A leading think tank says the Albanese government should spend $1.5 billion to establish a domestic industry to manufacture semiconductors.
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‘Bold action’ call to spend $1.5b on creating semiconductor industry
Phillip Coorey and
Tom McIlroy
Sep 21, 2022 – 6.00am
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The Albanese government should invest $1.5 billion to establish a domestic industry to manufacture semiconductors, rather than continue to rely on increasingly risky overseas providers, principally Taiwan, Australia’s pre-eminent national security think-tank has recommended.
In a new report, the Australian Strategic Policy Institute said the COVID-19 pandemic, as well as coercive trade practices by China, demonstrated that Australia could no longer rely on free-trade principles for the supply of such a crucial product.
Australia is among countries overly reliant on semiconductor imports
from Asia.
AP
“In this environment, bold action is warranted. Continuing to do what we did before is not an option because it will undermine the national interest,” the report says.
“A new approach is needed that’s in part heretical to our old, market-based approach but is driven by necessity: government intervention that works in
tandem with industry expertise and drive.”
Report authors Alex Capri and Robert Clark say semiconductors, more commonly known as chips and microchips, are akin to food, water and electricity in terms of their importance to the digital world.
“Semiconductors are in almost everything we use to work, travel, communicate, entertain, and keep ourselves healthy,” they said.
“As a nation, we require unfettered access to semiconductors if we are to defend, power, educate and advance ourselves economically.”
Australia’s near-absent capability to commercially manufacture semiconductors was a “key strategic vulnerability”.
“By some calculations, Taiwan manufactures 60 per cent of the world’s semiconductors and 90 per cent of the most advanced chips,” they said.
“That alone should focus our minds on how we might shore up our future supplies of this critical resource.”
The report proposes establishing a $5 billion manufacturing industry driven by $1.5 billion in government investment and incentives.
Prime Minister Anthony Albanese has talked up the need to diversify and secure critical supply chains to better protect against geostrategic risks. Earlier this year Scott Morrison listed semiconductors as one of seven industries over which Australia needed to gain national sovereignty, working with “like-minded” countries such as the US and Japan.
Before the federal election, Mr Morrison said economic and national security policy had become inextricably linked in the “new era” of global unrest, meaning Australia and its allies must move from a “just in time” model of supply of vital goods, to one of “just in case”.
Last month, US President Joe Biden secured a major legislative victory with the passage of a $US52.7 billion ($75 billion) CHIPS and Science Act through the US Congress. The plan is designed to boost American semiconductor manufacturing and research.
More domestic manufacturing plants are expected to alleviate pandemic supply chain pressures faced by American industry and boost US national security amid ongoing tensions with Beijing.
Mr Biden has begun rolling out elements of the new law, which includes an investment tax credit for chip plants, worth as much as $US24 billion. It forms part of his promise to create more high-skilled, high-paid jobs in the United States.
The legislation won bipartisan support from Republicans, after decades of the US losing ground on manufacturing and research and development to rival economies.
US production of chips has declined from 37 per cent of global supply in the 1990s to about 12 per cent today.
The ASPI report said Australia’s public sector must facilitate the right kinds of public-private partnerships, provide targeted funding for semiconductor R&D and education, and create commercial incentives for foreign and local investments.
Phillip Coorey is the political editor based in Canberra. He is a two-time winner of the Paul Lyneham award for press gallery excellence. Connect with Phillip on Facebook and Twitter. Email Phillip at
pcoorey@afr.com
Tom McIlroy reports from the federal press gallery at Parliament House. Connect with Tom on Twitter. Email Tom at
thomas.mcilroy@afr.com
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