Semiconductor showdown approaches
Within hours of each other, the US administration of President Joe Biden and the European Commission both published their response to the current semiconductor shortage with remarkably similar backing.
Both talk strongly of strategic supply chains and sovereignty. Both are putting billions in cash behind the plans. Both will take years and are no quick fix.
It wasn’t Covid-19 pandemic itself that created the crisis, but rather the response of the automotive industry. Cancelling chip contracts in Taiwan in 2020 and expecting instant recovery in 2021 showed a fundamental lack of knowledge about how the semiconductor industry works. Rather, it showed the importance of the industry to many other sectors, and how reliant, and therefore vulnerable, the major economies had become.
The European plans had been in preparation for a while, but more focussed on the battery supply chain. Biden’s were top of the agenda when he took over on January 20th.
The US Executive Order published on Wednesday highlighted the strategic nature of the challenge, and the huge risks involved, highlighted by analyst Malcom Penn.
“The bottom line is simple: The American people should never face shortages in the goods and services they rely on, whether that’s their car or their prescription medicines or the food at the local grocery store,” said Biden while signing the Executive Order.
“We need to make sure these supply chains are secure and reliable. I’m directing senior officials in my administration to work with industrial leaders to identify solutions to this semiconductor shortfall and work very hard with the House and Senate. They’ve authorized the bill, but they need $37bn, short term, to make sure we have this capacity,” he said.
Next: Reaching out
“In the meantime, we’re reaching out to our allies, semiconductor companies, and others in the supply chain to ramp up production to help us resolve the bottlenecks we face now. We need to stop playing catch up after the supply-chain crisis hit. We need to prevent the supply chain crisis from hitting in the first place.”
“And in some cases, building resilience will mean increasing our production of certain types of elements here at home. In others, it’ll mean working more closely with our trusted friends and partners, nations that share our values, so that our supply chains can’t be used against us as leverage,” he added.
“It will mean identifying and building surge capacity that can quickly be turned into and ramped up production in times of emergency. And it will mean investing in research and development, like we did in the ’60s, to ensure long-term competitiveness in our manufacturing base in the decades ahead.”
The European plans, also announced just before the US, see “a new partnership aimed at reinforcing Europe’s innovation potential, boosting its competitiveness and ensuring technological sovereignty in the field of electronics.”
The €1.8bn ($2.1bn) Key Digital Technologies (KDT) partnership is the latest action on processors and semiconductor technologies planned by the European Commission, Member States, and industry, and part of a wider $10bn plan that includes 6G and health technologies.
Other actions for FDT are the Declaration on a European Initiative on Processors and semiconductor technologies that is signed by 20 Member States in December and the Industrial Alliance on microelectronics in July, as well as a possible new Important Project of Common European Interest on microelectronics.
This follows two projects of Important Project of Common European Interest on battery manufacturing that stimulated NorthVolt’s battery factories, along with projects battery materials and recycling with over €20bn of backing.
The €10bn Horizon Europe programme and the €20bn battery projects are almost exactly the same value as the $37bn of US Executive Order, with a similar scope in semiconductor, batteries, 5G and health supply chains.
But that is just the start, and spread across many technology sectors. Much of this will be discussed among EU member states over the next six months, just as Biden’s call for a 100 day review will be followed by a year of planning.
Restoring ‘sovereignty’ in semiconductors will cost many times that amount, and open the issues of subsidies to large, strategic industries of the past that plagued Boeing and Airbus. The EU knows this, and even with Germany willing to help the signs are not positive.
The value of partners building wafer fabs in the US and Europe is what happens if there are future problems, or even if Taiwan becomes part of China. That way leads to nationalisation of strategic assets, which the US has already highlighted with its use of the Defense Production Act to instruct factories to make ventilators during the pandemic. The same could well apply to leading edge wafer fab capacity and battery gigafactories in a time of crisis and shortages.
Where the fabs will be, who will control them, and who will pay, will be crucial. So the negotiation with ‘trusted friends’ and ‘nations that share our values’ will be fraught and challenging, but absolutely vital for both sides.
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