The recent problems with semiconductor supply chains are well known – but as the US, China and others build efforts towards resiliency and independence in this supply chain they would be wise to note several classic pitfalls .
Lying at the intersection of economics, trade, geopolitics, and operations, the semiconductor supply chain has taken an outsized role in the public consciousness. Over the last two years, the shortages, their complex origins, and their economic impacts have placed this small, ubiquitous component at the heart of a growing movement towards supply chain resiliency.
By now, most people know that semiconductors are microchips used in mobile devices, computers, digital networks, automobiles, industrial machinery, and domestic appliances. So vital are these components, in fact, that it would be difficult to imagine a successful economy without a secure, steady supply.
The shortages, caused by a powerful blend of geopolitics and demand patterns disrupted by the pandemic, have collided with the widespread realization that semiconductor manufacturing is deeply concentrated in Taiwan. This confluence of events has made semiconductors the most prominent example of a growing movement of bolstering both supply chain resilience and economic independence through onshoring.
A closer look at the changes underway in the semiconductor supply chain show that some unintended consequences might be in the offing, demonstrating some fundamental supply chain principles.
Semiconductors and public policy
The most prominent example of public policymaking in the semiconductor sphere is the CHIPS Act, passed by congress in the US in the summer of 2022. This act provides $52bn in funding and incentives for the construction of domestic semiconductor manufacturing. Intel, TSMC, and Samsung have already announced plans to build four factories in the US, with more under consideration. If these sites are completed, US share of global semiconductor manufacturing would rise significantly from its 12% of global supply vs. 37% of global demand.
But the US is not the only country concerned about its ability to secure a reliable supply of semiconductors.
China has attempted to provide $145bn to increase its domestic semiconductor manufacturing capability, with mixed results. This initiative is stymied, in part, by the Biden administration’s efforts to limit production technology exports to China.