Joe Biden is putting semiconductors high on the US agenda
Credit: REUTERS/Jonathan Ernst
Car and electronics factories are normally busy places. The constant whirr of robotic arms is joined by the shouts of busy employees, forming an often deafening soundtrack.
But in recent months, many of these factories have been silent. An imbalance in the global supply of semiconductors and rare-earth minerals has reached a crisis point, leading to a global semiconductor shortage.
Honda was forced to shut the doors of five factories in the US as well as its Swindon plant in the UK. Ford, Toyota, VW, General Motors, Fiat Chrysler and Nissan have all either shut factories temporarily or announced supply problems. General Motors has warned that the issues could cause a $2bn (£1.4bn) cut to its revenues.
For Joe Biden, keen to see economic revival in his first 100 days in office as US president, the closure of the US factories has been a troubling reminder that his nation is overwhelmingly reliant on China, its largest international rival, for the supplies needed to keep US manufacturing running.
The Honda plant in Swindon was temporarily closed due to a semiconductor shortage
Credit: Bloomberg
China produces more than 90pc of the planet’s rare-earth metals, crucial materials used in the creation of battery alloys, liquid crystal displays, hybrid cars and LEDs.
The country is also building up a stranglehold on the production of semiconductors, the vital chips used in electronics. The value of semiconductors made in China has risen 3.9 times since 2010, according to IC Insights. At the same time, the US share of chip manufacturing globally has slumped to 12pc from 37pc in 1990.
Without a strong domestic supply chain, the US could have regular factory shutdowns if further semiconductor or rare-earth metals shortages occur. The US now faces a scramble to build its own supply chains reliant on friendly countries, eliminating the chance of future shortages.
“This is a decade-long process. It can’t just happen overnight,” says Simon Moores, the managing director of Benchmark Mineral Intelligence, a price reporting business for the electric vehicle industry. “But it does need to happen, a balance needs to be struck.”
A battle is ensuing between the US and China over the global supply of semiconductors and the materials needed to produce them
Credit: LINTAO ZHANG/POOL/AFP via Getty Images
The starting gun on that process was fired last month when Biden announced an executive order to secure the supply chains of crucial industries.
"In some cases, building resilience will mean increasing our production of certain types of elements here at home,” Biden said as he announced the executive order, “in others it will mean working more closely with our trusted friends and partners, nations that share our values so that our supply chains can’t be used against us as leverage.”
China using its dominance over supply chains as leverage may sound like the plot of a Tom Clancy novel, but it has happened before. The country cut off supplies of rare-earth elements to Japan for two months in 2010 as part of a political row.
Has the US left it too late to attempt to wean itself off supply chains dominated by China? Experts say it’s possible — but it’s going to be costly.
Mountain Pass Mine in San Bernardino County, California. The only producer of rare earth minerals in the United States.
Credit: JHL Capital Group LLC. via AP
“Thankfully some US allies like Australia already have vast reserves of rare earth metals,” says Abishur Prakash from the Center for Innovating the Future. “The challenge is going to be the speed that the US can shift away because the global supply chain has taken decades not just to build but also to perfect.”
Supply chain experts believe the future of the US supply chain will see the creation of a network of friendly nations that could follow a similar shape to the “Five Eyes” intelligence-sharing network of the US, UK, Canada, Australia and New Zealand.
“I don’t think the US can now do this alone. I think that the US has to collaborate with Europe and other nations that are more neutral. That could enable US-based companies to mitigate risk,” says Mario Morales, an analyst at IDC who covers the semiconductor industry.
The US’ global alliance of friendly nations could give it access to rare-earth minerals that could help it to reduce its reliance on Chinese supplies. In 2018, a large trove of rare-earth minerals was discovered off the coast of Japan. It’s enough to supply the world on a “semi-infinite basis,” researchers said.
Taiwan may become an increasingly major supplier of semiconductors to the US. The country’s chipmakers hope to increase production in an attempt to overcome the chip shortage that shut car plants across the US.
But continued Chinese pressure on the region risks seeing Taiwan become a major political flashpoint if US economics interests become centered there.
Taiwan could become an even larger political issue if more of the world's chip supplies are concentrated there
Credit: AFP
Another difficulty for the US will be in making it cheap enough to justify switching over from decades of Chinese supplies to these new sources. And then there’s the complex matter of building crucial refinement capabilities outside of China that are needed to process the materials.
“The West lost that industrial heartland,” Moore says, “they don’t have these skills and know-how and they need to rebuild that.” In a US Senate committee appearance last year, he likened the task ahead of the US to Franklin D. Roosevelt’s 1933 New Deal programme.
“When was the last time the US built a heavy industry from scratch? This is the scale of the thing that has to be achieved now,” he says.
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