When we swipe our screens to life every day, we set in motion the firing of billions of transistors that send electronic signals through circuit boards. This allows transistors to switch between on and off, representing the numbers zero and one respectively, so computers can store and process the code that makes up everything we do.
This kind of advanced technology involves collaboration on an international level that goes beyond politics and borders. But the future of the supply chain that uses silicon, the most popular semiconductor for building computer chips, is on shaky ground.
Computer chips make the digital world go round. According to a report by the Boston Consulting Group (BCG), the US holds a 45-50% market share in the semiconductor industry, more than any other country. But that could all change, as we move into a period of unprecedented uncertainty for all parties involved in the semiconductor manufacturing world. From resource extraction, to research and development, to the makers of the chips themselves, everyone is scrambling to adjust to a rapidly evolving future. The primary reason for this seismic shift is the ongoing trade war between the US and China, and its potential to unleash unintended consequences.
The semiconductor industry is dominated by a handful of players, and that number dwindles further when it comes to the cutting edge of microprocessor design and manufacture. These independent players must work together to push the envelope of what’s possible since they are co-dependent in the creation of a final product. Teams in the United States design software that helps teams in the Netherlands design manufacturing equipment. Teams in the Netherlands design equipment so precise it takes months to install by highly skilled technicians in Taiwan. And teams in Taiwan manufacture chips that underpin the revolutionary technologies being produced in China for global distribution. It takes massive investments between countries and companies to keep the flow of goods moving through this intricate network.
This sophisticated global semiconductor chain has been made possible by decades of collaboration between companies in different countries. However, companies around the world now face intense pressure from the US to restrict Chinese access to semiconductors with any American involvement during the process. The largest manufacturer of chips, located in Taiwan, physically produces chips for many of the major players in digital technologies, including Huawei. It is the leading microchip manufacturer, or foundry, in the world. Its most advanced equipment for commercial use produces transistors as small as 5 nanometers, making them one of only two foundries in the world to achieve that level of precision. However, because this company uses some American made equipment and software to do their manufacturing, they are being pressured to stop making chips for Chinese companies. Chinese firms currently account for 23% of global semiconductor demand (not including the manufacturing activity of Chinese factories for foreign companies), and many of them source their semiconductors from Taiwan. All parties involved are scrambling to diversify their supply chains to avoid products with American involvement. In order to maintain their current business, companies throughout the chain must seek out new sources for equipment, software, and materials. If they are successful, it may seriously affect U.S. firms.
If the United States continues to limit Chinese access to technology like semiconductors, it risks decoupling their supply chains and dramatically impacting the bottom lines of businesses in both countries. Because of the massive amounts of time and investment involved in chip manufacturing, such an event would send shockwaves throughout an already stressed network. According to BCG, if this decoupling occurs and the U.S. completely bans semiconductor companies from selling to Chinese customers, companies in the U.S. could see a 37% drop in revenue over the next three to five years. This lost revenue could lead to severe cuts in R&D and capital expenditures, and the loss of up to 40,000 highly skilled U.S. jobs.
In these uncertain times, it’s important to maintain perspective. The United States pioneered many of the technologies that currently dominate the digital world. Because of their early lead in the market, US firms have thus far been the largest beneficiaries of the digital revolution. America’s position at the top has meant that a virtuous cycle of investment in research and development has brought us many of the computing technologies we use on a daily basis, and cemented US leadership in the global semiconductor market. But that leadership has been predicated on international cooperation. If the US and Chinese supply chains are decoupled, we’ll be embarking on a risky experiment during a highly volatile period of history. So while governments are rightly concerned about the security and safety of their citizens, it’s possible that the actions taken on their behalf today will have unforeseen negative consequences.
To maintain the current delicate balance between the US and China will require thoughtful negotiations from all participants. With dialogue and continued collaboration it’s still possible to build on the successes of the past. By doing this, countries will be working together to build a resilient supply chain that benefits not just those involved in manufacturing semiconductors, but consumers everywhere.
This story was produced by WIRED Brand Lab for Huawei.
