit of maintaining its technological advantage over China.
This Week’s The Long View
THE LONG VIEW
‘Ironclad’
By: Manuel L. Quezon III - @inquirerdotnet
Philippine Daily Inquirer / 04:10 AM May 03, 2023
Five portraits adorn the wall above the Oval Office mantelpiece. The central one is a large portrait of Franklin D. Roosevelt, who promised Filipinos their independence would be redeemed, and their soldiers called to the American colors would receive their due. The Republican sweep of Congress in 1946 led to the passage of the Recission Act, which aimed to save the U.S. government $52 billion in appropriations by cancelling them—including an estimated $3.2 lifetime commitment to Filipino veterans.
Instead, a one-time $200 appropriation was substituted, including a stipulation that Filipinos who served under the American flag would not be considered veterans. Furthermore, it deprived Filipino veterans access to the GI Bill passed in 1944, and cancelled the 1940 immigration provision stating veterans were qualified to become U.S. citizens. President Harry S. Truman vigorously, but uselessly, protested, and Filipino veterans since have eked out some belated concessions, dribbled out piecemeal by the the U.S. Congress. It was over a spat on veterans’ benefits that President Diosdado Macapagal moved our independence day from July 4, commemorating our true independence in 1946, to June 12, which commemorates the fleeting and never fully-recognized independence proclaimed in 1898.
In that room of symbols and symbols, Ferdinand R. Marcos Jr. walked in yesterday, dressed in a baro in the manner of his father when he last went there, in 1982, to meet a US President who, once upon a time, was an influential senator who’d observed the 1986 Snap Elections and helped mobilize an official condemnation of its conduct. Biden acknowledged this in his public remarks, mentioning the last time Marcos Jr. had been in the White House was with his father, while adding, “I can’t think of any better partner to have than you.” The clincher, of course, avidly awaited, was this statement of policy: “And the United States also reminds [sic] ironclad in our —remains ironclad in our commitment to the defense of the Philippines, including the South China Sea, and we’re going to continue to support the Philippines’ military modernization goals.”
This “ironclad” commitment hadn’t always been the case, not least because Washington was wary guarantees would encourage Philippine administrations to be reckless. But that was also in an era when American prestige and military dominance was at its height (and opinion concerning the Philippines at its lowest because of the removal of the US bases), when saber-rattling by China would result in Bill Clinton sending a carrier taskforce to patrol the Taiwan Strait, leading China no recourse but to meekly back down. China never forgot; it armed, and upgraded its arms; the result is a 21st Century in which wargaming scenarios are just as likely to simulate a Chinese victory as a (often pyrrhic) American one in a Taiwan-centered confrontation. What Taiwan and the Philippines have in common is frustration with American red tape getting in the way of improving their respective defense postures. Concern for human rights became legislative obstacles to American military assistance, for example. Without overtly throwing the Dutertes overboard, minor, perhaps even cosmetic, but still face-saving for both sides, changes in the management of the so-called drug war, and the abandonment of crude behavior, are fostering an improvement of national defense, while opening up avenues for more high-tech related investments.
Among analysts the RAND Corporation hit the right note when Derek Grossman predicted “At the very highest level, Marcos, like every Philippine leader, seeks to maintain his country's national interests regardless of deepening U.S.-Chinese competition… At the very highest level, Marcos, like every Philippine leader, seeks to maintain his country's national interests regardless of deepening U.S.-Chinese competition.” This was upon his election when many analysts still expected him to be cozier with China and more distant with America than turned out to be the case (it probably also resulted in Marcos Jr. not having a foreign secretary-designate in time for his inaugural).
To this day reports indicate surprise that the President, who ran on a “platform of continuity,” is deviating from the dramatic but reckless path of his predecessor; but then continuity can also mean, as it does, an adherence to more long-lasting policies (of which there have been two: foreign and economic policy). Back then, however, I’d pointed out the Western alliance had shown it studied the Marcoses well, by sending high-profile delegations to enhance the new president’s inaugural prestige: the fruits of this courtship being seen in the President’s suggestion that Australia should be part of ASEAN, and administration support for a third Status of Forces Agreement, adding Japan to the existing ones with America and Australia.
The President dutifully followed tradition by making his first state visit to an ASEAN neighbor: choosing Indonesia, which traditionally considers itself close to the Philippines. The President found himself avidly courted by Biden during their meeting in New York in 2022. The President’s state visit to China came at the start of the year: a visit accorded higher status than the Washington visit, which was an official one. But actions speak louder than words, with Manila ramping-up military cooperation with America as China ramps up aggressive patrolling of waters it considers exclusively its own, despite their belonging to the Philippines.
There are, of course, ties that bind that go beyond—or deeper—than the usual ones of military interest, and that is, that the Philippines, in however minor a role, is part of the global web of microchip producers, of which Taiwan is a central hub. There has been continuity between the Trump and Biden administrations in the effort to deny China the know-how and the means to produce: author Chris Miller calls microchips “the new oil—the scarce resource on which the modern world depends.” The US passed the CHIPS Act which McKinsey summarizes as being meant “To bolster US semiconductor capacity, catalyze R&D, and create regional high-tech hubs,” which includes the Philippines, as the US-based Semiconductor Industry Association (SIA) said last January and which, if you read between the lines, is one of the biggest opportunities, specifically in terms of assembly, testing, and packaging, mentioned in the Biden-Marcos statements at the Oval Office. The dual American goal is to keep China permanently behind in microchip development, while reducing current supply-chain vulnerabilities—a rebalancing fostered by increased Chinese aggressiveness towards American companies operating in China. The Chinese response has been to ramp-up obtaining information at all costs, and to consolidate its microchip effort by putting it under state control: while Taiwan remains at the heart of the confrontation. For it to be taken by China, would cede technology; for China to take it by force, risks a global microchip drought.
Recommended Readings
Here is the formal Joint Statement of the Leaders of the United States and the Philippines, which makes for interesting reading on many levels, see these extracts:
“President Biden reaffirms the United States’ ironclad alliance commitments to the Philippines, underscoring that an armed attack on Philippine armed forces, public vessels, or aircraft in the Pacific, including in the South China Sea, would invoke U.S. mutual defense commitments under Article IV of the 1951 U.S.-Philippines Mutual Defense Treaty.”
“President Biden will dispatch a Presidential Trade and Investment Mission to the Philippines on his behalf, to enhance U.S. companies’ investment in the Philippines’ innovation economy, its clean energy transition and critical minerals sector, and the food security of its people. Furthermore, the leaders announce that the United States and the Philippines will co-host the 2024 Indo-Pacific Business Forum – the United States’ marquee commercial event in the region – in Manila, which will further establish the Philippines as a key hub for regional supply chains and high-quality investment.”
“They look forward to establishing trilateral modes of cooperation among the Philippines, Japan, and the United States, as well as the Philippines, Australia, and the United States. Furthermore, they welcome the Quad’s commitment to support a peaceful and stable, rules-based region with ASEAN at the center, through its efforts to advance a free and open Indo-Pacific.”
“…the leaders pledge to promote increased cooperation and knowledge sharing between the United States and the Philippines through the Science and Technology Agreement (STA), and they welcome U.S. plans to establish an Open-RAN Interoperability Lab in Manila.”
Look at the logos of the associated corporations when you click on the website of Semiconductors in America Coalition (SIAC). In terms of other countries, the three main allies are demonstrated by the formation of the Economic Security Dialogue among the United States, Japan and South Korea. Both developments points to the tensions surrounding the American vision of stopping China’s ability to catch up on microchip technology: on one hand, American companies want funding to ramp (and restore) their domestic manufacturing capabilities; on the other hand, there is pressure to include American allies in the list of those eligible for American funding.
My column concludes with a brief quote from Chris Miller’s Chip War. It makes for a brisk read. Here’s the Kirkus review of the book:
How the U.S. lost its lead in the crucial area of microchip manufacturing and how it might be reclaimed.
Without microchips, entire industries can grind to a halt. “Most of the world’s GDP is produced with devices that rely on semiconductors,” writes Miller, who teaches international history at Tufts. “For a product that didn’t exist seventy-five years ago, this is an extraordinary ascent.” While it was primarily American scientists and entrepreneurs who created the industry, American chip manufacturing has lagged behind in recent years. Production happens in surprisingly few places, with one of the most important being Taiwan, where the Taiwan Semiconductor Manufacturing Company provides 37% of the world’s logic chips and 11% of the world’s memory chips. Miller notes that in the early years of chip manufacture, when most of the painstaking work was done by hand, high labor costs in the U.S. pushed producers to look overseas, first to Japan. But then Japan became a major competitor. An answer was to undercut the Japanese firms by finding countries with even lower labor costs, such as South Korea and Taiwan. Eventually, those countries became competitors as well as partners. American tech firms were willing to send chip manufacture offshore so they could focus on their strengths of innovation and design. Apple, for example, is a major user of chips but makes absolutely none. As Miller shows, the problem with this globalization strategy is China, which has long sought to build its own chip industry, with mixed results. From Beijing’s perspective, Taiwan’s chip factories make the island an even more tempting target. Though the author doesn’t make any clear policy proposals, his implicit message to U.S. policymakers is to recognize the danger and act accordingly. America’s tech lead is shrinking, so the time has come to develop policies to ensure that the secret machinery of the digital era continues to operate smoothly.
An important wake-up call with solid historical context.
The Financial Times bluntly calls the China’s microchip effort a “chip-building Manhattan Project”:
The battle to control this industry will shape our future. China spends more money importing chips than buying oil, and they are China’s greatest external vulnerability as they are fundamentally reliant on foreign chips. But with 37 per cent of the global supply of chips being made in Taiwan, within easy range of Chinese missiles, the West’s fear is that a solution may be close at hand.
Another review contains this interesting insight into why the US-China confrontation exists:
Like all good histories, Miller’s book allows us to examine patterns from the past as clues to the future. What’s clear is that the semiconductor sector has always been seen ebbs and flows of competition, even when certain industry-leading countries or companies seem too entrenched for any upstarts to dare put a dent in their business. In our time, chip competition substantially means China’s frontal assault on American and South Korean producers, with China working harder than ever to seize the commanding heights of chip production. Says Miller, “If only China wanted a bigger part in this ecosystem, its ambitions could have been accommodated. However, Beijing wasn’t looking for a better position in a system dominated by America and its friends….It was about remaking the world’s semiconductor industry, not integrating with it.”
For proof, take YMTC, the state-subsidized memory champion. To give an indication of the priority the Chinese government places on its success, Miller details how the entire city of Wuhan, China locked down in January of 2020 — except for YMTC’s facilities: “Trains passing through Wuhan carried special passenger cars specifically for YMTC employees, letting them enter Wuhan despite the lockdown…China’s leaders were willing to do almost anything in their fight against the coronavirus, but their effort to build a semiconductor industry took priority.”
A caveat, though, from Foreign Affairs:
Miller is a fluent narrator, but he finalized the book before recent shifts in U.S. policy, which seek to deny China advanced chip-making technology.
Another caveat, on chips as the new oil, is in the Los Angeles Review of Books:
The comparison between oil and chips makes sense up to a point. Many commodities — uranium, lithium, data, etc. — have been likened to petroleum. But, as skeptics have countered, especially since the Russian-Ukraine conflict started in February 2022, “oil is the new oil.” More importantly, oil and chips differ in one key sense. Oil is a natural resource found in abundance in specific regions and, most would argue, of finite supply. Computer chips are made by humans (and their corporations) in specific regions while silicon is the second most abundant element on our planet. As Patrick Gelsinger, Intel’s current CEO, says, “God decided where the oil reserves are, we get to decide where the fabs are.” In other words, anxiety over where chips are made, and where they are not made, is a problem that people — business executives and state leaders, specifically — have created, not nature. Moreover, few countries dominate oil production the way that nations like Taiwan and South Korea dominate chip making. The United States, the world’s largest petroleum producer, is responsible for only about 15 percent of the global oil supply. In contrast, Taiwan builds a significant fraction of the world’s chips (around 65 percent), including chips for almost all of the most advanced products in the global market (over 90 percent).
The whole review is a fascinating read.
Here’s a short introduction, from Vox:
For a backgrounder and look-see at China’s thinking, see China’s Political Discourse March 2023: The People’s Choice for a Global Shared Destiny from Sinocism. One interesting portion is this:
March Surprises: Shielding the Capitalists
China’s leaders have pushed local governments in recent months to do their utmost to jumpstart economic activity and get the domestic economy humming again after many successive months of pandemic slump. On March 25, the provincial government in Hainan responded by issuing a notice outlining measures to “support private economy development.”
Eagle-eyed internet users in China soon discovered that the measures included a line about “implementing a criminal justice policy of fewer arrests and cautious prosecution and detention” (少捕慎诉慎押刑事司法政策). “For those private entrepreneurs involved in cases,” the notice read, “if arrest can be avoided it should be avoided, and if prosecution can be avoided it should be avoided.”
It apparently sparked outrage in terms of domestic opinion. But points to the growing reassertion of state control (see The party’s over: China clamps down on its tech billionaires from 2021) even as it begins taking a more standoffish attitude towards foreign businesses (see this recent article, China widens ‘already breathtaking’ scope to arrest foreigners for espionage)
Our high power rates and unstable supply are hurdles for semiconductor manufacturers. In fact, we already lost the big one, Intel.