The car industry has been one of the worst-hit by the shortage of microchips, which was only partially caused by the disruption of COVID. The turmoil in the global supply chain was also affected by the Fukushima earthquake and nuclear accident, the US-China trade conflicts and the logistics bottlenecks faced by shipping companies moving goods around the world.
Semiconductors are elements in all consumer electronics, ranging from children’s gadgets to washing machines and smart phones. But they are also crucial components for artificial intelligence applications, quantum computing, military security and the ‘internet of things’. This is not good news for the digitalisation of the economy that most countries are considering as the critical goal to improve their efficiency.
The Association of Car Importers warned prospective car buyers they may have to wait for some months to have their car delivered as the global automobile industry struggles to procure enough microchips, used to control everything from parking sensors to airbags. As we reported this week, this is having a knock-on effect on used car markets too, raising second-hand vehicle prices.
When consumer demand for cars plummeted early last year, as the pandemic was deeply disrupting people’s lives, car makers sacked workers, leaving semiconductor suppliers with too much inventory that they could not sell. Disgruntled chip suppliers focused on sectors needing more semiconductors to meet surging demand from housebound consumers and remote workers, including computers and electronic gaming consoles.
Now, car manufacturers are questioning the wisdom of their ‘just in time’ supply chain strategies that underpin the industry. For too long, companies focused their operations with only cost in mind. Supply chain experts now recommend that companies design their supply chain around risk competitiveness rather than cost alone. The risks that global economies face in the longer term are even more daunting. The political response to the vulnerabilities of the global supply chain exposed by COVID is beginning to look flawed.
European Commission president Ursula von der Leyen is pushing to enact a European Chips Act. The US bipartisan Chips for America Act envisages billions of dollars being poured into microchip manufacturing and research investment. China is still heavily dependent on US technology and is spending heavily to catch up and overcome the obstacles created by US export controls.
The chip shortage is not the result of a deep crisis in globalisation. The solution, therefore, is not one that aims for self-sufficiency where the EU and the US would invest heavily in manufacturing facilities. Von der Leyen needs to rethink the objective of promoting semiconductor manufacturing in Europe as a matter of “competitiveness and technological sovereignty”.
In the last three decades, globalisation has lifted more than a billion people out of extreme poverty. Blaming globalisation for all the wrong political strategies will only delay the needed economic recoveries after the pandemic.
Focusing on optimising local specialisation, spread across the world, helps create better products than is possible in any one place. If the EU and the US want to make their economies more productive through digitalisation, they need to focus on directing technology investment where it can give the best results. The best chip equipment comes from Holland. The strongest chip designs are from the US. The best foundries are in Taiwan.
Europe needs to invest in building up parts of the supply chain that it already excels in, including research and development and specialist manufacturing. Mutual global dependencies, if well managed, will accelerate global economic growth.