September 25, 2022

Hardwood Paroxysm

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Now the EU, China and the US are working on their own – Corriere.it

The issue of chips has become central not only to the economy but also to the world’s new strategic assets after Russia’s aggression against Ukraine. Semiconductor shortages existed before and were characterized by insufficient supply to meet the exponentially increasing demand. To create this imbalance – Astrid’s president, Franco Passanini, wrote in the preface to the volume edited by Antonio Perucci at an association symposium – there were factors such as post-pandemic recovery, strong worldwide, structural factors, primarily and the reckless advances of digital technology in many sectors Productivity and social life. Let’s just think about the boom in video calling, video streaming and working from home during the pandemic. Not to mention the impact that chip shortages have had on the growing digital car industry. Digital is spreading more with the transition from the heat engine to the electric motor. It will grow as the number of processors and servers needed to manage private and public administration data increases.

The role of Ukraine and alternative solutions

In short, digital transformation (like a green one that requires new technology to reduce carbon dioxide emissions) requires an ever-higher density of microchips than ever before. The Russian war on Ukraine brought to life the pre-existing deficiency. Example. Neon gas (such as xenon and krypton) plays an important role in the production process of semiconductors. Until February, the beginning of the conflict, Ukraine was a world leader in the production of this gas with the companies Cryoin and Ingas; It was (has?) the main flora of the Odessa region. To counter the semiconductor supply crunch (which lengthens delivery times for new cars), governments and companies have made huge investments. A few days ago, the news came that the US Senate had approved the bill called “CHIPS” with a bipartisan vote, which would allocate $280 billion to American scientific research and to companies that produce semiconductors in the United States. Added to this is a second joint program with Japan to relaunch research on more advanced chips, which measure one nanometer (one nanometer over a billionth of a meter). To be clear, Europe currently makes 40 nm, and Tesla uses seven samples.

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Investments in Europe and Asian hegemony

But the private investment plans are also impressive: In Europe alone, US Intel will spend $80 billion over the next ten years (It is hoped that Italy will also benefit from it, whose credibility, which it has gained with the Draghi administration, has put it in good stead.) Taiwanese giant Tsmc plans to invest $100 billion over the next five years, part of it on the Old Continent. Almost the same size of the South Korean Samsung’s commitment. Attention, however. Not all countries and companies do the same things. The chip production system, as Gordon A. Mensah and Valerio Francola in their speech at the Astrid Symposium – it has hitherto been based on an international division of labor: the United States is involved in research and product design; Taiwan was dominant, with Tsmc, in manufacturing, followed closely by South Korea with Samsung; Finally, China, a strong collector and owner of 60% of the planet’s rare earths. The state of China, rich in natural resources, depends on Western production: it imports $300 billion of chips every year from abroad.

From interdependence to independence

So far, in short, we have a high degree of interdependence between countries, international division of labor, and cooperative globalization. But due to heightened international tensions, the winds have changed. Countries are looking for broader industrial autonomy: something that does not always have a clear economic meaning but has a clear strategic objective. It shows the logic of the blocks, the division between friendly countries and hostile countries. America wants to be more independent and so do Europe and China. Hence the need for strong investments in the public and private sectors. Beijing aims to raise domestic chip production from 10% to 70% by 2025, but few think it will. Most realistic is the EU chip law – which holds leadership positions in some sectors and blue-chip companies such as StMicroelectronics – which aims to double the global market share from 10% to 20%. By developing miniaturization of semiconductors, where we are in a lagging position.

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But Europe has a problem, too. The usual: avoid competition between member states and build a genuine European policy that can play the game of the greats. There has been a big change in the world of chips. Crucial not only to the invisible spread of technology. But also of the strategic importance that pushes countries and blocs of countries to rethink globalization on new and less friendly grounds. This transition from interdependence to independence, and from cooperation to confrontation, will require time and resources. Reshaping global chain links will not be easy and costly. Even if it’s cold (and hopefully stays that way), the war will still be.