Chips Supply Chain: Bifurcation and Localization
Semiconductors are at the heart of the global economy and governments’ security thinking. The semiconductor supply chain is geared toward gradual bifurcation, the slow separation into a US and China controlled supply chain. Another trend is regional localization, with East Asia, Southeast Asia, and Europe remaining crucial.
Globalization in the semiconductor industry is “dead,” as governments increasingly consider technology through the lens of national security, external pagestated Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company (TSMC). The prime example is the US-China semiconductor rivalry, as both countries aim to reduce their mutual dependencies through security strategies of decoupling or, more recently, de-risking (see CSS Analysis n°337). According to the external page2023 World Trade Report, security-induced tensions between the two countries significantly slowed the trade of technologies such as semiconductors in 2022.
On the May 2024 cover of The Economist, the world map has been external pageteared apart, illustrating a fragile economic order close to collapse. In an increasingly volatile global economy, the question arises of how the semiconductor supply chain will evolve as governments’ strategies push it apart.
“The US and China pursue their respective semiconductor ecosystems, which they intend to control.”Quentin Merle
The first trend is the gradual bifurcation of the semiconductor supply chain, which is external pagecharacterized by an ambiguous and porous grouping process of divergence rather than a clear and quick separation of trade relations, as often desired by governments’ security strategies. As the US and China attempt to exert control over their semiconductor supply chains, they remain strongly interlinked by mutual economic interdependencies, resulting in gradual bifurcation.
The second trend is expanding localization dynamics in the global semiconductor supply chain. Localization refers to developing national or regional production to reduce dependency on foreign sources, external pagedriven by geopolitical tensions and the need for greater supply chain resilience. This is particularly apparent in regional clusters in East Asia, Southeast Asia, and Europe. This analysis will examine both these trends in the semiconductor supply chain in more detail.
The author:
Quentin Merle is a Researcher at the Center for Security Studies (CSS) at ETH Zurich. His research interests include China’s international relations and political economy, Sino-European relations, emerging tech and semiconductors, and Swiss & European foreign policy.