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Onshoring semiconductors is a chipped ambition

Author: Samuel Goodman, Washington DC

Disruptions caused by the COVID-19 pandemic have limited supplies and increased the cost of semiconductors. One of the most obvious effects of the chip shortage is the automotive sector.Re-establishing something akin to normality within the semiconductor supply chain has been dwarfed by theoretical arguments as a result of this same shortage. sharp policy question.

The semiconductor value chain is global and highly concentrated. Fabs (large factories that manufacture chips from semiconductor wafers) exist in only a handful of countries. Korean and Taiwanese companies, TSMC, accounts for most cutting-edge chip manufacturing. Companies that don’t make their own chips are feeling the effects of the disruption on Global Value his chain because of the concentration of the market. Natural or other issues that cause disruption can have a very large impact on top companies in the supply chain.

Many countries are now looking to increase the security of their chip supply chains by onshoring more semiconductor capacity. China has long sought to increase Domestic manufacturingwhile the United States will chip method It contains provisions aimed at strengthening domestic capacity. It takes years for planned capital investments to bear fruit, and the risks remain.

Fabs are the largest representation of semiconductor production, but they are completely dependent on other parts of the global supply chain. You can’t run a fab without access to specialized and often arcane inputs. Tokyo has tried to exert influence over Seoul because Japan is the center of supply for some of the key chemicals used in semiconductor manufacturing. political conflict About war reparations in 2019.

War in Ukraine threatens some global supplies as well critical material used to make chips. The response by some companies has been to diversify their supplies, but the natural resources they need are not evenly distributed across the globe.The same constraint exists for suppliers of semiconductor capital equipment. Only a few companies, mainly in Japan, Europe and the United States, manufacture the machines used in the various stages of chip manufacturing.

There is precedent for the importance of these nodes.of Soviet The electronics industry lagged behind its competitors as there was a concerted effort to make state-of-the-art equipment inaccessible internationally. By the end of the Cold War, the Soviet Union was about ten years behind technologically.

Chip manufacturing requires millions of designers with access to a library of intellectual property (IP). Rather than manufacturing physical items themselves, some of the largest semiconductor companies send their IP to be manufactured in factories owned by other companies (often in other countries). I’m here. Without it, companies cannot manufacture the cutting-edge chips that power smartphones and other advanced devices.

chinese company ZTE When Huawei I felt this effect after losing access to my US IP. Replicating these resources is difficult as it requires a pipeline of talent from universities to industry that feeds cutting-edge R&D ecosystems.

The urge for governments to invest in domestic semiconductor manufacturing is a natural instinct. However, it will prove difficult, if not impossible, for the majority of countries to achieve complete independence based on material limitations. It will take years, if not decades.

Top-down onshoring is unlikely to alleviate supply problems in the short term, and all but the richest states cannot even attempt. For most countries, a cost-effective way to reduce risk across their supply chains is to form stronger multilateral partnerships.constellation of situation Countries with similar policy objectives may be better suited to compensate for common bottlenecks and deficiencies.

Participating in such arrangements requires giving up virtual monopolies over aspects of the supply chain. New sources of raw materials and additional manufacturing capacity across multiple countries will help prevent disruptions in one part of the world from halting manufacturing in others. will require greater standardization to ensure materials are compatible across the group.

Individual states can also analyze their supply chains to find their greatest vulnerabilities. Such an analysis shows where the necessary materials, capital, and capabilities are located, as well as possible deficiencies caused by disruption. The next step is to isolate the biggest risks and determine the likelihood of action. Domestic investment makes sense if the resources exist and the costs are not exorbitant. Diversified supply chains may prove sufficient if alternative global suppliers exist.

Arrangements like this can create friction. Diversification costs money. Global industry may resist policies that create new costs for risk mitigation. Over the past few decades, market access has been a key goal for many of these companies, and a large market like China provides a great incentive to resist policies that limit their ability to do business globally. doing.

Increased competition and demarcation of the market, driven by unilateral or multipolar pressure to dominate the chip from top to bottom, can be perceived as a threat. The remaining market must be large enough to make losing access to it a worse proposition.

It’s hard to imagine the big shift in the semiconductor sector that full onshoring would mean. The current configuration of global value chains has inertia in the hundreds of billions, if not trillions, of dollars. In this context, supply diversification, risk mitigation and closer partnerships with other like-minded players within the global ecosystem may provide the best insurance.

Samuel Goodman is a researcher and author based in Washington, DC.



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