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US-Mexico Semiconductor Partnership Announced in Response to Global Challenging

US-Mexico Semiconductor Partnership Announced in Response to Global Challenging
US-Mexico Semiconductor Partnership Announced in Response to Global Challenging

Many elements of the semiconductor industry — including research, development, design and assembly manufacturing — are already in Mexico. However, bringing all of them back would be extraordinarily expensive.

The collaboration aims to reduce dependence on China and Taiwan for key technologies needed to make essential products like vehicles and medical devices. It will begin with an assessment of the Mexican semiconductor ecosystem, regulatory framework and workforce requirements.

Global Challenges

The manufacturing of essential products ranging from vehicles to medical devices relies on the strength and resilience of the semiconductor supply chain. As a result, the State Department and Mexico have begun collaborating on the US CHIPS Act International Technology Security and Innovation Initiative, part of a 2022 law that creates a $500 million fund for semiconductor supply chain initiatives with allies and partners. The first phase of the collaboration will begin with an assessment of Mexico’s existing semiconductor industry, regulatory framework and workforce needs. The assessment will include the involvement of Mexican state governments, educational institutions, research centers and companies.

The assessment will identify a list of areas of cooperation. These include establishing directories of binational companies to promote opportunities for investment, reviewing supplier mapping exercises to identify success stories and best practices, and preparing a report on industry needs related to suppliers and talent. The partnership will also explore educational initiatives implemented between U.S. and Mexican higher education institutions that prepare students for the semiconductor, electromobility, energy transition, pharmaceutical and medical device industries.

Currently, Mexico represents a small portion of global assembly, test and packaging (ATP) capacity, offering a rare opportunity to shift production away from Asia. Nevertheless, challenges remain. Poor infrastructure and rule-of-law concerns hamper investment, and the country lacks Asian rivals’ networks of high-technology firms. These hurdles are why a clearer strategy for attracting investments in semiconductor production is needed.

Energy Efficiency

Semiconductors are vital to manufacturing essential products from vehicles to medical devices. They are also crucial to a healthy global economy because they make it possible for firms to build more efficient, greener products. But the industry’s supply chain is highly vulnerable. It is largely centered in Asia, where it is exposed to political volatility and natural disasters that can disrupt production.

That is why the US and Mexico have stepped up efforts to encourage investment in the sector. Last year the two nations committed to bolstering chip manufacturers’ competitiveness and resilience through the bilateral High-Level Economic Dialogue, and the trilateral North American Leaders Summit. The new partnership builds on that work.

But Mexico faces hurdles that could jeopardize its effort to lure semiconductor investment. In particular, it must allay business concerns over power supplies and its lack of access to renewable energy. It must also rewrite its labor laws to better attract talent. And its controversial plan to give market control of its electricity utilities to state-run fossil fuel firms has flummoxed investors, even those seeking to lower their carbon footprints.

The collaboration announced on Thursday could help ease these challenges. It could provide incentives for chip companies to invest in Mexico, as well as to coordinate closely with device assemblers and other suppliers to the sector. That would help decrease the country’s reliance on Asian manufacturing and protect its industries and national security.

Mobility

The emergence of electric vehicles and hyperscale data centers will require a highly resilient, secure supply chain that includes key semiconductor technologies. A US-Mexico collaboration that eats into Asia’s advantage in the production of these essential components can help boost North American self-sufficiency.

ASU’s McGinnis and other speakers emphasized that Mexico is well-positioned to compete against Asia in several ways. For example, major automakers like GM, Ford and Volkswagen have their lithium, a key element for batteries in electric vehicles, operations in the northern border state of Sonora. Mexico also has a highly skilled labor force and is well-positioned to collaborate with Canada to create a trilateral North American semiconductor ecosystem that is responsive to global challenges.

Pal-Goetzen added that shoring up the industry’s supply chain requires more than just high-tech equipment and manufacturing capabilities; it requires a robust workforce. She said that Mexico’s National College of Professional Technical Education is working with companies and U.S. experts to develop curricula that ensure workers can respond to business needs and keep up with industry changes.

To address these and other challenges, the US and Mexico are collaborating under the umbrella of the HLED to explore opportunities within the semiconductor supply chain. The two governments will begin by conducting a joint assessment of Mexico’s existing industry, regulatory framework and workforce needs. This work will advance the Biden administration’s goal of reducing the United States’ dependence on China and Taiwan for semiconductor technology by developing alliances with allies and partners.

Security

The global semiconductor industry is at a critical point. Recent geopolitical tensions and supply chain vulnerabilities have reignited conversations about moving production away from Asia and boosting the resilience of North American-based manufacturing.

To address these concerns, the United States and Mexico are working together to create a more secure and resilient semiconductor manufacturing ecosystem. This work focuses on enhancing the competitiveness of assembly, test and packaging (ATP) operations, fostering investments in research, development and design and promoting workforce development. It builds upon the foundation of cooperation established under the bilateral High-Level Economic Dialogue and the trilateral North American Leaders Summit processes.

A number of US and Mexican companies already operate in the ATP space, including Intel and Skyworks. However, if the global economy is disrupted by geopolitical events or natural disasters, companies would be at risk of losing their supply chains. That is why it’s vital for hyperscale data center operators and other technology-focused firms to consider Mexico as a manufacturing hub.

The two countries are also prioritizing cooperation on semiconductor-related issues to ensure North America is a trusted supplier of these critical parts and components. Recently, the State Department sponsored a technical delegation of U.S. and Mexican experts to support the establishment of an academic foundation for semiconductor-related workforce development in Mexico. This effort included a train-the-trainer workshop with universities and technical colleges in Mexico to share best practices in curricular development for the semiconductor industry.

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