Tech titans tackle supply chain disruptions


Rapid growth of the semiconductor industry sparks a trade war between the US and China

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Image by UCSD Jacobs School of Engineering

By Jack Langton

Human reliance on technology in the modern world has undoubtedly driven it to connect in all areas of our lives, and in ways that would not have been previously possible. Globalisation, whilst being extremely beneficial for trade, simultaneously presents dangers associated with being reliant on another country for imports. Developments in technology and globalisation have invoked trade disputes between countries. This is currently playing out, with China and America both attempting to seize control of the semiconductor market. Activity in this particular market is seen as a suitable indicator of a country’s economic activity.

The question is: what is a semi-conductor? Found within thousands of pieces of technology from iPhones, washing machines, and your dad’s ancient speakers, semiconductors are crucial to the performance of almost any device. Having numerous properties, the silicon-based chip’s primary function is to act as a conductor, carry charge between internal processes, and be reactive to both light and heat, acting as an insulator. The importance of these extremely small chips has caused the market to become fiercely competitive as suppliers buck to pressure from consumer demands to always provide newer and better chips, whilst still remaining profitable. The technology companies that purchase these chips encourage innovation in a bid to survive amongst competitors, in turn driving the world towards newer and greater tech capabilities such as AI and electric cars.

The manufacturing process for semiconductors has also transitioned from the traditional method of production, where production and design take place entirely within semiconductor companies themselves, to a method where manufacture has become outsourced to other countries, like China. This is in part because these countries’ manufacturing capabilities are better than those that design the chips, and because globalisation has reduced the costs incurred by chip designers. The diffused nature of this global industry, whilst reducing costs, has had the obvious problem of creating dependencies on particular countries that make up a disproportionate share of the industry relative to their own actual domestic needs.

The current model came to a boiling point in the Trumpian era of “America First”, whereby Trump claimed that Asian firms, who account for a staggering 75 percent of chip production, were extorting American firms. He then called for a backpedalling of America’s reliance on China for chip production, as they boasted a mere 12 percent of global semiconductor production. This anti-globalisation would ideally enable American producers to take a foot-hold and establish themselves in the competitive market amongst their Asian counterparts, as both seek to cash in on tech advancements by producing the chips that now drive economic change.

Imports also play a critical role in the current ships-and-chips affair. Both America and China are currently seeking to minimise their imports to increase their profitability. This is particularly relevant to China, who were previously lagging behind American production capabilities, having now arguably exceeded them, consequently requiring the purchase of over $11.27 billion (£9 billion) worth of American chips to offset manufacturing pressures to produce global exports. In a perceived bid to halt this cycle, Biden placed sanctions on China’s largest chip company, the Semiconductor Manufacturing International Corporation (SMIC), and forced their American machinery suppliers to obtain an export licence. Ideally, this should have countered the current global shortage of semiconductors. The White House has stated before that US leadership in key technologies is “critical to both our future economic competitiveness and our national security.” This attitude helps to frame the sanctions placed on SMIC as the US is highly alert to the vulnerabilities of a hostile nation like China having the potential to dominate the world’s market for such a critical capability. On one hand, Biden’s citation of security concerns has some credibility, given the aggression China is directing towards Taiwan, and his stating that he would use force to defend their sovereignty. On the other hand, one could also adopt a more cynical view and argue that the sanctions were imposed to increase America’s production of semiconductors, implying that Biden’s policy echoes the anti-globalisation rhetoric of Trump.

Whatever the stance you take, it is clear that the technology we use will, more often than not, contain a semi-conductor created by one of the two global superpowers. These chips, for this reason, have become a significant economic consideration for governments and businesses alike, as the transition to tech creeps further and further into our daily lives. It is evident that countries will fight to seize the potential fortune there is to be made as this area continues to develop.