Sunday, 13 Oct, 2024
By: Muskan Agrawal
Source: Los Angeles Times
In the fast-paced world of global technology and geopolitics, semiconductors have emerged not just as a critical industry but as a geopolitical chess piece influencing international relations and economic strategies.
Semiconductors are the cornerstone of modern technology, integral to the functioning of numerous devices we rely on daily, such as computers, smartphones, wearables, automobiles, and LED lights. These components are crucial for the advancement and efficiency of electronic systems, enabling faster processing, improved connectivity, and enhanced performance. With the improvements in AI, 5G, and other technologies, the demand for semiconductors is predicted to reach 82 lakh crores INR by 2030, growing by about 200% between 2014 and 2030 as the globe grows more technologically advanced and connected. Their role in powering innovations and supporting the infrastructure of our digital economy underscores their indispensable value in both current and future technological landscapes.
Historically, oil has been a geopolitical cornerstone, but its significance may wane as alternative energy sources rise and semiconductors gain prominence. Semiconductors, essential across various industries, are concentrated in regions with the necessary materials and talent. The global race for semiconductor self-reliance is intensifying, with countries like the US, China, India and emerging economies investing heavily in R&D and manufacturing. The increased competition is leading to volatility in the semiconductor market, as demonstrated by the drop in chip stocks, such as Nvidia and Advanced Micro Devices, after the US imposed strict sanctions on China's semiconductor industry post October 7 and by Donald Trump's recent remarks on July 17, targeting Taiwan Semiconductor Manufacturing Company (TSMC).
The sanctions' impact highlighted the semiconductor sector's heavy reliance on the Chinese market, with U.S. firms having an average of 31% revenue exposure to China in 2021. The focus on high-performance chips and equipment prevents China from producing replacements, affecting lucrative segments of the market. While some consumer and lower-performance chips may still be sold, the long-term risk of China developing independent semiconductor capabilities remains. India is making a lot of financial investments in this sector to counter China and Taiwan’s foreign supply of chips, as it could compromise the security of the country. Chips are utilized in everything electronic, including washing machines, mobile phones, debit cards, missiles, and space rockets– engendering its dual nature as it can be used for both civilian and military purposes. The industry is growing at a fast pace, as evidenced by the 1,900% boom in the semiconductor market size between 1994 to 2022.
Ensuring a resilient supply chain is now a strategic priority, highlighted by recent geopolitical tensions and supply chain disruptions. Countries are bolstering domestic production to mitigate risks, with India poised to become a significant player due to its engineering talent and supportive policies.
However, it continues to face challenges such as high capital investment, talent shortages, environmental concerns, and regulatory compliance. Collaboration across nations will be crucial, as no single country can dominate all aspects of semiconductor production. Future advancements may include more efficient chip designs and sustainable technologies. Addressing supply chain, IP, and cybersecurity issues will be vital for continued growth, benefiting industries and consumers worldwide.
