US–Mexico Semiconductor Partnership Announced in Response to Global Challenges

Semiconductors on a circuit board that powers a Samsung video camera at the Samsung MOBILE-ization media and analyst event in San Jose, Calif., on March 23, 2011. Justin Sullivan/Getty Images

The State Department, in collaboration with the Mexican government, has outlined an initiative to explore opportunities within the semiconductor supply chain, recognizing the strategic importance of this sector to both national security and technological innovation.

Semiconductors are the brains of modern electronics, such as smartphones, computers, TVs, and advanced medical equipment. Also called integrated circuits or microchips, they are made from materials such as silicon or gallium arsenide and altered during the production process to raise their conductivity significantly.

The new initiative’s preliminary phase involves a thorough assessment of Mexico’s existing semiconductor ecosystem, including its regulatory environment, workforce capabilities, and infrastructural needs.

This assessment, involving various stakeholders from both countries, is designed to identify potential areas for joint initiatives aimed at enhancing the semiconductor sector’s robustness.

“The United States and Mexico are key partners in ensuring the global semiconductor supply chain keeps pace with the digital transformation underway worldwide,” the State Department said in a statement.

“Manufacturing of essential products ranging from vehicles to medical devices relies on the strength and resilience of the semiconductor supply chain.”

The agreement further helps the United States diminish its dependence on foreign adversaries and allies in close proximity to those adversaries for semiconductors and the resources used to produce them.

The global semiconductor industry is dominated by a few key regions: Asia (Taiwan, South Korea, Japan, and China), the United States, and Europe.

The Taiwan Semiconductor Manufacturing Co. and South Korea’s Samsung are the largest semiconductor manufacturers, with significant investments in advanced chipmaking technologies.

The concentration of semiconductor manufacturing in Asia, particularly in Taiwan and South Korea, poses risks of supply chain disruptions because of geopolitical tensions, natural disasters, or pandemics.

CHIPS Act and Semiconductor Relevance

A cornerstone of this partnership is the CHIPS Act of 2022, signed into law by President Joe Biden, which allocates substantial resources to bolster domestic semiconductor manufacturing and research in the United States.

The act established the International Technology Security and Innovation (ITSI) Fund, providing the State Department with $500 million over five years to foster the development of secure telecommunications networks and ensure semiconductor supply chain diversification and security.

This legislative measure underscores the critical role that semiconductors play in global economic security and U.S. technological preeminence.

U.S. President Joe Biden looks at a quantum computer as he tours the IBM facility in Poughkeepsie, New York, on Oct. 6, 2022. IBM hosted President Biden to celebrate the announcement of a $20-billion investment in semiconductors, quantum computing, and other cutting-edge technology in New York state. Mandel Ngan/AFP via Getty Images

According to a 2023 report by the Semiconductor Industry Association examining the state of the industry, the outlook for the industry is strong, but it still faces many challenges, such as supply chain issues, restrictions on sales of chips to China, and other policy challenges, such as building up the high-skilled workforce.

The report noted the importance of semiconductors in modern life and the sheer quantity being sold each year.

“In 2023, the semiconductor industry’s importance to the world continues to grow, as chips become an even greater presence in the essential technologies of today—and give rise to the transformative technologies of tomorrow,” the report reads. “In all, more than 1 trillion semiconductors were sold globally last year, a total so high that if you stacked them one on top of another, they would reach higher into the sky than the maximum cruising altitude for commercial aircraft.”

Building on Existing Partnerships

The State Department also noted that the collaboration “underscores the significant potential to expand Mexico’s semiconductor industry to the benefit of both nations” by building upon already existing cooperation under the “bilateral High-Level Economic Dialogue (HLED) and trilateral North American Leaders Summit process.”

HLED was established under President Barack Obama and led by then-Vice President Biden to “advance shared strategic priorities” such as promoting competitiveness and connectivity and fostering economic growth, productivity, and innovation. It was paused under the Trump administration and restarted in 2021 by the Biden administration.

The North American Leaders Summit, which is informally known as the Three Amigos summit, began in 2005 under President George W. Bush and met most years until 2016, as that practice also ended under the Trump administration.

The Trump administration focused on the successful creation of the United States–Mexico–Canada free trade agreement that governs some $1.5 trillion in North American trade annually, which this new agreement also helps build upon.

President Donald Trump (C) with Mexican President Enrique Peña Nieto (L) and Canadian Prime Minister Justin Trudeau before signing a new United States–Mexico–Canada Agreement (USMCA) that replaced the NAFTA trade deal during a ceremony on Nov. 30, 2018. Martin Mejia/AP Photo

Strategic Goals and Benefits

The newly announced collaboration between the United States and Mexico on semiconductors aims to achieve several strategic goals.

These include enhancing the Americas’ competitiveness in the global semiconductor arena, diversifying the supply chain to mitigate risks associated with geographical concentration, and fostering innovation within the sector.

By leveraging Mexico’s potential as a semiconductor hub, the partnership seeks to create a more distributed and resilient supply chain essential for coping with disruptions and geopolitical challenges.

Mexico’s Role in Semiconductor Ecosystem

The decision to engage Mexico in this partnership is based on the country’s emerging status within the semiconductor industry. Mexico offers several advantages, such as its strategic location adjacent to the United States, established manufacturing base, and competitive labor market.

Mexico’s involvement in semiconductor manufacturing has historically been focused on assembly and test operations rather than wafer fabrication, which is more technologically intensive.

The country has a robust electronics manufacturing sector, serving as a base for automotive, aerospace, and consumer electronics industries. Scaling Mexico’s semiconductor capabilities will still require significant investment in high-tech facilities and training programs to develop technical skills in the workforce.

However, realizing Mexico’s full potential in the semiconductor space will require addressing several challenges, including strategic investment in high-technology capabilities, workforce development, and infrastructural and regulatory barriers.

Balancing China’s Influence

The U.S.–Mexico semiconductor partnership must also be considered within the broader context of global technological competition, particularly with China.

Employees make chips at a factory of Jiejie Semiconductor Company in Nantong, Jiangsu Province, China, on March 17, 2021. STR/AFP via Getty Images

The United States is seeking to counterbalance China’s advancements in semiconductor production and technology development by bolstering its own capabilities and forging strategic alliances, particularly in the Western Hemisphere.

A State Department website explains the goals of the ITSI fund without specifically mentioning China.

“When any one country tries to control global telecommunications networks or semiconductor supply chains, they have the means to manipulate or disrupt essential services, critical infrastructure, and supply chains with the push of a button,” the website reads. “Should adversaries dominate these sectors, they will be better able to export authoritarian practices and undermine democratic governance.”

The State Department did not return The Epoch Times’ request for comment on the new initiative and its role in making the United States less reliant on China by press time.