Front End I Electronic Components Supply Network
Could US Presidential report begin to end rampant globalisation...?
Commissioned by Joe Biden after his inauguration, the report that the US Department of Commerce (DoC) published in June revealed much to concern the new President: It examined threats from cyber-attack, climate shock, extreme weather events, terrorist attacks, pandemics and global competition. The section covering technology manufacture and innovation makes interesting reading for everyone involved with the electronic components supply network in the US and in Europe. Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn), reviews some of the report’s key findings and wonders if “rampant globalisation” is coming to an end?
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itled “Building Resilient Supply Chains, Revitalizing American Manufacturing and Fostering Broad Based Growth”, the report by the US Department of Commerce (DoC) investigates factors that could threaten the US’s manufacturing capability and the availability and integrity of critical goods, products and services. In the technological sector the report focused on supply chain issues in four important US industries: Semiconductor Manufacturing & Advanced Packaging; Large Capacity Batteries; Critical Minerals & Materials and Pharmaceuticals & Active Pharmaceutical Ingredients (APIs). The first three sections of the report reflect directly on global electronic components markets.
Semiconductor manufacturing and advanced packaging The US share of global semiconductor production has declined from 37 per cent to 12 per cent in just ten years and in the absence of a comprehensive governmental strategy is projected to decline even further. The DoC’s analysis acknowledges that Taiwan - responsible for over 92 per cent of leading-edge semiconductors - has a lead in global semiconductor production but notes that the country’s government provides generous subsidies to manufacturers for fabrication facilities, meeting 50 per cent of the cost of the land and 45 per cent of construction and infrastructure costs. In June 2021 the Senate approved the “US Innovation and Competition Act (USICA)” bill, which earmarks $52bn for investment in US-based semiconductor research, design and manufacturing, and $29bn for investment in applied sciences, but these measures must be approved by the House of
10 September 2021
Representatives before they can be signed into law.
Resilient supply networks For years the US private sector and public policy approach to domestic production has prioritised cost efficiency and return on investment over security, sustainability and resilience, which has resulted in entire industries being ‘hollowed out’, precipitating the threats to supply chains that the DoC investigation was looking for. The Department had earlier warned that “in the absence of the commercial volume the US will not be able to keep up with technology in terms of quality, cost or workforce”, recognising that a robust and resilient supply chain must include a diverse and healthy ecosystem of suppliers. The DoC also recommended that additional effort be focused on “rebuilding small and medium sized manufacturing operations and diversifying international suppliers to reduce the risk of geographic concentration”.
Supply chain vulnerabilities The DoC report identified four inter-related themes that contribute to US supply chain vulnerabilities:
Insufficient manufacturing capability: The loss of manufacturing capacity in the US has gone a long way to stifle the IP innovation that underpinned the country’s continuing progress in a range of products and technologies. When production capacity moves offshore R&D and wider industrial supply chains follow. It’s estimated that the US lost a third of all its manufacturing jobs between 2000 and 2010.
Misaligned incentives and short- termism in private markets: Current US market structures fail to reward organisations
Components in Electronics
for investing in quality, sustainability, or long-term productivity. The report found that between 2009 and 2018, S&P500 listed organisations distributed 91 per cent of their net income to shareholders in the form of either stock buybacks or dividends. The private sector’s focus on short-term capital returns has led to chronic underinvestment, resulting in a declining share of corporate income available for R&D, new facilities and resilient production processes. Industrial policies adopted by allies, partner and competitor nations: The report singles China out for the aggressive and sometimes unethical practices that it applies to stimulate domestic production and capture global market share. These practices include widespread public investment in R&D, domestic demand incentives and strategic international partnerships. Other nations have adopted less controversial industrial policies including scouring the world for lower-cost production centres. Critical minerals and materials and large capacity batteries: Climate warming is driving the demand for the rare earth metals and minerals necessary to manufacture low- carbon technologies. According to figures from the US Department of Energy, China has control of 55 per cent of global rare earths mining and 85 per cent of rare earths refining capacity, including 60 per cent of the world’s lithium and 80 per cent of its cobalt, two of the primary inputs to high-capacity battery manufacture. China also has over 75 per cent of the world’s fabrication capacity for advanced battery cell production. These figures reveal an alarming threat to the future of EV manufacturing and sales in the US and other nations.
Limited international coordination: The DoC report accuses the US government
of chronic under-investment in the international diplomatic efforts necessary to develop collective approaches to supply chain security.
Conclusion
Following the UK government’s commitment to banning the sale of petrol and diesel cars by 2030, I’m encouraged that six companies are in talks with regional local authorities about investment in UK-based “gigafactories” to build large capacity batteries for electric vehicles. Sadly, these facilities will still be highly reliant on China to supply the lithium and cobalt needed in production. Increased geographic supply chain diversity mandates increased government involvement, which suggests that the era of “rampant globalisation” might be coming to an end. It will be interesting to see how far the Western economies become “managed” or “directed” by governmental policy over the next few years. Are the proposed “gigafactories” indicative of regional or national adoption of more “joined up” manufacturing policies? I hope so, but the progress of UK (and European) government decision-making is painfully slow and there is likely to be a lot more change happening in the decades to come, which is certain to deflect or re-direct progress.
“…Promoting Positive Collaboration Throughout the Electronic Components Supply Network to Benefit Members and the Economy…”
www.cieonline.co.uk
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