Will a global conflict brew over semiconductor shortages?

Last week, we discussed the nature of global conflicts, and we will get back to another insidious conflict, which is influencing the nature of relations between countries but also generating negative economic impacts. The unseen part of the China-US dispute lies mainly in the existence of world-scale electronic chip manufacturing in Taiwan, which was founded with US tech and financial contributions.

According to the Wall Street Journal, these foundries, along with other factories in Taiwan, produces 70 per cent of the world’s supplies of semiconductors and microelectronic chips. Additionally, Taiwan is situated along one of the busiest commercial routes in the world.

We will concentrate more on the manufacturing of chips, which is of extraordinary economic significance for the tech sector, including those that rely on AI. Any interruption may influence the supply of these chips - such as a conflict between China, Taiwan, and the US – and which will paralyze industries worldwide, including the manufacture of aircraft and vehicles, smartphones and computers, and defense equipment.

Acutely aware of strategic stake

In fact, the pandemic produced a major scarcity in chips, which led to a drop in output in the sectors we mentioned, and a sharp increase in the cost of automobiles and other electronic equipment. Therefore, China and the US realize the importance of Taiwan, not only to American industries, but also to global industries in general, which means it is strategically crucial for the US. While the US will not be directly involved in the Ukrainian war, in a possible conflict over Taiwan, it could be ready to protect its interests directly.

This raises the question: how did the imbalance in US investments develop, giving Taiwan such a significant role in the semiconductor sector? In fact, this is what several members of US Congress were alluding to when they attacked the decision to build a sizable facility in Taiwan rather than the US. In reality, the US’s desire to maximize profits is what brought it to Taiwan and take advantage of the country’s cheaper labor.

President Biden’s administration is attempting to correct such historic faults, or at least some of them, in light of the harsh criticism it has received from members of Congress. A recent order from the US president allocating $52 billion to boost chip manufacturing was signed. The US proposals, on the other hand, were opposed by China, which said that they “violated the rules of the fair market and targeted Beijing’s aspirations to create a semiconductor sector”.

This does, in fact, highlights the intricacy of the present Taiwan-centered US-China conflict. In addition to Taiwan, nations like South Korea, which just announced a program to expand this crucial industry to produce these chips, albeit in smaller quantities.

A chance for Gulf economies?

The Korean government wants to attract investments worth $272 billion to the semiconductor industry in the next five years. As a result, Washington went one step further and convened a conference of microchip producers in an effort to establish a new conglomerate that would be controlled by the US to dominate high-tech sectors.

This means that all parties are fully aware of the critical importance of the chip industry, without which it would be difficult to manufacture most gadgets and all forms of transportation, power stations, smart phones, and computers that run and manage life.

Therefore, it is necessary to pay extra attention to producing and localizing the production of such chips to reduce dependence on imports. However, this entails high technical expertise that can be brought in and sizable investments, which are already available in the GCC. This paves the way for practical steps to be taken to transform the Gulf countries into one of the global players in the chip industry, the backbone of developing all economic activity.