News on November 18 that American automakers Ford and GM plan to produce their own semiconductor chips is another sign that globalization, which prevailed before the 2008 crash, is being reversed. With the coronavirus hitting hyper-expanded supply chains and depleting critical commodities like silicon chips, the case for integrating manufacturing within businesses is clear. Free trade and free markets are not adapted to the global environment prone to the shocks that we have seen over the past two years. Large manufacturers will increasingly depend on active support from their governments to secure supplies.
Three factors have created a global semiconductor shortage. First, the cessation of production and distribution of Covid-19 with the closure of factories in Taiwan and South Korea as a result of viral epidemics and lockdowns. Combined with the global transportation problems caused by the coronavirus, the supply of silicon chips to manufacturers has practically stopped in the past 18 months. Industry analysts do not expect this deficit to be resolved until 2023 at the earliest.…
Second, extreme weather has disrupted the sensitive manufacturing process of silicon chips in a number of factories. A drought in Taiwan has jeopardized production at the world’s largest Taiwan Semiconductor Manufacturing Company (TSMC) – silicon production requires huge volumes of fresh ultrapure water to keep the process clean, with TSMC typically using 156,000 tons of water every day. … On the other side of the world severe winter storms halted production at microcircuit factories in Texas.
Third, Chinese electronics makers have been stockpiling silicon chips in the past few years while awaiting US trade duties. Huawei estimates it has bought two million devices. TSMC’s Tiangang chip, which would have lasted two years for its 5G installations before Trump’s ban on selling chips to Chinese firms went into effect late last year. This “competition for inventory” led to some Chinese manufacturers pay 20 times more than regular prices for chips, which prompted the Chinese authorities to investigate the competition between domestic semiconductor manufacturers. The result is a further reduction in global supply.
These three interconnected shocks occur 20 years later, when explosive growth in demand for electronic components, driven by falling prices and the extraordinary expansion of the digital economy, led to record profits in semiconductor manufacturing. Meanwhile, the need for large-scale production to meet growing demand has led to the consolidation of chip manufacturing. Several major manufacturers, including Samsung, Intel and TSMC, receive the majority of all profits in the industry, and their share has increased dramatically over the past two decades. In a highly competitive industry, only those companies that are capable of operating on a huge scale can consistently make a profit.
The combination of external shocks and intense competition within the industry is bringing these giants closer to their governments for support. America’s aggressive actions against Huawei and other high-tech Chinese companies – although they appeared to be motivated by considerations of national security – were directed against the perceived threat to the market positions of American companies. Governments themselves are increasingly involved in supporting their national industries, with the US Senate earlier this year passed a $ 52 billion support package for domestic semiconductor manufacturers, while The EU is seeking to loosen government aid rules to allow direct government support for chip manufacturing.… The shocks of the past two years – Covid, stockpiling and strategic purchasing, and environmental disruption – are likely to intensify in the future, requiring further government support.
The post-Brexit UK has its own version of the story, with the conservative government trying to decide whether to protect Cambridge-based chip designer Arm from overseas purchases. Lever designs are used in most semiconductors in the world, from those used in Apple’s MacBooks to Samsung mobile phones. In 2016, this UK tech success was sold to Japanese SoftBank – a large, diversified investor – with little terms. But now New Secretary for Digital and Culture Nadine Dorris Opens Investigation SoftBank plans to sell Arm to US manufacturer Nvidia for $ 54 billion – potentially the largest in the history of the semiconductor industry – for reasons of competition and national security.
Nvidia’s competitors have loudly complained about the sale of Arm, arguing that Nvidia will be able to use Arm’s own knowledge and technical expertise to carve out the market in favor of its own semiconductor products. The UK government appears to be agreeing to open an investigation that could block the deal, and An EU investigation is expected to be launched shortly.…
Car manufacturers on the one hand, national governments on the other: both strive to end the neoliberal era in the production of essential commodities. For the UK government, which controls the economy with very few of the world’s leading tech companies, the smart move would be to block the sale of Arm and gain a stake in the company itself – using Arm’s expertise and resources to build domestic high-tech capabilities.
All the parts you need are in place, from world-class university departments to small semiconductor factories. However, the sale of the UK’s largest semiconductor manufacturer Newport Wafer Fab to China’s Nexperia was disrupted over the summer.… Without the kind of government coordination and support that China, the US and even the EU provide to their semiconductor industry, the UK will abandon its own competitive power.