Shortages of computer chips held back production of cars and some consumer goods
Shortages of computer chips held back production of cars and some consumer goods AFP / JENS SCHLUETER

The global semiconductor race is set to prolong further as the United States, Europe, and Asia aim for tech sovereignty. It appears that a perfect storm is brewing.

Since the global demand for chips has gone through the roof, Intel Corp., the world's largest chipmaker, has decided to produce chips in the United States. Pat Gelsinger, Intel chief executive officer, publicly lobbied Congress to exclude overseas manufacturers of semiconductors like TSM and Samsung Electronics Co to reduce competition in the domestic and international markets.

It augers well for the U.S. to have the largest chipmaker in the world to churn out its chips in U.S. factories, which can ease global supply chain constraints, and align more with US national security interests.

Taking a leaf out of the CHIPS Act, a proposed US law, the EU has chalked out a plan for the regional bloc to account for 20 percent of the global semiconductor market share by 2030.

Though the U.S. and EU have formed a somewhat vague alliance on semiconductors, as part of national interests, they do not let their firm companies do business freely. The U.S. Dec 2 last year sued to block Nvidia's deal to buy the British chip designer Arm Ltd..

Margrethe Vestager, EU antitrust chief, said Brussels was "deeply concerned" by the proposed acquisition by the leading US player in the semiconductor industry.

The deal, announced more than a year ago, may succeed only if Nvidia manages to persuade Arm's many global customers that they will remain neutral.

On the Asian side, China, Japan, and South Korea are looking for an opportunity to set up a chip supply chain free of US influence with the implementation of the Regional Comprehensive Economic Partnership (RCEP) trade pact.

The supply chain constraints in the global semiconductor industry are well known. They are likely the reason why the wait for a new car or dishwasher is now six months rather than the standard six weeks.

The delivery time between when an order for a semiconductor is placed and when it is delivered stood at about 25.8 weeks in December, an increase of six days from November levels, according to Bloomberg.

That means automakers will have to wait up to a year from ordering the chips to placing them in vehicles. Amid a broader pessimistic market shift, global semiconductor firms have seen their shares lose 10 percent of their value recently.

Industry experts do not expect supply chain improvements until the second half of 2022 or the first half of 2023. Analysis by Goldman Sachs predicts that the shortage of semiconductors will impact 169 industries.

Currently, the U.S has the edge in access to semiconductor chip technology. However, China dominates a vital industry that the U.S. hopes to one day lead: the production of EV (electronic vehicles) batteries where it has 14 times more capacity compared with the US and EU that still rely on China for the electrification of vehicles and more.

Since 2018, the US has been using semiconductors as the single most strategic technology to isolate the rise of China and to maintain its hegemonic position. Under this policy, the US has opposed every single major investment in China's semiconductor industry.

Intel was blocked from building a plant in China and chose Malaysia instead and the US voiced concern at South Korea's Hynix when it planned a huge new factory in China.

China, however, is in a much more vulnerable position. IC Insights, a market research firm, noted that China will produce less than 21 percent of its chip consumption in 2024, up only 3 percent from 2020.

The chip itself was invented in the US, which still leads the world in terms of research, design, and advanced manufacturing, while Taiwan is the market leader in assembly, packaging, and testing and South Korea dominates memory chips with a 65 percent market share.

The supply chain involving the design, manufacturing, and assembly of semiconductors are known for their complexity and calls for global dependencies. The 'new normal' in supply chains and logistics now demand adhering to geopolitical dynamics, climate change, and health safety.

To sail smoothly, the semiconductor ecosystem needed de-escalation of the ongoing cold war for tech sovereignty.