The Tribune

ACTIVTRADES WEEKLY

By CHRIS ILLING

www.activtrades.bs

These are very small parts, sometimes no larger than a grain of rice, that are causing such great turbulence in the world economy. Semi-conductors, or chips, can be found in almost every device today - in hairdryers as well as in washing machines, in game consoles, cell phones, wind turbines and in cars. Everything is electronic, and with it come the many small circuits on silicon chips. An electric car, for example, needs significantly more semi-conductors than conventional vehicles, and today you cannot even open the car window without electronics. The average electric vehicle has about 2,000 chips, roughly twice as much as a non-electric one.

But semi-conductors are suddenly in short supply. The great chip crisis has become a major threat to the global economy. The economic upswing after the pandemic could be impaired, or even stalled, by the bottlenecks in the supply chain. Many economies are counting urgently on a recovery after the sharp decline in the pandemic. Many car manufacturers have already had to interrupt their production, the production lines have come to a standstill, and thousands of employees have nothing to do or were sent home. BMW (BMW.GE) has just warned that the situation is becoming more and more tense. The big German manufacturers will not produce many hundreds of thousands of vehicles that are in high demand presently. The former GM (General Motors) company, Opel, even fears that it will not be able to produce 1.4m cars this year because the important components are missing.

In August, Ford Motor Company (F.US) told customers that a lack of chips would put off delivery of its flagship EV, the Mustang Mach-E, for several weeks, and General Motors Company (GM.US) temporarily shut the Detroit factory where it makes the Bolt EV. In August, Rivian Automotive (RIVN.US), the electric truck-maker, cited semi-conductors as the reason for a delay, and its output remains very slow.

But who is to blame for the low output that threatens everyone? On the one hand, the trend towards digitizsation grew significantly during the pandemic and, for this, more chips of all kinds are needed everywhere. But at the outset of the pandemic, automobile manufacturers all over the world anticipated a fall in demand. So these companies decided to order fewer semi-conductor chips to cut their inventory expenses when production was shut down. At the same time, however, the large semi-conductor companies worldwide have production problems. The supply chain is still interrupted by shipping delays, and workers were locked down due to a sharp rise in infections. And a semi-conductor factory, with its expensive machines and extremely hygienic rooms which are cleaner than any operating room, cannot be built overnight. It takes a few years and requires billions of dollars to be invested.

There is no rapid improvement in sight. The situation could possibly worsen because a decrease in demand is not to be expected for the time being. Taiwan is one of the world’s largest chip suppliers, and new problems could arise in the medium term if the country becomes politically unstable - for example, if China tries to expand its influence.

For too long the industry has relied on something to be replenished. The dependence on Asia (China and Taiwan) for this key technology has grown steadily, which is fatal in times of trade disputes. Today, only around 10 percent of all semi-conductors worldwide are manufactured in Europe, but the European economy needs much more. Today, there is only one European company among the ten largest chip producers in the world: Infineon from Munich. Only 12 percent of chips sold worldwide were made in the US in 2019, down from 37 percent in 1990. For decades, that was not seen as a problem.

Now politicians have discovered the subject. The European Union (EU) Commission wants to promote chip production in Europe, which has been neglected for many years, and is promoting the establishment of new factories. But that is not enough. In the US, the Creating Helpful Incentives to Produce Semi-conductors (CHIPS) for America Act, or CHIPS for America Act in short, was passed by the Senate in June as part of a bigger bill but has not received a vote in the House of Representatives. A $52bn bill that would encourage domestic semi-conductor production and research. Everyone has to feel responsible for the microelectronics industry: governments, universities, companies. They all have to take care of training, research and development. The small chips are the future.