Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

Global Chip Shortage and Related Issues


From UPSC perspective, the following things are important :

Prelims level: NA

Mains level: Semiconductor industry

CEOs of AMD, Nvidia and Intel have said at different forums last year that the chip situation will remain tight for the rest of 2022.

Genesis of shortage

  • After reaching its peak in 2011, the laptop market growth slowed down with the rise of alternatives such as smartphones and tablets.
  • Then, the pandemic hit.
  • People switched to work from home, children connected to schools through laptops, and get-togethers happened over video calls.
  • This shift led to a surge in demand for laptops and tablets.
  • The stay-at-home rules also made several people pick up console-based learning and gaming.
  • Each of these devices were in high demand and are run on thumbnail-sized semiconductors, performing various functions on a single device.

Also read:

[Sansad TV] Perspective: Semiconductor Industry & India

What led to the production anomaly?

  • Manufacturers produce them as 200mm or 300mm wafers. These are further split into lots of tiny chips.
  • While the larger wafers are expensive and mostly used for advanced equipment, the devices that were in high demand needed smaller diameter wafers.
  • But the manufacturing equipment needed to make them were in short supply even before the pandemic began.
  • Industry is moving in the direction of 5G and advanced communication, which requires expensive wafers.
  • High consumer demand for low-end products, coupled with large orders from tech firms chocked chip makers whose factories were also closed during lockdowns.
  • As the industry gradually tried to pull itself out of the supply crunch, and logistical complexities have exacerbated the problem.

Impact of Ukrainian War

  • Separately, Russia’s invasion of Ukraine has strained exports of essential commodities used to make chip sets.
  • Moscow supplies rare materials like palladium, and Kyiv sells rare gases to make semiconductor fab lasers.
  • This combination is required to build chipsets that power a range of devices, from automobiles to smartphones.

Global supply chain

  • About a decade and half back, semiconductors barely drew attention from large companies that have now come to rely on the thumbnail-sized semiconductor piece.
  • During this period, firms developed a system to make chip sets.
  • The system was made by interconnecting several parts of the world to make a single device.
  • It is what we now call as the global supply chain.

How intricate is this network?

  • Semiconductor manufacturing involves roughly 25 countries in the direct supply chain, and 23 countries in allied functions, according to a joint study by Global Semiconductor Alliance and Accenture.
  • The report estimates a semiconductor-based product could cross international borders about 70 times before finally making it to the end customer.
  • Wafer fabrication is the most globally dispersed, with 39 countries directly involved in the supply chain and 34 involved in allied activity.
  • They provide services like photolithography, etching and cleaning.
  • Designing happens across 12 countries; product testing and manufacturing each are done across 25 countries.

COVID is the only raison d’être

  • Supply chain dynamics back fired due to the pandemic, and the recent geopolitical events.
  • When the pandemic began, carmakers stopped requesting chips from suppliers due to low demand for new vehicles.
  • And now, as they ramp up production to meet consumer demand, chip makers are down on supply because they have cut deals with other industries.
  • As the geopolitical events in Central Europe and production shutdowns in China continue to add pressure to the already complicated semiconductor supply chain.


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