Introduction:
The ongoing global chip shortage, spanning from 2020 to the present day, has had a widespread impact across more than 169 industries.
This crisis has caused significant price hikes, lengthy wait times, and a surge in reselling activities among both consumers and manufacturers for various products like automobiles, graphics cards, video game consoles, computers, household appliances, and other electronic devices reliant on integrated circuits, commonly known as “chips.”
Beginning in early 2020, the combined effects of the COVID-19 pandemic and the efforts to manage it led to disruptions in supply chains and logistics.
This, coupled with a 13% increase in global demand for personal computers due to the shift toward stay-at-home economies in certain countries, created a shortage of critical chips necessary for manufacturing a wide range of electronics.
Notably, the pandemic’s impact on semiconductor production in South Korea and Taiwan played a significant role in causing this shortage, affecting industries as diverse as console gaming and automotive manufacturing.
In February 2021, market analysts at IHS Markit predicted that the shortage would persist until at least the third quarter of the year.
By this point, lead times for chip supply had already reached an unprecedented 15 weeks, the longest duration since 2017. As time progressed, the lead times for semiconductors from companies like Broadcom Inc. extended even further, reaching 22.2 weeks by April 2021, up from 12.2 weeks in February 2020.
Notably, severe weather events, including droughts in Taiwan during the summer of 2021, exacerbated the situation. These droughts had a significant impact on chip production due to the shortage of ultrapure water needed for factory cleaning and wafer production.
By the end of the first quarter of 2021, used car prices in certain countries began to rise due to increased demand from economic recovery efforts and the ongoing chip shortage. Some car prices experienced jumps of up to 10% during this period.
The Perfect Storm of Factors
COVID-19 Pandemic:
The emergence of the COVID-19 pandemic in early 2020 set off a series of disruptions across industries. Lockdowns, factory closures, and travel restrictions halted operations and disrupted global supply chains. Semiconductor manufacturing was not spared, with major chip-producing regions experiencing shutdowns and reduced capacity.
Surge in Demand:
The pandemic-driven shift to remote work, online education, and digital entertainment led to an unforeseen surge in demand for electronic devices. Laptops, tablets, gaming consoles, and other gadgets became essential tools for daily life, straining the capacity of chip manufacturers to keep up.
Supply Chain Complexity:
The intricate nature of semiconductor manufacturing involves multiple stages and a global supply chain. Disruptions at any point, whether due to lockdowns, restrictions, or shortages, could create bottlenecks that reverberate through the entire ecosystem.
Trade Restrictions:
Geopolitical tensions and trade restrictions added to the complexity. Export controls and disputes between major economies disrupted the flow of critical components and technologies necessary for chip production.
Natural Disasters:
Natural disasters such as earthquakes in Japan and fires in chip manufacturing facilities added another layer of disruption. These events damaged equipment, halted production lines, and affected the availability of key components.
Impact on Semiconductor Manufacturing
Underinvestment in Capacity:
The semiconductor industry’s historical pattern of cyclic oversupply and undersupply was exacerbated by a lack of investment in manufacturing capacity. The lengthy process of building new fabrication plants (fabs) meant that the industry struggled to quickly respond to increased demand.
Complexity of Semiconductor Manufacturing:
Semiconductor production is characterized by its complexity and sensitivity to disruptions. Specialized equipment, chemicals, and a controlled environment are critical components of the process. Shortages of any of these elements can lead to production delays.
Taiwan becomes the centre of earth
Taiwan is a major contention in the global chip shortage because it is the world’s leading producer of semiconductors.
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, is headquartered in Taiwan. TSMC produces chips for many of the world’s leading technology companies, including Apple, Qualcomm, and Nvidia.
The United States and China are both vying for influence in Taiwan.
The United States sees Taiwan as a strategic ally and has pledged to help defend it from China. China, on the other hand, claims Taiwan as its own territory and has threatened to use force to take it over.
The global chip shortage has exacerbated tensions between the United States and China. The United States is concerned that China could use its control over TSMC to disrupt the global chip supply chain. China, on the other hand, is concerned that the United States could use its military presence in Taiwan to block its access to TSMC.
The global chip shortage is likely to continue in the coming years. This will only increase the importance of Taiwan to the global chip supply chain. As a result, Taiwan is likely to remain a major contention in the geopolitical landscape.
Here are some other reasons why Taiwan has become a major contention in the global chip shortage:
Taiwan’s strategic location: Taiwan is located in a strategically important location in the Taiwan Strait, which is a major shipping lane. This makes it a valuable asset for both the United States and China.
Taiwan’s technological expertise: Taiwan has a strong technological expertise in the semiconductor industry. This is due to the fact that the industry has been in Taiwan for many years and has attracted some of the best talent in the world.
Taiwan’s political stability: Taiwan is a stable democracy, which makes it an attractive place for businesses to invest. This is in contrast to China, which is a one-party state with a history of human rights abuses.
The importance of Taiwan to the global chip supply chain is likely to increase in the coming years. This is due to the fact that the demand for chips is expected to continue to grow, while the number of countries that can produce chips is limited. As a result, Taiwan is likely to remain a major contention in the geopolitical landscape for many years to come.
Geopolitical implications
Beyond the intricate web of factors we’ve explored, geopolitical tensions and events played a crucial role in exacerbating the crisis. In this extended exploration, we delve into how the US-China rivalry, the war in Ukraine, protectionism, and broader geopolitical implications have contributed to the shortage and its far-reaching consequences.
The US-China Rivalry: A Catalyst for Disruption
The intensifying rivalry between the United States and China has had a profound impact on the semiconductor industry and the global chip shortage. As the US sought to reduce its dependence on Chinese-made chips for national security reasons, tensions escalated.
Imposing sanctions on Chinese chipmakers and restricting technology transfers created further disruptions in the chip supply chain, creating a ripple effect across industries.
The War in Ukraine: Unforeseen Consequences
The conflict in Ukraine, another geopolitical flashpoint, unexpectedly intersected with the chip shortage.
The war disrupted the supply of crucial raw materials used in chip manufacturing, such as neon and palladium.
Additionally, the conflict disrupted shipping routes, making it more challenging to transport chips to their destinations. This unexpected connection demonstrated how geopolitical conflicts can have far-reaching implications for global supply chains.
Rise of Protectionism: Unintended Outcomes
The chip shortage spurred some countries to adopt protectionist measures in an attempt to safeguard domestic industries.
Notably, the US imposed tariffs on chip imports from China, further exacerbating supply chain disruptions. Protectionist policies like these can complicate the already intricate web of global trade relationships and hinder the efficient movement of goods.
Geopolitical Implications Unfolding
The Rise of New Chipmaking Powers: Interestingly, the chip shortage is reshaping the landscape of chip manufacturing.
Countries not traditionally associated with major chip production, such as India and Vietnam, are investing significantly in building new chip manufacturing capacity.
This shift could lead to a more diverse and robust global chip supply chain, reducing the risk of future shortages.
The Need for International Cooperation: The chip shortage underscores the interdependence of the global economy.
No single nation can solve this issue alone. International cooperation is vital to addressing the root causes of the shortage and ensuring a stable chip supply in the future.
Collaborative efforts could involve information sharing, technology transfer agreements, and coordinated investments in manufacturing capacity.
Conclusion: Navigating a Changing Landscape
The 2021 global chip shortage underscored the intricate interplay between global events, supply chain complexity, and the critical role of semiconductor technology in modern life. Efforts to address the shortage included increased investment in manufacturing capacity, diversification of supply chains, and collaboration among industry stakeholders.
As industries continue to rely on chips for innovation and growth, a holistic approach to managing supply and demand imbalances becomes imperative to avoid future crises.
The lessons learned from the chip shortage of 2021 highlight the need for resilience, adaptability, and strategic planning in an increasingly interconnected and technology-driven world.
