The global semiconductor shortage has served as an abrupt awakening to governments around the world, which are now racing to futureproof supply chains through strategic local investments.
South Korea, which is the second-largest global manufacturer of semiconductors, became the latest country to announce large-scale chip investment last week. The government said it will commit $452 billion to be invested in chips by 2030, with the bulk of that coming from the two biggest local chip firms: Samsung Electronics and SK Hynix.
Across the sea, President Xi Jinping has pledged massive investment into local startups, hoping to help China become self-sufficient in semiconductors. But the country has a long way to go to catch up with Taiwan, where the world’s largest foundry Taiwan Semiconductor Manufacturing Company is planning to pump $100 billion over the next three years to meet soaring demand.
The US, which lags in third place behind Taiwan and South Korea in manufacturing capacity, is seeking to disentangle supply chains from Asia and Europe with yet more internal investment. Biden has made a $50 billion plan to develop chip making and research, while the EU, which represented less than 10% of the global production in 2020, wants to manufacture 20% of the world’s semiconductors in Europe by 2030.
Geopolitically, the individual motivations behind each government’s investment are different. But beneath them lies the same realization; that the fate of their digital sovereignty – and national security – depends on delicate international supply chains and fewer than a dozen semiconductor firms.
Upping local investment means governments can hope to avoid production lines grinding to a halt in the event of a future pandemic, or similar disruption. But the timeline for such investment is long-term, and the outlay is considerable: each chip manufacturing plant takes about two years to build at a cost of more than $10 billion.
This suggests we could be entering an extended period of state-encouraged M&A and investment in the semiconductor industry as nations around the world race to fund the creation of more resilient supply chains.