Europe eyes new ‘non-China’ supply chains as Taiwan tensions stoke semiconductor worries
- Analysts expect Europe to rework its semiconductor import routes so that chips flow through a Western-friendly network of countries and contract manufacturers
- European firms buy 80 to 95 per cent of manufactured chips from outside the European Union, especially Taiwan, making them vulnerable to disruptions
Europe is expected to push for the establishment of friendly semiconductor supply chains with the help of Taiwanese chip making giants as tensions between the self-ruled island and mainland China risk “choking” Asian supplies.
Europe lacks an indigenous chip making industry on the scale of Asia’s and relies on Taiwan’s integrated circuits and microchips to support key industries.
Companies like Netherlands-based Stellantis, for example, use the tiny hi-tech components for electric vehicles, while French aerospace firm Airbus needs them for aerospace technology.
A choking of the Asian chip supply chain could be catastrophic for Europe
Much of the world grappled with a chip shortage due to surging demand for electronic devices during the coronavirus pandemic. For Europe, the issue is resurfacing now due to new geopolitical tensions between the West and China.
Europe buys 80 to 95 per cent of its manufactured chips from outside the European Union (EU), almost all from Asia, according to British market research firm Strategy Analytics.
“A choking of the Asian chip supply chain could be catastrophic for Europe, in a worst-case scenario,” its executive director Neil Mawston said.
Analysts expect Europe to rework its semiconductor import routes so that chips flow through a Western-friendly network of countries and contract manufacturers.
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That could include Malaysia and Vietnam, said Brady Wang, an analyst with Counterpoint Research in Taipei. Malaysia has a growing machine and equipment manufacturing sector, while multinational tech firms such as Samsung Electronics and Taiwan-based Foxconn Technology manufacture in Vietnam.
“It’s best to avoid politics, to stop at geopolitics and go back to the past, but it seems like there’s no way,” said Wang, adding buyers were being forced to break down supply chains into “China and non-China”.
Taiwanese firms such as United Microelectronics (UMC) and Taiwan Semiconductor Manufacturing Co. (TSMC) will be asked to join Western-friendly supply routes, experts say.
UMC, which posted US$6 billion in revenue last year, said earlier this month it anticipates creating a “diversified manufacturing footprint” that will enable the company to better serve global customers by streamlining logistics.
TSMC is the world’s biggest contract chip maker with revenue of US$61.5 billion last year and capacity to produce some of the most advanced semiconductors available.
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In June, Chen Wenling, chief economist at the China Centre for International Economic Exchanges, was reported by local media to have advised Beijing to seize TSMC if Washington hits China with too many sanctions.
Amid the geopolitical tensions, Europe is taking steps to secure demand for semiconductors.
European chip buyers will eventually force manufacturers to set up dedicated, secured supply lines to wherever they sell, possibly through local partners, said Joanna Lei, a former lawmaker and chief executive of the Chunghua 21st Century think tank in Taiwan. Europe will be keeping an eye on the future Taiwan, as well as the Ukraine war, she said.
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Ukraine exports neon, a rare gas used in lasers to help design semiconductors, which is often a by-product of Russian steel manufacturing.
Russia’s invasion of Ukraine has sparked speculation that China may “take similar actions against Taiwan”, the European chamber’s position paper said, adding European firms were now making contingency plans.
Beijing sees self-ruled Taiwan as a breakaway province to be reunited with the mainland. Most countries, including the US, do not recognise Taiwan as an independent state. Washington, however, opposes any attempt to take the island by force.
“There will not be full decoupling from China, but alternative supply chain strategies are increasingly being discussed in boardrooms,” the chamber’s position paper said.
Taiwan and the world will be forced to have two supply chains
However, schemes to secure chip supplies through friendly cross-border networks would take years to set up, Lei said.
Furthermore, if they involve locking in a year or two’s worth of inventory, she added, buyers would risk losing out on any chip innovation over that time.
“Taiwan and the world will be forced to have two supply chains, one US centred and one China centred,” she said.
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Europe must eventually “de-risk” by establishing its own semiconductor manufacturing sector, Mawston said, but that might only begin taking off 10 years from now.
“Europe wants to become less dependent on foreign countries for the chips that power their homes, vehicles, gadgets, industry, and government,” Mawston said. “Chips are no longer just an economic good, they are also a political tool.”
