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What the microchip war means for semiconductor manufacturing
March 11, 2025
In today’s interconnected global economy, geopolitical shifts and export restrictions are reshaping manufacturing strategies across continents. Semiconductor manufacturing has been hit hard by China's new microchip ban. Essential materials like gallium and germanium cannot be exported to the US under this ban.
As a result, there is a growing concern regarding the supply chain for semiconductors and the larger implications that it may have. This development comes at a time when tensions are rising in the ongoing US–China tech war. Because of this, it is crucial for manufacturers all over the globe to reassess their global supply chain resilience and procurement strategies [1].
As supply chain disruption becomes increasingly common, understanding these challenges is crucial for all stakeholders. The European Union has suffered greatly as a result of this incident. This is a result of its reliance on China for vital raw resources needed in semiconductor production.
It is clear that many manufacturers have similar weaknesses. High-tech components and technology from places like Taiwan, South Korea, Japan, and the US are included in this. [2].
Who does the microchip war apply to?
Many companies all along the manufacturing value chain are impacted by the microchip war. Multinational company decision-makers and operational efficiency managers now face a world where supply chain reliability is in question.
There are a number of regions that suffer from challenges, including North America and Asia. As a result, they run into problems with gaining access to essential semiconductor materials [2].
Incentive schemes across regions
Governments and industry leaders are now implementing a range of incentive programs. They aim to strengthen local semiconductor manufacturing and take proactive measures to address supply chain imbalances.
Efforts are being made by the EU to lessen reliance on imports from China [3]. In the meantime, the CHIPS Act of the United States, which was put into effect in 2022, offers billions of dollars in subsidies to boost domestic production [4].
South Korea provides appealing incentives for semiconductor companies. These incentives encourage investment in research and expansion [5]. Meanwhile, Taiwan continues to maintain its position as the world's leading nation. This is achieved through public-private partnerships and strong industry support [6].
Recently, Japan has also disclosed a large-scale plan to support the country's semiconductor industry [7]. The overall goal of these concerted efforts is to lessen the risks that are posed by export restrictions. Also, they ensure that industries continue to be competitive in the global market.
These kinds of initiatives bring to light an increasing trend of agreement across governments. In order to ensure both economic growth and national security, it is vital to have a semiconductor ecosystem that is resilient. The incentive schemes focus on investing in research, infrastructure, and local production capabilities. Their aim is to lessen the reliance on any one area or region for critical parts.
How will it impact semiconductor manufacturing?
Manufacturers feel the pinch when disruptions arise in the semiconductor supply chain and drive up costs and cause delays. Companies are already facing challenges with rising material prices and tighter delivery schedules. Now, in addition to that, they are adding to that a serious shortage of chips brought on by the export prohibition [1].
The diversity of their supplier bases is something that manufacturers all around the world are actively seeking to achieve. This plan is to make sure that vital raw materials like gallium and germanium are always available.
In response, many companies are investing in supply chain diversification. Proposed trade agreements and strategic partnerships with alternative producers are being developed [8]. We expect these hurdles to encourage innovation in semiconductor technology in the long run. This is as manufacturers are likely to invest in research and development to lessen their dependence on scarce materials.
What will the repercussions be for global manufacturers?
The effects of the export restrictions are most pronounced in products that rely heavily on advanced semiconductor technology. Consumer electronics, automotive systems, and industrial automation equipment are all at risk as key parts become harder to source [9].
There will be major shifts to the operational procedures and cost structures of manufacturers who trade globally. Export restrictions will likely lead to increased costs for critical raw materials. These costs will be transferred along the supply chain, impacting pricing strategies and profit margins in various regions [2].
Global trade dynamics are changing in ways that go beyond the obvious monetary effects. Supply chain disruptions are causing longer lead times and increased administrative burdens. As a result, there is a renewed focus on building global supply chain resilience in networks.
A report by the Organisation for Economic Co-operation and Development (OECD) highlights an important trend. Global supply chain resilience has emerged as a top priority for companies adapting to rapid changes in trade policy and geopolitical risks [10].
What does this mean for the future of global supply chains?
For manufacturers around the globe, the existing environment holds both possibilities and threats for the future. Because of the China microchip ban, weaknesses in supply chains around the world have been brought to light. As a result, companies are now looking into more sustainable sourcing models.
It is possible that this disruption will result in an increase in the amount of money invested in research and development. The goal would be to lessen reliance on Chinese raw materials and promote innovation in semiconductor technology [2].
Also, the industrial sector is expected to be pushed into creating more resilient supply networks during this period of transition. Geopolitical tensions persist and technological competition intensifies. Because of this, manufacturers in every region will need to reevaluate their strategy for the long run.
Investment in industrial automation, strategic supply chain management, and local production capacity is set to become a priority. You must ensure that production lines remain competitive despite ongoing uncertainties [10].
The insights gained from these disturbances will, in the long run, spur change. This will enable manufacturers to adapt and thrive in an increasingly volatile global market.
Sources:
[1] https://www.theguardian.com/world/2024/dec/04/us-china-microchips-export-bans-gallium-germanium
[2] https://www.independent.co.uk/news/china-ap-donald-trump-washington-bangkok-b2659924.html
[3] https://cset.georgetown.edu/publication/securing-semiconductor-supply-chains/
[4] https://www.pwc.com/us/en/library/chips-act.html
[5] https://technologymagazine.com/articles/south-koreas-10bn-chip-boost-amid-the-global-tech-race
[10] https://www.oecd.org/en/topics/resilient-supply-chains.html
