Chips and semiconductors are crucial parts of various essential products ranging from phones, vehicles, and refrigerators to fighter jets and Taiwan’s Semiconductor Manufacturing Company (TSMC) is the largest semiconductor manufacturing company producing 92% of the world’s most advanced semiconductors. TSMC’s semiconductors are used by key American tech firms which include AMD, Nvidia, Intel and Apple and China’s possible invasion of Taiwan caused geopolitical tension putting further strain on the US-China trade. Board members of these companies worried about how this would affect their industry as the US imposed trade restrictions on China. Until recently, companies trusted that global networks would underpin chip supply, but as Taiwan sits in the middle of the two superpowers' trade war, companies are grappling with the implications of a trade war over chip development and supply.
Due to this TSMC is forced to rethink the geography of their supply chains and have diversified their manufacturing factories from Taiwan and China to increase investments for new factories internationally in Arizona, and Texas and building chip fabrication plants in Singapore, and Japan, these changes come into light as these government offer subsidies as well as political pressure to reduce the concentration of semiconductor manufacturing along the Taiwan strait. Parallelly, the US government banned the sale of electronic design automation (EDA) software, needed to design high-end chips in China and a few weeks later, in July, the US congress approved $52.7bn in grants to build chip facilities in the US for those companies agreeing not to fund high-end semi-production in China. The Asian superpower commented that the US was stretching the concept of national security by blocking China’s ability to maintain tech dominion. After this, the Chinese government has largely increased its already existing subsidies for Semiconductor Manufacturing International Corporation (SMIC), China’s national chip champion and BOE Technology, the leading display maker and have been regulars in the top 10 recipients of the subsidies.
Shortly after the US government restricted Chinese trade, the EU set out plans for a massive increase in local semiconductor manufacturing as it unveils a €43bn worth investment plan. Under the plan, the European Commission and national government would spend €11bn to build new facilities for semiconductor manufacturing. Many states were set to increase investment by a further €32bn by 2030. The Chip act aims to increase the EU’s semiconductor market share from 10% to 20% by 2030. Following this many nations like France, Italy and the Netherlands are also in the running for different activities, with the Netherlands banning the export of extreme lithography equipment to China. Similarly, Japan and India are rolling out their own subsidies for semiconductor making. As the manufacturing of semiconductors shifts, the production of chip-making shifts too. Recently in October, the US government introduced export controls that would severely impact China’s ability to acquire cutting-edge technology. These restrictions would make it harder for Chinese companies to manufacture and produce advanced technology which would slow their growth in excelling artificial intelligence. This action was seen as a major blow to the US-China trade and fuelling the intense technological competition between the two superpowers. The US put 30 Chinese companies on an ‘unverified companies list’ which would effectively bar US companies from supplying them with technology.
These restrictions and sanctions on the Chinese market not only impacts China but major American tech firms like Nvidia, AMD and several non-US players which include ASML a Dutch semiconductor manufacturing company. While the US tries to limit China’s access to foreign chip technology, it would be hard to shut China from the semiconductor supply chain and its vision to be a dominant semiconductor market. One problem that the US policymakers face is that while China is its biggest rival/competitor in technology it is also its number one customer. Another challenge that the US government faces is convincing its allies and nations that it can strike a balance between national security and economic prospect.
Even giant tech companies are looking for alternatives. Apple, whose supply chains shape how the entire industry sources components, is increasing device assembly in Vietnam and India. Intel plans to invest €20bn to build two chip fabrication plants, expected to be in Germany. Apple has also told US legislators that it will use Yangtze Memory Technologies Corp (YMTC)’s memory chips only in phones it sells within China. Operating separate “China” and “non-China” supply chains. With such major shifts in the tech industry as western countries decoupled their supply chains from China, emerging markets look forward to creating new facilities for manufacturing, and production and grabbing a share in the semiconductor industry as well.
For instance, India wants to step up manufacturing with high stakes bid in the semiconductor industry. The Indian government has also planned $10bn of incentives in an attempt for manufacturers to set up new semiconductor fabrication plants and encourage investment in related sectors. India’s ambition to enter the semiconductor manufacturing industry comes at a time of geopolitical tensions, and India is ready to offer itself as an alternative tech hub to China. Recently ISMC a joint venture between an Israeli group and Abu Dhabi-based next orbit ventures signed a letter to build a $3bn semiconductor chipmaking plant. And Foxconn has teamed up with the Indian group Vedanta to build a semiconductor plant in various cities in India.
Even though emerging markets have such opportunities there are still many hurdles that such economies need to tackle first. These include deficiencies in logistics, utilities and effective Research and development. Along with these, it is not just emerging markets like India and Vietnam offering subsidies, even European countries, the UK, the US and many other countries are laying out billions of dollars in subsidies for local production of chipmaking. Given all these circumstances, although it is difficult for emerging markets to thrive in this industry, there is some form of opportunity and exploitation available. But the semiconductor industry, beyond geopolitics, is also an industry of innovation and entrepreneurship which involves managerial excellence, supply chain mastery and manufacturing efficiency. All in all, the semiconductor industry is highly global, competitive and interlinked to many nations offering potential opportunities.