What is semiconductor sovereignty worth?

The push and pull for sovereignty and semiconductor dominance globally will continue to unfold over time as countries spend billions of dollars to develop secure supply chains

The EU, US and Asia have one thing in common when it comes to semiconductors—all are willing to invest billions in research and production to claim a stronger stake in global market share. While the global supply chain for electronic components faces a consistent string of obstacles from material shortages, natural disasters and other cataclysmic events, the disruptions do not halt chipmakers’ plans for extensive growth. For the EU and US, this growth is a means to reach semiconductor sovereignty, while Asia pushes to continue its current dominance. 

Currently, Asian countries produce more than 70 per cent of global semiconductors with plans to expand supply chain control in locations ranging from South Korea to Japan, Taiwan and China.

South Korea plans to spend roughly $450 billion in its endeavor to build the world’s biggest chipmaking base. The country’s major semiconductor manufacturers, Samsung and SK Hynix, are the leading manufacturers of memory chips, but South Korea’s push for additional production and research will attempt to extend its reach in other sectors.

Japan dwarfs other countries in its number of chip factories but struggles to meet sales and is not producing enough high-end products to stay competitive with other countries. This may change as it plans to re-initiate growth in a ‘national project’ supported by the government to drive chip manufacturing. The plan includes cooperation with Taiwanese semiconductor company, TSMC, and a $337 million research facility.

Taiwan dominates advanced semiconductor manufacturing as home of the world’s largest chip foundry, TSMC. The company plans to build on its growth by spending $100 billion in the next three years to expand capacity, plus R&D of semiconductor technologies. In addition to cooperating with Japan, TSMC is building multiple semiconductor fabs in the US with construction already underway.

China imports $300 billion worth of semiconductors and is experiencing ongoing pushback in its chip manufacturing. Its greatest obstacle has been US sanctions on the country’s main manufacturer, SMIC, which was blacklisted by the US in 2020—restrictions include bans on technology China was using to make its chips. Since then, additional restrictions have also affected China’s manufacturing relation with the EU, which has found itself vulnerable amid the US-China trade war. 

While building its own sovereignty in the semiconductor market will take time for China, it plans to invest $155 billion in the next five to 10-years with focus on R&D. In the meantime, China will depend on emerging local contract chipmakers.

The US produces the world’s most advanced chips, but the increased cost of production and materials, global supply chain obstacles amid Covid-19 and geopolitical tensions regarding trade policy have proven difficult to navigate. To maintain its lead in the semiconductor industry in innovative technology and keep its competitive edge in global chipmaking, the US heavily invests in design, R&D and capital expenditure. However, while its chip design is superior, Asia still dominates the manufacturing aspect. The US currently relies on Taiwan for 90 per cent of its chip manufacturing.

After an assessment of its supply chain weaknesses, the US government will allocate $52 billion to the national semiconductor sector, which is a small effort to increase domestic manufacturing. International semiconductor manufacturers TSMC and Samsung both plan to build factories in the US along with Intel, which is investing $23 billion to improve and build facilities in the US. These domestic manufacturing facilities will improve US self-sufficiency.

The EU is motivated to claim self-sufficiency in its semiconductor production to reduce its reliance on the US and Asia. Its plan includes an alliance with EU-based companies like ST Microelectronics, NXP, Infineon and ASML to move away from foreign dependence. This alliance has the potential to bring companies together to fund the efforts to increase EU semiconductor market share to 20 per cent by 2030 (it currently holds 10 per cent).

German chipmaking company, Bosch, recently opened a $1.2 billion factory that it hopes will help ease semiconductor supply constraints in the automotive sector, but the company will still rely on Asia for the packaging and assembly.

Since separating from the EU in 2020, the United Kingdom has been grappling with its stake in semiconductor production, but rather than investing in expansion, local chipmakers have taken the opportunity to sell fabs to foreign buyers. Reports state that $42 billion worth of the UK’s semiconductor business has been sold since 2010.

The worldwide reliance on chip manufacturing continues to grow as consumer demand increases amid advancements in technology. As semiconductor shortages persist, the EU and US will expand efforts to claim more market share and self-sufficiency in the industry, while Asia will build off its existing manufacturing dominance in the global market and improve its chip technology. The billions of dollars countries will spend to develop secure supply chains to lead the industry appears limitless with the multi-year plans governments and companies have outlined. The push and pull for sovereignty and semiconductor dominance globally will continue to unfold over time as countries navigate the volatile space.