Why is the world running short on semiconductors? | Inside Story

microchips are in almost every electronic product but there's a global shortage affecting cars high-tech gadgets and even fighter jets so why are supplies so low and could the race to make up the shortfall ignite political tensions this is inside story [Music] hello and welcome to the program i'm muhammad zhum they're in our smartphones computers and cars even appliances like coffee machines semiconductors are in almost every electronic item we use but they're in short supply around the world taiwan is the dominant player with nearly 60 percent of the global market but production has slowed because of measures to combat a surge in covet 19 infections the island's worst drought on record is also having an impact as the industry uses large amounts of water the auto industry is one of the most affected car makers like ford and general motors have shut down factories laid off workers and cut production one manufacturer has warned the disruption could lead until next year the u.s south korea and china are pumping money into their own industries to become more self-reliant in march beijing waved taxes on imported semiconductor materials but china's main chipmaker is under u.s sanctions for alleged ties to its military the u.s senate recently approved 52 billion dollars for america's semiconductor industry as part of a tech innovation bill as a percentage of gdp we spend less than half as much as the chinese communist party on basic research we rely on foreign nations to supply cri supply critical technologies that we invented like semiconductors that sunny american optimism has flickered as well the world is more competitive now than at any time since the end of the second world war if we do nothing our days as the dominant superpower may be ending all right let's bring in our guests in seoul june park a political economist and an east asia voices initiative fellow at george washington university in new york city jim anderson ceo of socialflow a tech company and in miami june toefl dreyer professor of political science at the university of miami and editor of taiwan in the era of cying win a warm welcome to you all june park let me start with you today what is causing this shortage and why is the situation currently so dire the pandemic that has begun at the end of 2019 has basically altered uh the business planning cycles for many of the industries that we see in connection with the chip shortage and the most vulnerable sector in this chip shortage crisis was the automotive sector the automobile sector because usually when the chips orders are sent in the the primary uh consideration was given to other products such as the mobile mobile phones or computers or any other equipment that we have used in order to get connected during the pandemic so that's why we have the shortage at the moment june toefl drier let me ask you what is the overall impact of all of this i'm talking about the impact on businesses and also on consumers and just folks who want to get you know the latest smartphones well we may have to wait for a long time and i know my grandsons are at the age where they think they will die if they don't have the latest in the electronic equipment and they're just going to have to get on a waiting list but uh if i may add something and by the way i've never been on a program before with another june so uh pleased to sort of meet you uh the the a lot of things are being blamed on the pandemic and in truth it did disrupt an awful lot of things but i have to go with uh mark leo who is the tsmc chairman the day the guy who runs the day-to-day operations because maurice chang the founder although a very very alert and hail and hearty 89 year old has withdrawn a bit and he said something interesting and he said that it was only partially due to the pandemic and but it was also due to manufacturers stockpiling chips and that you have to distinguish between real demand and stockpiling for inventory and he thinks a lot of this is because of stockpiling for inventory jim let me ask you from your point of view how long is it going to take for production to catch up with demand there are some who suggest that this could take at the very least two years does that timeline sound about right to you or do you think it could be even longer yeah i think 18 to 24 months is a good estimate but as june said june toy for dryer you know there could very well be some stockpiling here supply chains are increasingly interconnected around the world you know who knows what individual companies are stockpiling what i suspect supply and demand as prices rise you know that certainly changes the dynamics you know you may be willing to wait for a game console if the price goes up on it that that has an impact but certainly there there needs to be more capacity more supply and and 18 to 24 months i think is a good estimate for that june park the u.s china south korea they are giving incentives to try to ramp up local production how are those efforts going thus far and how long do you think that's going to take well as as far as the huawei ban is concerned it is ongoing at the moment and as much as the decoupling process continues in this regard china is going to keep on trying to build this self-sufficiency within its domestic environment south korea and taiwan are investing both in the u.s and in their homelands south korea has recently launched a k-belt cluster k-chip belt cluster which basically entails uh foreign companies such as dupont and asml participating but at the same time samsung electronics basically sk hynix memory chips and nand flash their focus is not just going to be on memory chips but also on system chips taiwan at the same time is going to invest heavily within taiwan while maintaining the leverage uh in the us by expanding production facilities so we'll have to see how this unfolds into 2023 and into the longer term maybe the next 10 years june toefl drier let me ask you um taiwan we know has almost 60 percent of the market when it comes to semiconductors um is there any possibility that we could see taiwan try to use this shortage of semiconductors as a political tool well taiwan is very very careful and the momentum recently and i would say in the last five years just because china has become so increasingly aggressive across the board we don't have time to get into it here i'm sure but united front work activities aimed at subverting the democratic process in a number of countries and expansionist activities in the south china sea in the east china sea and they have really uh ramped up a a an anti-china coalition which is still nascent and but this has benefited taiwan since uh people now see instead of china saying we deserve taiwan it's ours or it ought to be ours they're seeing a very aggressive china and they're therefore becoming much more sympathetic to taiwan so in a way taiwan doesn't have to use this is a political tool it's already got it and you hear people in the publications saying if china were to invade taiwan which it keeps threatening to do and is certainly making gestures in that direction that would destroy taiwan semiconductors manufacturing corporation and china would be the big loser as well so in a way taiwan is in a in a good position in that sense and it doesn't have to be overtly look at what we've got and what you'll lose because i think most of the world is already aware of what would be lost jim are there any viable or concrete short-term solutions that could help with this shortage not to producing more chips other than you know making sure your capacities are your factories are at capacity if you can do overtime shifts those kinds of things so i'm sure uh those things are already being done as they try to boost production but in terms of building new plans you know it's going to take you 18 to 24 months it's a notoriously capital intensive build business you know there are thousands of steps involved and there's a significant amount of expertise and proprietary knowledge involved in developing these chips which is how you end up with such a dominant company they just did it better than others and you ended up with a dominant market position so i i think probably the bigger issue will be the supply and demand as prices rise that will tend to reallocate chips uh not entirely because you do have some stockpiling but that will tend to reallocate chips to the highest value uses and you you may very well just end up waiting more for game consoles or phone upgrades or those kinds of things which is not a not a trivial issue it has an economic impact but certainly doesn't seem to at least as currently structure rise to a national security issue june park i saw you nodding along to some of what jim was saying there did you want to jump in and expand expand on the point that he was making well some of the dynamics between south korea and japan have not been resolved and i think uh in connection with what jim was mentioning the the export curbs that began two years ago by japan on some of the crucial components of semiconductor production against south korea really reveals that the u.s and japan are hoping to benefit from this decoupling process and there is a geopolitical dynamic in this because either you belong in this supply chain or you don't so that will accelerate the geopolitical divide into the coming years and the export curves are not ended the the huawei ban is still in place we'll have to see not just the economic um dimensions of this but the geopolitical dimensions as well june toefl dreyer of course june park there was talking about the acceleration of the geopolitical divide and that leads me to something i wanted to ask you which is could this race to make up for the shortfall ignite political tensions i'm not sure uh because the chinese government of course is the is the reason for most of these political tensions things were going fine until the chinese began this to use computer chips and rare earths and all kinds of things as economic weapons so i think they're they they did you know political tensions are are already there and i i don't think they're going to get any worse because of this but you know taiwan has the money maurice chang and is uh i don't know who's the richest person in the world but he's certainly up there not him personally but his corporation does have the money and taiwan does have the talent i remember when i was in college the top of the class at mit was always uh taiwanese there are half a dozen taiwanese in in the top ten and they've still got the talent they've got the money and they've got the geopolitical impetus you know if we don't stay ahead on this we could be obliterated so i think the geopolitical cards are still in play and they're not going to get any worse but on the other hand they're not going to get any better jim if we're talking about you know the geopolitical cards in play right now um from your perspective how is this race playing out between countries for technological supremacy for technological independence especially when it comes to semiconductors yeah this is just one piece on the chess board if you will and and it's an important piece i mean technology has become such an important part of our lives uh and in many ways economic security is national security but the thing i can't help but but think is wow two years to sort of correct an imbalance in uh supply of chips it's an incredibly short time as it relates to geopolitics we're talking about things that unfold over decades as it relates to say the u.s china relationship and i think there is bound to be an oversupply say 24 months down the road you know when you end up with a shortage of things and everybody rushes in especially if there's a lot of government money at stake um to correct a supply imbalance what happens it whipsaws to the other side and people who study supply chains for a living have a saying for this is called the bull whip effect which means you know you you over correct the other way so i have a sneaking suspicion that 24 months from now we'll be having a conversation about a massive oversupply of semiconductors and and depressed prices and the problems that result from that so how that plays out geopolitically you know we'll have to see it especially as it relates to china but you know it's it's a pretty short-term issue as it relates to the geopolitics june park you know when it comes to making more chips and and countries ramping up production i mean the reality really is that you know it is still going to take time but even when it does happen when orders are placed it could still take several more months uh for those all to be delivered right that's correct and say for example when samsung decides to build a factory with the 17 billion dollar pledge that it made during the usrk summit in may or when taiwan finally expands uh the the foundries within the united states they have pledged six six different places including arizona when these foundries have been completed uh it would take time until the completion but when they are completed you would imagine a different scale of production within the united states with with the huawei ban or not we we are expecting to see a huge huge uh production amount uh coming from the united states plus with the innovation drive that the u.s is pledging for itself i think there would be a huge change a significant change upon the landscape of semiconductor industry then what would be interesting to see is how europe uh responds to this the the contactless economy will accelerate even during it or post pandemic uh during the post-pandemic periods um the the need uh the the demand for chips is not going away it it would only uh be expanded and the uh the digital economy will continue to expand as well june toefl drier in your previous answer you mentioned rare earth elements and i wanted to bring that up because you wrote a piece last year analyzing china's monopoly on rare earth elements so i wanted to ask you how does that play into all the semiconductor industry concerns over shortages going forward well it plays into china's uh whole of government and whole of society attack on problems and it's a very very well coordinated one no matter whether you are pro china or anti-china or just china uh you have to admit they have played their hand brilliantly now uh rare earths are not a major component of semiconductor chips they are mostly silicon hence silicon valley and germanium which is not a rare earth so uh but the same kinds of techniques are are seen when china decides to do something it decides to do it in a very coordinated way and this is certainly a very coordinated way and the problem with democracies in general and this is a bigger problem for the eu because they've got so many democracies with different interests is coordination i have been told that a foundry costs between 10 billion and 12 billion dollars to make just depending on what you want what kind of chip you want to produce and that after you make it it's going to take at least five years to become profitable so in other words government support is necessary now china has the type of government that is willing to support that joe biden says he's willing to support that it's harder obviously because of the way our economy is structured with a lot of private uh input and in the case of the eu really really hard because even though the french and the germans and the british which of course aren't in the eu anymore pretend to be very friendly uh the national rivalries are still there june park i saw you reacting to some of what june toefl dreyer was saying so i wanted to get your reaction but i also wanted to ask you about you know is there a lot of worry is there a lot of concern that china's hold on rare earth elements sector is so strong that it could be used against everyone else uh for the rare earth elements uh i would think that um there have been previous cases in the wto for china because china withheld them when there was a a clash between japan and china over the senkaku islands and that kind of precedence leads me to believe that in subsequent years when the global supply chains are much more politicized than now there is a high possibility that currently the the 100-day supply chain review does list rare earths as one of the elements of the u.s is is very much going to be fixated on into the coming years but it's not really exercised as a ban at the moment uh as in the form of say a huawei ban so we would likely see some kind of a policy mechanism to sort of uh secure some of the rare earth elements especially coming from africa because china already possesses a huge huge sum of uh the rare earths that is discoverable in africa so there may be infighting amongst countries that would be in in need of the rare earths jim this dependency on taiwan when it comes to semiconductors how worrying is that to western countries i think it's really worrying i mean when you talk about semiconductors and and technology in general um you know having that kind of dependency especially in a place where china clearly has ambitions you know i think that elevates the concern again you know from a geopolitical perspective as we were talking about before you know i think you think in terms of decades not one or two years but it's just illustrative of the kinds of dynamics they can play out and the importance of these these technology issues especially in a sector where you're talking about 10 to 12 billion dollars i mean that's a government level investment it's very difficult for private companies to make ten to twelve billion dollar investments with a five-year payback as june was talking about without some sort of form of government subsidy and and as she very well stated i mean in a democracy it's very hard to do that compared to a more authoritarian state so i think there's a pretty high degree of concern in general about this kind of dependency again i'm not sure the acute concern is there i've not heard anybody talking about we're not going to be able to be able to get the kind of military hardware we need or there's going to be a giant economic impact it's more it's going to take you longer to get your cell phone it's going to take you longer to get your playstation which is a is a concern but it's more about where it could go than where it is today june toefl dryer in terms of competition how far ahead are the taiwanese several years and making steady progress they're not sitting on their laurels at all and they've got some amazing talent they've got a very efficient educational system and you don't have to persuade you know it's not like the united states where we almost have to bribe students into stem pro stem study programs they've got they're eager and and willing and uh so i think they are they understand critically that this is important to their future as an independent sovereign state so i think they are going to be able to maintain that momentum now there have been problems a taiwan company micron some unemployed there was found guilty of uh selling secrets to china these these uh high-tech uh silicon chip secrets to china so it's not perfect but they've got the momentum and they've got the will to stay ahead so i think they probably will june park aside from everything else we've discussed during the program today i want to talk to you for a moment about specifically the covet 19 outbreak in taiwan did that further disrupt the semiconductor industry and how much concern is there that that could really make things much worse at least in the short term uh i think within taiwan there may be increased cases compared to the previous months that taiwan has experienced but taiwan has had quite a model modeled sort of a good example case of the covet 19 pandemic recovery process and i think that with vaccination provided by the united states taiwan received moderna vaccines and within several months i think taiwan would be able to recover from its current phase and possibly into a more rapid pace into recovery all right we have run out of times we're going to have to leave the conversation there thank you so much to all of our guests june park jim anderson and june toefl dreyer and thank you two for watching you can see this and all of our previous programs again anytime by visiting our website aljazeera.com and for further discussion go to our facebook page that's facebook.com forward slash aj inside story you can also join the conversation on twitter our handle is at aj inside story from me mohammed jim joel in the whole team here bye for now [Music] you

Channel: Al Jazeera English

Views: 66,268

Keywords: Aljazeera, Inside Story, Japan, Jim Anderson, June Park, June Teufel Dreyer, United States, Workers, al jazeera, al jazeera english, aljazeera english, aljazeera live, aljazeera news, aljazeera.com, chips, electronic item, electronics, industry, joe biden, low, nocms, political tensions, president, prime minister, semiconductor, semiconductors, short, taiwan, tsmc, us, yoshihide suga, latest news

Id: A0Z8dIcewaU

Length: 24min 55sec (1495 seconds)

Published: Fri Jun 25 2021