A report on the semiconductor industry by Akhil Thadani and Gregory Allen, fellows at the Center for Strategic and International Studies (CSIS), highlights the industry’s growth and its emergence as a top global industry with critical roles in the Indo-Pacific region.
“Across a diverse range of global opportunities and geopolitical challenges, the semiconductor industry supply chain is increasingly at the center of the story,” Thadani and Allen write in “Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region." The report is part of a collaborative project with CSIS’ Asia Program, Wadhwani Center for AI and Advanced Technologies, and Scholl Chair in International Business.
Thadani and Allen state the semiconductor industry and its supply chain have grown so significantly in recent years, it rivals the global oil and gas industry “in terms of their importance to international relations.” Semiconductors are commonly found in nearly facet of daily life, from laptops, vehicles, phones and home appliances to nuclear missile guidance systems and electrical grids. Semiconductor sales in 2022 surpassed half a trillion dollars, according to the report.
The authors state in the report that the significance of semiconductors was demonstrated during a global shortage which reduced U.S. GDP by $240 billion in 2021, according to the U.S. Commerce Department.
“No single company – indeed no single country – is currently capable of internally performing all roles in the supply chain for all types of semiconductors required for a modern economy,” they state in the report.
The report finds semiconductor production takes four to six months and includes 500 different stages. The report, citing Accenture, states semiconductor materials cross 70 international borders before a final product is complete.
The U.S. leads in the design stage, with more than 40% of global IC design market share. In 2021, the U.S. restricted many Chinese firms’ access to electronic design automation (EDA) software, a critical part of the design process. Chinese firms have looked elsewhere for software, including domestically at Huawei, a Chinese company that wants to “replace the gap” from restrictions by the U.S.
Silicon wafers are an important material used for semiconductors; Japan, Germany, France, South Korea and the U.S. dominate this industry with 65% of global production, according to the report. China’s ability to produce silicon wafers is limited, though fast-growing. That measurably reduces China's importance within the supply chain, according to the report. In 2021, China purchased more than $28 billion in semiconductor manufacturing equipment (SME), the largest market in the Indo-Pacific.
The authors said the CHIPS and Science Act of 2022 set aside $50 billion in investments to grow the U.S. semiconductor industry. They urged lawmakers to pay attention to the Indo-Pacific countries that play a critical role in the industry, according to the report. The authors suggested that the U.S. should grow a healthy and resilient semiconductor ecosystem with allies and partners playing a key role.
