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In the ever-evolving landscape of technology, semiconductors emerge as the silent architects shaping the future of electronic devices. Yesterday’s limitations are today’s breakthroughs, and at the heart of this transformation lies a crucial nexus of conductivity—semiconductors. Semiconductors play a vital role in electronic devices, with their conductivity characteristics falling between conductors and insulators. Silicon is a common material for semiconductors, although germanium and gallium arsenide are also utilized.
Within electronic equipment, a circuit board houses various components, broadly categorized as active and passive. The active components, often integrated circuits (ICs) or chips, serve as the device’s intelligence. These chips are crafted from thin semiconductor wafers, usually silicon, and their capabilities hinge on the integration of components.
Semiconductor technology advances in generations, denoted as process nodes, based on the minimum feature size measured in nanometers. Popular nodes, like 40nm, 28nm, 16nm, 5nm, and 3nm, represent the smallest physical size achievable for structures on a wafer. Shrinking feature sizes increase component density and enhance performance in semiconductor devices.
Where does the semiconductor industry stand?
The semiconductor industry’s challenges, including supply shortages and geopolitical tensions, have prompted increased production and policy adjustments to stabilize supply. Despite overall sector struggles, automotive semiconductors, constituting 8-10% of the global market, are witnessing heightened demand due to trends like electrification and connected driving. However, the unfolding dynamics of this momentum remain uncertain, with certain sectors like PC and mobile phone shipments facing contractions amid challenging economic conditions. The industry’s trajectory hinges on how it navigates these complexities and adapts to evolving demands.
India’s objection to the American CHIPS Act at the World Trade Organisation highlights the renewed attention on the economic, technological, and geopolitical importance of the semiconductor industry. As nations grapple with the implications of semiconductor shortages and seek to secure their technological future, the geopolitical dimensions of this industry gain prominence. The interplay between countries in shaping semiconductor policies underscores the broader global implications and strategic positioning tied to semiconductor technology.
The criticism from the Indian government regarding the U.S. CHIPS Act, framed as a response to the China “threat,” underscores the geopolitical significance of semiconductor technology. Previous instances, such as the U.S. restricting chip supplies to Russia and banning Nvidia and AMD product shipments to China, further highlight the global tensions surrounding semiconductor access and control. As semiconductors solidify their role as the backbone of the modern economy, their centrality in electronic devices and emerging technologies fuels intense technological competition with far-reaching geopolitical implications.
Impact on China
The imposition of sanctions on Chinese tech companies by the U.S. since 2019 has broadened, extending beyond exports to impact U.S. companies’ investment capabilities. The 2022 ban on semiconductor chip sales to China, mirrored by measures from the Netherlands and Japan, signals an intensified effort to restrict China’s tech sector advancement. Notably, China’s reliance on semiconductor imports, surpassing those of oil since 2015, coupled with a significant proportion of chip-making equipment being imported, underscores its dependence on foreign firms. In contrast, China’s domestic production in the semiconductor market remains modest compared to major players like the U.S., Japan, and Europe. This dynamic reflects the geopolitical maneuvering and strategic importance of the semiconductor industry.
China’s heavy dependence on foreign equipment is evident, and the impact of sanctions is reflected in the 3% decline in equipment imports in 2022, marking the first decrease in a decade. While the multi-country chip ban led by the U.S. is taking shape, it appears Washington aims to restrain Beijing’s tech capabilities without a complete halt to semiconductor production in China.
Despite short-term setbacks, China retains options to enhance production through its own supply chain. The key factor lies in China’s commitment to intensify research and development (R&D). The outcome hinges on whether the West can match this investment and sustain its technological advantage in the face of evolving geopolitical dynamics. The competition in R&D will play a pivotal role in shaping the future landscape of the semiconductor industry.
Growing Automotive Industry
The surge in automotive sector growth is indeed tied to the rising demand for semiconductor chips, primarily propelled by the increasing electrification of vehicles and the push for digital mobility. As light vehicle production is anticipated to grow annually, reaching 2.2%, the significance of microchips in modern vehicles is set to rise, constituting 20% of material value by the end of this decade.
Both the EU and U.S. play substantial roles in the automotive semiconductor landscape, encompassing integrated device manufacturers and advanced fabless designers. Notably, tech giants like Google and Apple are entering the arena, developing their semiconductor products. Concurrently, established car manufacturers such as Tesla and Stellantis are investing in in-house “silicon” development, reflecting a broader trend toward vertical integration in the automotive industry.
China’s strategic focus on semiconductor manufacturing, especially in mature process node technology with 200mm wafer equipment, positions it uniquely in the global automotive semiconductor supply chain. The country’s recent expansion of 200mm capacity aligns well with the continued demand for this technology, contributing to potential supply-demand dynamics.
In the context of the EV ecosystem, China’s investments in wide bandgap materials (WBGs) align with the industry’s shift towards higher voltage batteries. This move is crucial for enhancing efficiency by reducing charging times and enabling the use of smaller, lighter motors. China’s significant investments in this sector, combined with its dominance in rare earth metals and cobalt mining, strengthen its competitive advantage in shaping the future of electric vehicles.
With control over semiconductor assembly and testing markets and a substantial share in critical resources, China is indeed consolidating its influence across the entire EV value chain. This strategic positioning underscores the country’s role in shaping the trajectory of the global electric vehicle ecosystem.
India’s Position
India’s heavy dependence on semiconductor imports, constituting about 80% of its requirements, poses potential economic challenges, with a projected $95 billion increase in the import bill and a wider current account deficit if a domestic semiconductor industry doesn’t materialize.
Developing a robust semiconductor industry in India not only addresses economic concerns but also presents significant job creation opportunities. The country’s IT industry, contributing $150 billion to the global IT market, already employs around 5.8 million people, with one-fifth of the world’s semiconductor design engineers originating from India.
Against the backdrop of the global semiconductor market’s projected growth to over $1 trillion by 2030, India’s semiconductor market is expected to surge from $15 billion in 2020 to $110 billion in 2030. This positions India among the fastest-growing semiconductor markets globally, with the government allocating a substantial budget of $550 billion for the sector in 2023.
Moreover, given the critical role of semiconductors in military equipment, communication systems, and satellites, their importance extends beyond economic considerations. In contemporary warfare, the availability and sophistication of semiconductor-driven equipment are pivotal, emphasizing the strategic significance of a robust semiconductor industry for India’s security state.
Emerging technologies like artificial intelligence (AI) and quantum computing are heavily reliant on semiconductors. AI systems utilize semiconductor components such as central processing units (CPUs) and graphics processing units (GPUs) to execute intricate calculations. Similarly, the precision control over quantum states necessary for building functional quantum computers is achievable through semiconductor-based devices.
For India, the development of advanced semiconductor design and manufacturing capabilities becomes crucial to harness the full potential of these technologies. Depending on semiconductor leaders for access to AI and quantum computing capabilities might limit the country’s autonomy and innovation in these transformative fields. Developing a robust semiconductor industry is not only economically beneficial but also strategically imperative for India’s participation in the forefront of technological advancements.
Growing Conflict in Taiwan
The concentration of a significant portion of the world’s semiconductor supply in Asia, particularly Taiwan, poses concerns, especially as tensions around the region escalate. With Taiwan hosting major semiconductor manufacturers like TSMC, which holds a substantial market share, geopolitical pressures could impact the global semiconductor supply chain.
The United States, heavily reliant on TSMC for military-grade chips, faces potential security threats amid rising tensions. Efforts by both Republican and Democratic parties to bolster the domestic semiconductor industry, evident in the CHIPS and Science Act of 2022, highlight a unified stance to ensure a stable semiconductor supply system. Additionally, recent tightening of restrictions on semiconductor-related exports to China emphasizes the strategic importance placed on safeguarding semiconductor technology.
As companies increasingly move operations from China to mitigate geopolitical risks, the semiconductor industry’s landscape is evolving, and the urgency to establish a resilient supply system becomes paramount for leading developed economies. The global interdependence on semiconductor technology makes navigating these geopolitical challenges crucial for maintaining economic and security interests.
The possibility of the United States strengthening sanctions against China in advanced fields, particularly in the semiconductor industry, could impede China’s efforts to achieve its semiconductor self-sufficiency goals. China is already behind its Made in China 2025 policy target of 70% semiconductor self-sufficiency, set in 2015.
As the Communist Party tightens control, economic policy priorities in China may shift, potentially slowing progress in semiconductor development. Current economic policy leadership under Li Qiang remains untested. China’s reliance on the United States and other nations for intellectual property and technology in semiconductor manufacturing persists, and achieving self-sufficiency is likely to take longer than anticipated.
In contrast, the United States has intensified support for its semiconductor industry, leading to capital investments by major players like TSMC, Samsung Electronics, and Intel on American soil. While the European Commission has initiated measures to attract semiconductor companies, success has not matched the progress observed in the United States. The dynamics in the semiconductor industry are crucial amid these geopolitical and economic shifts.