Domestic Production Not the Way to Secure UK Semiconductor Supply Chain: Experts

A closeup of a silicon wafer on display at Taiwan Semiconductor Research Institution in Hsinchu, Taiwan, on Sept. 16, 2022 . (Annabelle Chih/Getty Images)

While the UK government is urged to help future-proof the country’s semiconductor supply chain, there is little point to invest in the domestic production of silicon chips, experts said.

Matthew Lesh, head of public policy at the Institute of Economic Affairs, a free-market think tank, said the UK lacks a competitive advantage in semiconductor production, and that semiconductor autarky is too costly and neither realistic nor desirable as a way to bolster the UK’s supply chain.

Simon Thomas, CEO of graphene chip maker Paragraf, believes the UK has missed the boat to invest in silicon chips, but still has an opportunity to get ahead in more cutting-edge technologies.

Semiconductor Arms Race

Semiconductors, commonly known as microchips, are essential components of all things modern from cattle tags, smartphones, and cars, to medical equipment, power stations, and weapon systems.

While the technology was born in the United States, the vast majority of advanced semiconductors today are produced in Asia, with Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung leading the charge.

Concerns over semiconductor supply chain security were brought to the fore after a global shortage during the COVID-19 pandemic hit many industries including the automotive sector.

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) logo brands the headquarters in Hsinchu, Taiwan, on Oct. 20, 2021. (Chiang Ying-ying/AP Photo)

While countries are already making plans to reshore semiconductor production to resist future disruptions, geopolitical tensions—particularly anxieties over a potential Chinese invasion of Taiwan and Beijing’s ambition of technological dominance—are also accelerating the process.

The U.S. government last year approved a $280 billion funding package to boost its domestic capabilities including research and production, with the European Union set to follow.

The UK government has also commissioned a £900,000 study to understand how to help grow the sector and vowed to publish a national strategy.

But Lesh said the UK shouldn’t jump on the bandwagon of subsidising domestic production.

Presuming autarky is achievable, it’s “not particularly good for security,” he told The Epoch Times, arguing it’s better to diversify the supply chains rather than putting all eggs in one basket.

No Country Is Semiconductor Independent

The making and application of chips is a tremendously costly, energy-intensive, and complex process that involves mining and producing specialized materials and chemicals, manipulating the materials at the atomic level with expensive machinery, designing the equipment and the chips, packaging and testing the products, and integrating them into electronic devices.

Therefore it’s quite unrealistic to have the whole supply chain in the UK, or in any other country.

“Effectively nothing these days is entirely domestically produced, and semiconductors are a feature of that,” Lesh said, calling modern semiconductors a “miracle of globalization.”

Thomas said that he believes no country in the world currently has a complete end-to-end supply chain for semiconductors.

The logo of Samsung Electronics is seen at its office building in Seoul, South Korea, on March 23, 2018. (Kim Hong-Ji/Reuters)

Although South Korea and Taiwan may be “pretty close” to having it, they “probably buy some stuff from China, they probably buy some stuff from Taiwan or Malaysia,” he said.

Slowing Demand?

Lesh argued that there may be a surplus in supplies in the future following the increased investments in the United States and the EU, and that the UK should buy semiconductors from them instead of spending billions more on boosting its own domestic production.

Commenting on the U.S. investment, he said while it may be necessary from political or military perspectives, “whether or not it’s really economically justified is less clear.”

“If there was a war between Taiwan and China tomorrow, there would almost certainly be further shortages,” Lesh said. “Putting that particular scenario aside, it seems likely that ... there will be a global glut of semiconductors.”

But Thomas outlined a more complicated picture. He told The Epoch Times that while the production of simpler chips have more than recovered from the COVID-19 pandemic, industries that need more advanced chips are still having trouble getting enough supplies.

“I think the investment [in the United States and the EU] is definitely needed,” he said, adding that there is the possibility that they will end up investing too much.

UK Can’t Compete With Bigger Players

Around 80 percent of the chips are made from silicon while other materials that can make smaller and faster chips are expected to eventually replace silicon.

Because of the complexity and risks involved in the semiconductor industry, including the astronomical initial investment required, it’s not realistic for the UK to invest in the domestic production of chips, the experts said.

Using Taiwan Semiconductor Manufacturing Company (TSMC) as an example, Thomas said Taiwan has a “very very unique” ecosystem for semiconductor production after decades of focusing on government policy, education, infrastructure, supply chain building, and international trade.

The UK does play a leading role in the research and development of compound and advanced material semiconductors, it also has a number of semiconductor clusters that specialise in niche products, but it lacks a full ecosystem that would enable the UK to replicate Taiwan’s success.

“We can’t invest in the technologies that we have today, and by that I mean silicon chips,” Thomas said, adding that the UK can’t make it profitable in an already oversaturated market.

“But what the UK is really good at is innovation and some of the best new semiconductor technologies are being invented here. So there’s an opportunity to grow the future of semiconductors in the UK before anybody else does it, and that doesn’t take as much money,” he said.