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China Conflict Underscores Vulnerability of Electronics Supply Chain

Report says measures needed to protect suppliers from China counteracting recent U.S. sanctions.

Spencer Chin

October 24, 2023

4 Min Read
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Escalating tensions between the U.S. and China underscore the need to strengthen the electronics supply chain.blackdovfx/ iStock / Getty Images Plus

When President Biden recently halted shipments to China of advanced artificial intelligence (AI) chips from Nvidia, it underscored the ongoing economic and political tensions between the U.S. and China in recent years. The move, among a number of trade measures the U.S. is implementing, was reportedly made to potentially prevent China from gaining an unfair military advantage.

The underlying tensions between the two giant countries are no small matter, because the global electronics supply chain  is a complex, interconnected series of relationships involving the U.S. and Far East nations. Many U.S. electronics companies set up manufacturing, and in many cases, design in China over the years to take advantage of lower-cost skilled labor. But this interdependence has made the U.S. vulnerable to China striking back with their own economic and political measures.

A recent report titled, “State of the Global Semiconductor Supply Chain Report,” published by the Council of Supply Chain Management Professional, unravels the fragile nature of the global electronics supply chain and suggests measures companies can take to protect themselves from seemingly inevitable electronics supply-chain disruptions. The report noted that the recent global COVID-19 pandemic underscored that without a better understanding of how the participants in the global semiconductor ecosystem fit together, it is difficult to assess where there are risks of disruption, and how to design effective national policies that can address these risks. According to the report, these issues apply across a broad spectrum from the availability of low cost finished consumer products and importantly, to national security.

Proactive Measures Not Enough

The report stated that policy makers, both in the U.S. and abroad, have been proactively trying both harden existing trade arrangements and redesign supply chains to better protect national concerns. For instance, the CHIPS and Science Act in the U.S. and similar initiatives in the European Union and the UK all seek to encourage the development of advanced semiconductor manufacturing capacity locally within their borders, or at least within their national control.

However, the report said these measures may not be enough, as the level of funding provided is small; for instance only $52.7 billion in the U.S. over a period of 5 years. Many of these funds focus primarily on developing industrial policy via incentives to create or expand “Lab to Fab” research and development and improved manufacturing processes. The percentage of funds that directly tackle production-related such as supplies of raw materials, natural resources, and assembly, test, and packaging (ATP) capacity, is relatively miniscule.

Moreover, the report notes there have already been unanticipated consequences, as the market value of semiconductor companies based in the Peoples’ Republic of China (PRC) has climbed, despite the potential impact of U.S.-led trade restrictions. China is the largest consumer of semiconductors of all types because it is also the largest global assembler of finished products.

China Retaliates

The report states that China has retaliated against the U.S. and other nations by placing restrictions on the export of essential raw materials and economic retaliating against U.S. businesses that operate in or have customers in China. The end of this is far from clear and is likely to remain uncertain.

To counteract these measures, the report said that new public/private partnerships are needed ensure that the end-to-end processes needed to support resilient semiconductor manufacturing can function successfully. It is not possible for a government nor the semiconductor industry to do this alone. More attention needs to be focused on on the consequences for the design and operation of reliable and resilient supply chains without a significant increase in the cost to move raw materials, manufactured devices, and finished goods.

In conclusion, the report said that the trade fabric built up for the past 60 years may well need to change radically to meet the demands of the next decades. The report expects the next decade to be critical in determining  how these critically important electronics supply chains are designed and executed.

Spencer Chin is a Senior Editor for Design News covering the electronics beat. He has many years of experience covering developments in components, semiconductors, subsystems, power, and other facets of electronics from both a business/supply-chain and technology perspective. He can be reached at [email protected].

About the Author(s)

Spencer Chin

Senior Editor, Design News

Spencer Chin is a Senior Editor with Design News, covering the electronics beat.

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