Semiconductors are critical to the modern and digital economy not only because they are a key building block in all electronic devices, but also because they enable new products, services, and industries. For example, semiconductors facilitate emerging technologies such as artificial intelligence, autonomous systems, 5G communications, and quantum computing. It is estimated that semiconductors enabled innovations that have created at least USD 3 trillion in GDP over the last 20 years.
The highly specialized nature of the semiconductor input and manufacturing process lends itself to a compartmentalized global supply chain. Regions have their own expertise in a different part of the semiconductor production ecosystem. The semiconductor supply chain has increasingly come under scrutiny after several black swan events, such as US-China geopolitical tensions, the Covid-19 pandemic and extreme weather events, that have restricted manufacturing and crippled global trade, leading to a significant and ongoing semiconductor shortage.
This report examines the global semiconductor supply chain, and explores the critical concerns for policymakers and geopolitical issues in the US, Europe, and Asia.
Executive Summary
- Massive funneling of government funding into building out domestic semiconductor capabilities. The US has proposed over USD 50 billion in semiconductor manufacturing incentives, while the European Union has allocated nearly USD 63 billion of its Horizon Europe budget to boost industrial competitiveness in technologies such as semi-conductors and China has funneled over USD 150 billion into developing its semiconductor industry.
- Primary focus on not just securing domestic critical supply chains but more broadly striving for larger shares of global semiconductor output. The European Union has set a goal of producing 20% of the world’s cutting-edge semi-conductors and China is targeting to domestically produce 80% of China’s semiconductor production and have global leading capabilities across the semiconductor value chain by 2030.
- Increased politician awareness and discussion of semiconductor-related issues. Tweets from US Congressional members about semiconductors have increased by 138% since 2020, while there is a 92% increase for European Parliament members and a 300% increase for European national parliament members.
- Increased weaponization of semiconductor and dual use export controls to cripple adversaries’ domestic semiconductor industries.
- Continued bifurcation of US and Chinese semiconductor value and product chains, cutting the US and China (and potentially their allies) off from key dependencies such as critical material inputs and advanced chip designs.
- Increased scrutiny of intellectual property and technology transfers from the US and US allies to China, including Chinese acquisitions of foreign semiconductor companies.
