Advanced computer chips drive economic and scientific advancement as well as military capabilities. Complex supply chains produce these chips, and the global distribution of these chains and associated capabilities across nations have major implications for future technological competition and international security. However, supply chain complexity and opaqueness make it difficult to formulate policy. Avoiding unpredicted harms requires detailed understanding of the complete supply chain and national competitiveness across each element of that chain.
To help policymakers understand global semiconductor supply chains, we have broken down these supply chains into their component elements and identified the features most relevant to policymakers because they either offer potential targets for technology controls or constrain the policy options available. A companion CSET issue brief titled “U.S. Semiconductor Exports to China: Current Policies and Trends” provides an overview of how export controls are currently applied to semiconductor supply chains. Companion CSET policy briefs titled “Securing Semiconductor Supply Chains” and “China’s Progress in Semiconductor Manufacturing Equipment” offer policy recommendations based on the analysis in this paper to sustain U.S. and allied advantages.
The United States and its allies are global semiconductor supply chain leaders, while China lags. The U.S. semiconductor industry contributes 39 percent of the total value of the global semiconductor supply chain. U.S.-allied nations and regions—Japan, Europe (especially the Netherlands, the United Kingdom, and Germany), Taiwan, and South Korea—collectively contribute another 53 percent. Together, these countries and regions enjoy a competitive advantage in virtually every supply chain segment. While contributing only 6 percent, China is quickly developing capabilities across many segments and could attempt to reconfigure supply chains in its favor, impacting national and international security.
At a high level, semiconductor supply chains include research and development, production, production inputs, and distribution for end-use. R&D underpins all production and its inputs. Semiconductor production includes three segments: (1) design, (2) manufacturing, and (3) assembly, testing, and packaging (ATP). Production relies on associated elements of the supply chain: semiconductor manufacturing equipment (SME), materials (including “wafers” formed into chips), design software (called electronic design automation, or EDA, software), and intellectual property related to chip designs (called core IP). The highest value and most technologically complex parts of this process are the design and fabrication segments of production, and the SME element of the supply chain. Although small elements, EDA and core IP are also critical and involve great expertise. ATP is labor-intensive and has the lowest barriers to entry.
The United States and its allies specialize in different supply chain segments. The United States dominates R&D and has strong capabilities across all segments. However, it lacks firms in certain key subsectors, especially photolithography tools (the most expensive and complex form of SME) and the most advanced chip factories (especially “foundries,” which manufacture chips for third parties). South Korea specializes in all production steps, but also produces significant amounts of materials and some SME. Taiwan is dominant in the most advanced manufacturing and ATP, and produces some materials. By contrast, Japan specializes in SME and materials, and it produces many older technology semiconductors. Europe (especially the Netherlands, the United Kingdom, and Germany), meanwhile, specializes in SME (especially photolithography tools), materials, and core IP.
China has made progress in some segments, but struggles in others. China is strongest in ATP, tools for assembly and packaging, and raw materials. It is progressing in design and manufacturing, albeit with the help of state support. However, China struggles in production inputs: SME, EDA, core IP, and certain materials used in manufacturing.