The US and UK have announced their plans to become independent from other nations for the latest semiconductor devices, and the EU has just announced its plans to do the same. Why is chip sovereignty so important, what was said at the European Commission, and how could the industry change going forward.

Why is chip sovereignty so important?

The COVID-19 pandemic that started almost 2 years ago has done significant damage to the world socially, politically, and financially. Of all events, the global microchip shortage has been the most talked about and has mass product delays throughout many markets. Components have waiting times well into 2022, and technological advancements reliant on semiconductor foundries are being delayed.

But the global chip shortage has also brought to light some uneasy facts about the semiconductor industry that is now seeing countries around the world rushing to gain semiconductor sovereignty. One of these facts is that modern society has become dependent on semiconductor technology to the point where it simply cannot function without placing it into essentials such as water and food.

The second uneasy fact is that a country with access to semiconductor foundries and high-end fabrication abilities can produce defensive electronics (such as those used in the military). As such, a country that cannot access such electronics cannot keep its military up to date.

However, the single scariest fact regarding semiconductors is that most of the world’s advanced electronics are produced in a handful of sites, mainly in Taiwan. Taiwan is a close ally of the west, but an attack from China would threaten the world supply of semiconductors. Of course, there are sites in the US that can produce high-end devices, but China is the largest exporter of semiconductor products, which puts the west at a severe disadvantage.

Therefore, a country that can become chip sovereign can withstand any external force that may affect the global semiconductor industry.

European Commission announces plans for chip sovereignty

Recently, the European Commission announced that it is in the process of planning a new semiconductor industry ecosystem that would see Europe become more independent on semiconductor supplies. Like the CHIPS act in the United States, the equivalent act in Europe would help fund new projects while ensuring that high-tech chip supplies can be protected and controlled.

However, trying to bring such an act to life would present Europe with multiple challenges. The first is that semiconductor plants are not cheap and certainly not something that can be government-owned, meaning that business incentives will be needed. The other challenge is that materials needed to manufacture semiconductors are often exotic and only found in a handful of places worldwide, including China, DRC, and Russia.

How will the industry change moving forward?

Chip sovereignty will help nations defend their semiconductor supplies, but it may also help to bring manufacturing back home.

Manufacturing goods abroad is always done due to lower manufacturing costs which almost always result from lower labour charges (raw material costs tend to be location insensitive). While this may help businesses grow in the west, it does so at the cost of living conditions for others worldwide, making foreign-produced products ethically problematic. It can be argued that outsourcing manufacturing can help bring other nations out of poverty, but this follows the motto “the end justifies the means”, leading to a slippery slope of ethics and morality.

Outsourcing manufacturing can also be problematic concerning intellectual property and security. For example, China is arguably the world’s largest manufacturers of goods. Still, high-end electronics destined to be used in sensitive applications (such as severs and datacenters) have been found to contain backdoor chips that allow remote access from Chinese servers. As such, hardware manufactured in foreign nations cannot be trusted in the same way, locally manufactured products can be. That is not to say that locally produced products are inherently safe, but their supply chains are easier to control and monitor.

Overall, manufacturing high-end tech locally is arguably the sanest option for any nation. It can provide high-paying jobs, protect semiconductor supplies, and encourage local manufacturing while defending a nation against foreign interference.