Among the reasons for the high inflation of recent months, there is the shortage of electronic components, which have become increasingly rare due to the globalization of demand in the face of a strong concentration of supply. Taiwan, in fact, covers more than two-thirds of the world's production. Alessia Amighini deals with the topic on @lavoceinfo. [Taiwan, the chip capital of the world – lavoce.info]
After about two years of microchip shortages, on August 20 President Joe Biden signed the Chips and Science Act, a new law that provides for the disbursement of $ 53 billion to the domestic chip industry, incentivizing companies to build and expand production capacity in the United States. An attempt to recover a technological leadership today at serious risk. In 1968 it was the Americans Robert Noyce and Gordon Moore who created Intel and shortly after launched the first microprocessor in the world, establishing a ten-year leadership position in the semiconductor sector. Since that time the United States has maintained its advantage in the production of microchips until just over 20 years ago, surpassing Japan and the rest of the world. However, after 2000, the industry shifted its focus to design, innovation, research and development, with a concomitant reduction in capital expenditure (semiconductor manufacturing requires a huge amount of investment and engineering input) and the outsourcing of chip production abroad.
Today this is a clear example of the long-term risks of relocations of phases mistakenly considered not very 'strategic'. The fabless fashion (companies without workshops, which have chosen the complete outsourcing of physical chip production) has led an increasing number of US chip companies to lose control of the production process, while Taiwan has chosen to focus precisely on that to become the world center of chip production. As Taiwan continuously invests in improving advanced manufacturing technology, the United States has gradually lost its competitiveness.
Although the phenomenon of the so-called global value chains (GVC), which constitute the true distinctive feature of the globalization of the XXI century, is increasingly cited, little known is instead all the economic research that analyzes the characteristics and development of JSCs to understand how the world of production works, from footwear to aircraft, from batteries to medicines. These studies show that cross-border production chains are not simply a more efficient way of organizing production, keeping within themselves the phases considered core and moving others elsewhere, arbitrating on the cost differentials of the factors of production (not only of labor, but also of energy, natural resources, taxation, respect for the environment, and so on). Value chains also have important structural effects on the industrial organization of many sectors (a particularly interesting case concerns the automotive sector): outsourcing some phases that were initially carried out by the producers of the final good – for example, microchips for the consumer electronics sector, engines for the automotive sector – has permanent effects on the dynamics of innovation within the entire sector, on the dynamics of economic power between enterprises within the chains, and also on the geography of production. For example, from these studies it emerges that new centers of innovation and technological development are born precisely among the ranks of the suppliers of the components once considered less important, and these centers progressively impose themselves as new centers of technological power within the chains. This is a systemic approach very different from the management approach of the rampant supply chain management, which has as its purpose the sole efficiency of supplies and logistics for a single company in relation to its suppliers, but nothing says about the sectoral dynamics that lead to structural changes in production and supply that then have a strong impact on the fate of individual companies.
This is exactly how Taiwan has become the pivot of global microchip production. Over the past three decades, Taiwan has strategically developed the semiconductor industry as an important pillar of its national competitiveness strategy. Implementing its own industrial policy, which involved investments in research and development, and recruiting Taiwanese engineers and managers trained in the United States, in the eighties Taiwan launched the Hsinchu Science Park, which eventually turned into a chip production center. At the center of these efforts was Dr. Morris Chang, founding president of the Taiwan Semiconductor Manufacturing Corporation (TSMC). Under the leadership of Dr. Chang, TSMC relentlessly focuses on the pursuit of engineering excellence and innovation in chip manufacturing. Today, Taiwan's chip production accounts for 60 percent of the world's total volume (Table 1), and TSMC produces more than 90 percent of the flagship chips (defined as being at most 7 nanometers thick). Hsinchu Science Park has become a center where chip companies with ascending and descending streams are tightly integrated, including those dealing with design, manufacturing, equipment, testing, and packaging.
Only in this way can we really understand the situation in which we find ourselves today. First, the shortage of chips is due to several reasons: a huge demand for digital, telecommunications and electronic products, inflated by the pandemic, as an increasing number of jobs have been transferred online or carried out remotely; at the same time, a disruption of the supply chain due to closures to curb infections. Because the chip industry is highly globalized in consumption but at the same time highly concentrated in production, components, wafers and finished chips are stuck in warehouses due to logistics disruptions. These disruptions are also caused by Chinese military exercises in the Taiwan Strait.
Whenever China carries out such military operations, they constitute a de facto blockade of Taiwan's ports and can also limit traffic through the island's airspace. All this is a warning to Taiwan: Beijing could impose a total blockade on the island at any time. Such a move would have serious economic consequences not only for Taiwan, but also for the rest of the world. Think of the impact of the recent blockade of Shanghai, which lasted about 100 days, with significant negative effects on the transport of goods from its port, one of the most important in the world.
A blockade would result in a major disruption of Taiwan-related supply chains, which would be disastrous for global semiconductor supply and would certainly contribute to the inflation race around the world. The repercussions would be manifold. Consider how important microchips are to the production of a myriad of goods, including those that are driving greater digitization of businesses, cities and countries and the rapid adoption of green energy sources. This scenario of supply chain strangulation is particularly worrying when considering smaller, more advanced semiconductors, for which there are no substitutes outside of Taiwan.
