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Is the U.S.-China chip war competing for Latin America? Dominica may gain

Republic of Dominica

In the context of the United States and China spending huge sums of money to compete in the semiconductor chip manufacturing industry, the United States has set its sights on Latin America, seeking cooperation to develop the chip industry and trying to reduce the impact of international tensions, including the Taiwan Strait crisis, on the chip supply chain.

Dominican official: The United States should have confidence in investing in Dominica

When Víctor Orlando Bisonó Haza, Minister of Industry, Trade, and Micro, Small, and Medium Enterprises of the Dominican Republic, visited Washington this week, he called on U.S. technology companies to invest in the semiconductor industry in the Dominican Republic.

Bissono participated in a discussion Tuesday hosted by the Information Technology and Innovation Foundation (ITIF), a Washington think tank. In an interview with the media after the meeting, he first emphasized the friendly economic and cultural relations between Dominica and the United States.

“Dominicans living here (in the United States) remit $10 billion back home every year. And of the foreign direct investment (in Dominica) over the past 10 years, the most significant has been in the United States. Again, our geographical proximity, which is very important, has developed air, sea, and ground logistics, and production in free trade zones has been achieved.”

Bissono said that Dominica has outstanding production levels in industries such as medical equipment, electronic products, and tobacco and has close relations with the United States. This should also be extended to investment in the chip manufacturing industry.

“We have strong trade with the United States, and this (semiconductor) will be a new category, and we think the United States can also have confidence in us.” Bissono told the media.

The geopolitical situation affects semiconductor supply chain

Bissono said supply chain stability in the semiconductor industry is crucial to global economic security, and Dominica can play a role. Some experts have previously called for the United States to pay more attention to the Western Hemisphere in order to stabilize the chip supply chain.

Chris Miller, professor of history at Tufts University’s Fletcher School and author of ” Chip War ,” deputy director of economic policy at the Milken Institute and former U.S. Secretary of Commerce International In an article published last August, economic policy adviser David Talbot said: “Regional capacity building provides a way to limit Asia-focused supply risks in the event of a major Sino-U.S. conflict; supply chains between countries in the Western Hemisphere are much less likely to be subject to interference.”

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Currently, among Latin American countries, Mexico and Costa Rica have participated in the production of the semiconductor industry chain. The Dominican Republic also hopes to join this camp through cooperation with the United States.

Stephen Ezell, vice president for global innovation policy research at the Information Technology and Innovation Foundation (ITIF), said that helping Latin American countries develop the semiconductor industry is in line with the geopolitical interests of the United States. .

“We are integrating value chains more closely, and that has geopolitical effects as well—nearshoring, reshoring, and in times of geopolitical tension,” Ezell told the media. Our supplies to these critical industries are much closer to the United States.”

Areas that Latin American countries can enter: testing packaging and printed circuit boards

The semiconductor industry chain is huge and complex and can be divided into three major areas: R&D and chip design, chip manufacturing, and assembly, testing, and packaging (ATP). The Information Technology and Innovation Foundation released a research report this week saying that Dominica can make great achievements in the field of ATP and can also get involved in the printed circuit board (PCB) industry, a related category of semiconductors.

Dominica currently has 87 free zones. The United States is currently the main investment partner in these free zones, accounting for 40% of the total foreign direct investment. 77% of the free zone exports are shipped to the United States. Electronics and medical equipment production are highlights of the Dominican Free Trade Zone. Experts say that Dominica has the ability to use these industries as a springboard to transform and develop ATP and PCB in the semiconductor industry.

Taiwanese companies are leaders in the global semiconductor packaging and testing (ATP) field and also dominate the outsourced semiconductor packaging and testing (OSAT) category, accounting for more than average global share. China also accounts for 21% of the market share in the OSAT field.

Jason Marczak, senior director of the Adrienne Arsht Latin America Center at the Atlantic Council, told the media: “The Dominican Republic or anyone in the region No other country will replace China, nor will it replace Taiwan. They do not have the ability to match these Asian powerhouses. But what countries can provide is diversification of industry factors and greater flexibility in supply chains.”

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“It’s important that countries provide incentives in terms of taxation,” he said.

Under the “China + 1 ” trend, the United States hopes to attract foreign business to Latin America

As geopolitical tensions intensify, multinational companies have turned to the “China 1+” (or “China + 2”) strategy to enhance the flexibility of their supply chains and relocate part of their production capacity that has been directly invested in China to third parties around China. The country, in response to rising labor costs and deteriorating business environment in China,

Consulting firm Kearney’s “2022 Reshoring Index” report found that “80% of companies across nearly all industries” are relocating from China. In a survey released by the American Chamber of Commerce in Shanghai in September 2023, about 40% of companies said they were “shifting investment from China to other places.”

Foreign companies considering a “China + 1” strategy may be attracted by Dominican labor cost advantages. The ITIF report cited World Bank statistics as saying that China’s labor costs increased by 24% from 2018 to 2022. The World Bank found that hourly manufacturing labor costs in the Dominican Republic currently stand at $2.50, 6% of those in the United States, about half that of Costa Rica or Mexico, and even lower than those in China.

In order to revitalize the domestic chip manufacturing industry, the United States passed the “Chip and Science Act” in 2022, planning to allocate nearly $53 billion as subsidies to companies that develop and manufacture chips in the United States. While the subsidy does not use semiconductor investment outside the U.S., ITIF’s Ezell said the U.S. government has shown a strong interest in assisting the Dominican Republic in developing semiconductors, which can be done through the U.S. State Department’s International Technology Security and Innovation Fund (ITSI), to support the country.

ITSI, led by the U.S. State Department, will invest US$500 million to stabilize and expand global semiconductor production and ensure the semiconductor supply chain and will issue US$100 million annually for the next five years, starting in fiscal year 2023.

“Geographic diversity in supply chains is a key component of resilience,” Frances Chang, director of international exchanges for the U.S. Department of Commerce’s CHIPS Program Office, said at an ITIF panel Tuesday. “I commend our work on the efforts of allies and partners across the region, including, of course, our partners in the Dominican Republic, to improve the business climate and attract private sector investment.”

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China hopes to win over the Dominican Republic through the Belt and Road Initiative

However, because it chose to establish diplomatic relations with Beijing and cut off diplomatic relations with Taiwan, the Dominican Republic once missed the opportunity to cooperate and develop in this industry with Taiwan, which has strong semiconductor technology capabilities. Since Taiwan and the Dominican Republic established diplomatic relations in 1941, they have promoted the construction of Parque Cibernetico Santo Domingo, known as the “Caribbean Silicon Valley” in the Dominican Republic. However, after the Dominican Republic established diplomatic relations with the People’s Republic of China in 2018, Taiwan immediately stopped bilateral cooperation and assistance plans.

Statistics from the cooperation between the Global Development Policy Center at Boston University and the Inter-American Dialogue show that in August 2019, after establishing diplomatic relations with China, Dominica received a loan of US$600 million from the Export-Import Bank of China for energy power supply projects.

According to Chinese media reports, on January 17, 2024, when Chinese Vice President Han Zheng, Chairman of the Standing Committee of the National People’s Congress Zhao Leji, and Dominican House of Representatives Speaker Pacheco held a video meeting, they all mentioned cooperation to “promote high-quality joint construction of the Belt and Road Initiative.”

According to a 2019 explanatory document from the Dominican Embassy in China, China has eight companies in the Dominican Free Trade Zone, mainly concentrated in the shoemaking and clothing industries, and has no investment in electronic industries such as semiconductors.

Dominica’s Minister of Industry, Trade, and Micro, Small, and Medium Enterprises, Bissono, told the media that he expects American companies to invest in the semiconductor industry in Dominica, but this does not mean that this field is exclusive.

“It can be Taiwanese capital or Chinese capital.” He said: “Any capital can be invested in the Dominican Republic and then (products) exported to the United States, which is a good thing.”

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