The technological is alarmingly becoming too geopolitical, especially in the case of the current global semiconductor shortage, writes Raluca Csernatoni.
Raluca Csernatoni is an expert on European security and defence, focusing on emerging and disruptive security and defence technologies at Carnegie Europe in Brussels.
Also known as microchips, semiconductors are the backbone of today’s interconnected world. From older, lower-end chips used by the automotive industry to high-end ones needed for cutting-edge products such as PCs and smartphones, semiconductors are the ‘brains’ in all electronic devices.
The ongoing global shortage is of major concern. Why did this happen?
The crisis is linked to a combination of different events and factors. The main culprit was the snowballing effect of the COVID-19 pandemic, which closed down chip production facilities but also triggered a high demand for personal electronic devices by millions of people working from home.
Another factor was the US-China tech trade war, with Washington placing trade restrictions on China’s biggest chip manufacturer (Semiconductor Manufacturing International Corporation – SMIC).
This geopolitical tussle put pressure on non-Chinese manufacturers, already operating at full capacity.
Finally, Taiwan, the biggest player in the semiconductor manufacturing industry, went through its most severe drought in more than a century – a great amount of ultra-pure water is needed in the chip production process. Therefore, bottlenecks were added to the already dire situation.
Today, the US (Intel) competes in many parts of the advanced production processes, like chip design and fabrication. But the highest concentration of cutting-edge chips fabrication and assembly is in Asia, mostly in Taiwan (Taiwan Semiconductor Manufacturing Co – TSMC), then South Korea (Samsung Electronics), with Europe only a minor player.
Owing to manufacturing lags, intensified in the last two years by the pandemic, the chips shortage has prompted states to pursue their autonomy in this strategic sector and to shore up production.
The ongoing global chip shortage thus exposed the geopolitical risks of tech dependencies and in concentrating chip fabrication in only a handful of countries.
Access to high-end microchips is not only essential to industry, but also for national and international security.
The US has been discussing massive investments and incentives under the bipartisan American Chips Act to support home-grown manufacturing, research and development, and supply chain security.
Maintaining an edge in semiconductors innovation and supporting the resilience of supply chains have become key strategic priorities for Washington.
This highlights the fact that semiconductors, as ‘foundational technologies’, are considered key for both economic performances in the digital age and for military power.
Likewise, the EU aims to strengthen the resilience of supply chains and boost European stakes to reach the top tier of chipmakers, aiming at acquiring 20% of the global market by 2030.
It intends to send the political signal that the EU wants to enter the global chips race and expand research and fabrication capacity at home.
To this end, the European Commission has also recently kick-started the European Alliance for Processors and Semiconductors, bringing together EU member states, businesses, research, and technology organizations.
According to European Commissioner for Internal Market Thierry Breton, with the ‘European Chips Act, our tech sovereignty is within reach’.
Or is it? The EU’s ambitions for chip sovereignty might be indeed misplaced, particularly when it comes to the production of leading-edge chips that take a lot of time and money to develop.
Political rhetoric abounds around this goal.
To gain control over production and an upward foothold in supply chains is very difficult. The EU is coming late to the party.
The semiconductors sector is highly concentrated, specialized, innovation-driven, extremely capital-intensive, and, importantly, it is controlled by consolidated players in Asia and the US.
Other major impediments for the EU are its own Single Market rules on competition and a history of keeping public subsidies to a minimum.
Yet, the European technological sovereignty framing might be useful to convince member states about the merits of ‘more-EU’ in coordinating tech innovation and industrial efforts.
Also, going-it-alone in pursuit of strategic autonomy is not always the most feasible approach. Partnerships with trusted states and commercial players are equally important, if not more so.
This explains Commissioner Breton’s recent visits to the US, Japan, and South Korea in an effort to onshore production and attracts high-end fabrication to Europe.
To garner interest from chip manufacturers, the bloc can leverage its considerable research ecosystem, scientific and industrial capabilities in key tech sectors, and a skilled workforce.
Two Europe-based success stories are worth flagging. Belgium’s Interuniversity Microelectronics Center – IMED, an international research and development organization, is a leader in semiconductors research.
And the Dutch multinational company ASML is an innovation leader in the semiconductors industry, manufacturing complex machines essential to the production of microchips.
Strategic tech alliances are equally important. Semiconductors and the commitment to rebalance the global supply chains were also on the Pittsburgh EU-US Trade and Technology Council agenda in September 2021.
The Council seems to be the best forum to discuss joint strategies and to find common ground on boosting respective security in supply. Beyond commitments, it remains to be seen how this will work out in practice, as in trying to avoid a global semiconductor ‘subsidy race’ with the US, and other players such as South Korea and China.
While the EU’s plans for chips sovereignty are taking shape, the bloc should focus efforts on fostering an innovation-friendly ecosystem in Europe, matched by substantial European funding to support home-grown tech initiatives when it comes to chip design and manufacturing.