A battle of the titans is fought more and more starkly within microscopic spaces that are measured in nanometers – one millionth of a millimeter – the reference unit of measurement in microchips. The shortage of these components, essential in an increasingly wide range of products, is one of the central elements in the recent convulsions of the global supply chain, and has strengthened the political will of the great powers to reduce their dependence on the outside. in a key product of the life of the XXI century.
Stock-outs are the result of multiple factors. The supply has been altered by the impact of the pandemic and a series of catastrophes that have affected the work of important factories; Demand has been triggered first by the increase in orders for certain products that are especially useful during lockdowns, then by the large rebound in the economy. Problems in transport chains have exacerbated the crisis.
The question has an enormous depth. The market itself is relevant – only China in 2020 imported microchips worth more than 300,000 million dollars, similar to the GDP of a country like Colombia – but what is important is its impact. Chips are needed in an increasingly wide range of products, not only traditional ones – computers, mobiles or technology from the field of defense and space – but also in industries such as automotive or household appliances. The strategic importance is almost immeasurable.
The United States, China and the European Union step on the accelerator to achieve greater autonomy in a complex industry, with very high entry costs, and a chain with different knots that can become pressure elements, from the design (where the US stands out) to the necessary machinery (where the EU has good letters) to manufacturing, where the protagonists are East Asian countries, especially Taiwan and South Korea. The importance of Taiwan in this market is precisely one of the destabilizing factors. China’s increasingly assertive attitude raises questions in the medium term about the island’s role as a major global supplier.
The race is advancing on the basis of large investments, the strengthening of alliances, but also on the basis of frontal blows, such as Washington’s initiative to cut off the access of the Chinese company Huawei to US-designed microchips. More than a hundred Chinese companies have been placed on Washington’s commercial blacklist, which prevents the sale of high-tech without specific authorization.
Of the three titans, the EU is the one that lags the furthest behind in its stimulus plans. China has been concentrating on strong support for the development of the sector for years. The US Senate approved a financing package in June that foresees, among other things, some 50,000 million of support for the microchip sector. The measure garnered the support of a consistent number of Republican senators. Faced with these initiatives already underway or outlined, the EU is looking for its way. “The point is that everyone agrees on the strategic importance, but there is still no consensus on how to proceed,” says Mathieu Duchâtel, an expert at the Montaigne Institute who has published a study on the matter, in a telephone conversation. “In the United States they have been with this debate for years, in Europe only two. We are still in a phase of conflict of visions ”.
The President of the European Commission, Ursula von der Leyen, announced in her State of the Union address in mid-September her intention to launch a European Chips Act. In July, the EU launched the Alliance for Semiconductors – a forum that seeks bring together representatives of the industries involved, Member States, academia, users and other relevant stakeholders. The Commissioner for the Internal Market, Thierry Breton, has just visited some East Asian countries precisely with the aim of consolidating European action. But there is still no consensus on the roadmap, to what extent to bet on manufacturing or strengthen areas of design and machinery.
“The problem is that the political logic goes one way, but the economic one goes another,” says Angela Garcia Calvo, a professor at the Henley Business School of the University of Reading, who specializes in the matter. “Manufacturing involves very high entry costs, long times. Furthermore, new European projects should face stiff competition from Asian producers with much more experience and cheaper labor. In economic terms, probably what would make the most sense is to support machinery or design segments, “he says.
But Commissioner Breton is clearly committed to strengthening manufacturing capacity. Something is moving. The American Intel is considering investing in Europe. Reuters reported on Friday that Italy is in talks to secure a plant which would represent an investment of more than 4,000 million euros. Germany, according to the information, is the favorite for another plant with an even greater investment.
But these movements do not hide the underlying difficulties in achieving a significant step forward in global market share. Bob Hancké, a professor at the London School of Economics, declares himself “quite skeptical of the sudden enthusiasm” for initiatives in this sector in Europe. “The imbalance between extremely high entry costs and relatively modest financial returns is at the heart of the problem,” he notes.
China, for its part, has been developing a very intense strategy since at least 2014. Local media indicate that since then the sector has received a public boost of at least 170,000 million dollars, to which must be added the advantages of a peculiar market, with guaranteed orders and other support measures. Garcia Calvo observes that the Asian giant has undoubtedly made progress. It is specializing in simple chips and has attracted talent from Taiwan. But it hasn’t met its goals and is years behind the US in the higher-quality aspects of the industry. In this segment, the most strategic, aimed at high quality and value products, it continues to depend a lot on the outside – especially the US and Europe – in terms of design and machinery.
The United States, in addition to the package of public aid to the sector, continues to refine its action to protect its technological advantage, in a series of maneuvers that Washington defines as safeguarding the intellectual property of its companies, and Beijing interprets as an offensive to suffocate the his. On Friday, the National Counterintelligence and Security Center launched a campaign to alert key tech companies to the risks of interacting with China. The sectors in question also include microchips.
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