The global chip shortage of 2020, caused by a confluence of factors such as the Covid-19 pandemic, data mining, drought, and procurement difficulties, has resulted in a situation where demand for semiconductor chips has far outstripped supply. This shortage has spurred governments and companies alike to seek ways to reduce their vulnerability to a manufacturing deficit should a similar situation arise in the future.

AI and Semiconductor Manufacturing

Beyond the need for chip production to keep pace with demand, governments around the world are eager to incentivize semiconductor manufacturing in order to strengthen national and regional artificial intelligence (AI) capabilities. These include natural language processing, speech recognition, recommendation systems, reinforcement learning, object detection, and image classification, all of which are crucial for the development of AI-powered products and models of national governance and security.

By increasing semiconductor manufacturing capabilities, governments hope to foster the development of AI hardware and software that will keep their countries on the cutting edge of technological innovation.

The Role of Governments in Incentivizing Manufacturing

Governments are offering a range of incentives to encourage semiconductor manufacturing companies to expand their operations or build new facilities. These incentives include tax breaks, investment subsidies, low-interest loans, and streamlined regulatory processes.

Taiwan, which is responsible for 55% of the world’s semiconductor chip production, is leading the way in government incentives for semiconductor manufacturing. The Taiwanese government has pledged $334 billion over the next decade to support the semiconductor industry, with a focus on developing advanced technologies such as 5G and AI.

Regional Rivalries and Geopolitics

The race to develop advanced semiconductor manufacturing capabilities has also created regional rivalries and geopolitical tensions. The US, the EU, South Korea, Japan, and China are all investing heavily in semiconductor manufacturing in order to reduce their dependence on Taiwan and each other.

In the US, the Biden administration has proposed $50 billion in funding for semiconductor manufacturing as part of its efforts to boost domestic chip production and reduce dependence on foreign suppliers. Meanwhile, China is aiming to become a global leader in AI and semiconductor manufacturing through its “Made in China 2025” plan, which includes a range of government incentives and subsidies.

As the global chip shortage has shown, the production of semiconductor chips is a vital component of modern technological infrastructure. Governments around the world are recognizing this fact and investing heavily in semiconductor manufacturing to ensure that their countries remain at the forefront of technological innovation.

Frequently Asked Questions

• What caused the global chip shortage in 2020?

  The global chip shortage in 2020 was caused by a combination of factors, including the Covid-19 pandemic, data mining, a Taiwanese drought, fabrication facility fire outbreaks, and neon procurement difficulties due to the Russia-Ukraine war, which led to a situation where demand for semiconductor chips exceeded supply.

• Which countries are the largest stakeholders in the semiconductor value chain?

  The largest stakeholders in the semiconductor value chain (excluding Taiwan) are the US, the EU, South Korea, Japan, and China.

• Why are national and regional government initiatives being put in place to incentivize semiconductor manufacturing companies to expand operations or build new facilities?

  National and regional government initiatives are being put in place to incentivize semiconductor manufacturing companies to expand operations or build new facilities because the manufacture of advanced semiconductor chips fuels national/regional AI capabilities, which are significant to the efficacy of certain products (such as autonomous vehicles and industrial robots) and to models of national governance and security. The development of AI hardware and software should be at the top of the agenda for any government body that wishes to be at the technological forefront.

• What are the significant capabilities of AI?

  The significant capabilities of AI include natural language processing, speech recognition, recommendation, reinforcement learning, object detection, and image classification, which are essential to the efficacy of certain products (such as autonomous vehicles and industrial robots) and to models of national governance and security.