1] The Russian-Ukraine conflict had impacted the global supply chains that are already pandemic-constrained. The ongoing chip shortage is primarily due to the warring nations exertively controlling the supplies of key raw materials that go into the processes of semiconductors value chain production, (The Economic Times Mar 04, 2022; and theedge Oct 15, 2020).
2] Malaysia Semiconductor Industry
In 2021, the industrial production index of semiconductor devices manufacturing in Malaysia was at 155.2, an increase from 132.9 the year before. The manufacturing of electrical and electronics (E&E) products contributed 4.6 percent to the Malaysian gross domestic products (GDP) in the same year, (Statista Research Department, Nov 2, 2022).
In 2019, nearly 60 percent of electrical and electronics exports from Malaysia were for semiconductor devices, ICs, transistors and/or valves. The electrical and electronics industry is the largest contributor to Malaysia's export earnings.
Industrial production index of semiconductor devices manufacturing in Malaysia from 2016 to 2021.
Around 590 thousand people were employed in the electrical and electronic products industry in Malaysia in 2021. In terms of the number of people employed, this industry has been increasing throughout the years.
Number of people employed in the electronics industry in Malaysia 2015-2021
Some recent semiconductor players’ investment in Malaysia:
However, the Malaysia Semiconductor Industry Association (MSIA) projected the semiconductor industry to grow by 8% to 10% in 2022, followed by a weaker 2023, due to weaknesses in the personal computer and smartphone manufacturing industries, Hong Leong Investment Bank Bhd (HLIB) had indicated, (theedgemarkets 26/10/2022).
3 Revenue growth of the electrical and electronics industry Asia 2017-2023
In 2021, the electrical and electronics industry was extrapolated to grow by ten percent. This was forecasted to increase in the following year, in which the the electrical and electronics industry was expected to grow by 13 percent.
Projected changes in electrical and electronics industry revenue in Asia from 2017 to 2023:
Since Russia controls as much as 44 per cent of global palladium suppplies, Ukraine produces a significant 70 per cent of the global supply of neon - the two key raw materials that go into making chips.
The prices of finished products worldwide, even if additional supply outside of Russia comes on line, are impacting every importing countries.
Though chip-making companies have stockpiled resources since the 2015 shortage and due to the elevated demand during the pandemic, if a deal is not brokered soon, the chip shortage will get worse impacting almost all industries, like automakers, electronic device manufacturers, phone makers, and many other sectors that are increasingly reliant on chips for their products to work, (reference : S.Ganbold, Sep 11, 2022
4 ISSUES in TRADE
i) Though the US does not directly rely on Russia or Ukraine for energy, it has significant indirect energy exposure through goods and services imports from Europe and Asia that are produced using Russian energy.
ii) Transportation is another industry that are suffering from the war since transportation has the highest energy intensity of all major industries.
Even before the war, the pandemic has caused shipping costs to skyrocket over 300 per cent in 2021 as border and port closures caused containers to be stuck at different ports around the world, and global shipping focused on the most profitable routes between the East and West, (read The Geoeconomics of Deep Water Supply Chains; Asia-Pacific waterways; Maritime Convergence in Southeast Asia in csloh.substack.com).
iii) that this conflict will feed into the increasingly inflationary environment most countries find themselves in, which in turn is likely to lead to central banks tightening, higher interest rates, and slower growth, adversely impacting companies and consumers with no direct links to the situation via higher prices and interest rates.
5 Hijacking of an Semiconductor Industry
Professor Ling-Chi Wang of UC Berkeley has this to say:
I think the only way to describe what is happening to TSMC 台積电 in Hsinchu, Taiwan is to call it the biggest international heist, in broad daylight, of Taiwan’s biggest and most valuable manufacturing facility and intellectual property theft, estimated to be worth 4% of Taiwan’s GNP, considered by the people of Taiwan to be their 护国神山, ever undertaken in human history by the U.S. government. The people of Taiwan are stunned by the magnitude and speed of the heist and the massive airlifting of the manufacturing facility, its most advance know-hows, and top scientists and engineers and their families to Phoenix, Arizona, commencing in December. The U.S. is paying billions to relocate and transport the company to the U.S. The scale of intellectual robbery is unmatched by other large-scale international robberies I know of. The U.S. justified the robbery by declaring it a matter of “national security” of the U.S., based on the assumption that China will sooner or later seize Taiwan, thus depriving the U.S. and the world of its indispensable products. What is even more stunning and insulting to the people of Taiwan is the conspicuous absence of any meaningful protest by the Taiwan government of Tsai Ing-wen. In fact, the government is aid and abetting the robbery.
[The Taiwan president has since quits as her party head after local election losses]
Professor John V Walsh, MD, in San Francisco in a related commentary on this imperialism hijacking:
First the US frightens them with threats of war and turning Taiwan into a porcupine bristling with American weapons. No one wants to live in Ukraine 2.0.
Then the US offers an "escape hatch" to Arizona where these Taiwanese may find the US anti-China rhetoric a bit much to stomach - and no distinctions made between Taiwanese and Chinese by street toughs.
6 USA Imperial Posture
US share in the global chip manufacturing had shrunk from 37% in 1990 to 12% in 2020, but this imperial state still wants to regain its hegemony dominance. Indeed, the US Department of Defense is rather worried that the country's dependence on Taiwan could put chip supplies for the defense industry at risk.
Therefore, in an imperial thrust response, President Biden signed the CHIPS Act into law on August 9, 2022. It provides over $52 billion to help US companies to build new semiconductor facilities, fund research, and expand existing manufacturing.
However,
7 TSMC doomed to fail
Morris Chang founded TSMC in 1987 when Taiwan recruited him from the US to help build an electronics industry. The contract manufacturer rose to become the top chipmaker in the world, commanding 20% of global wafer fabrication and 92% of advanced chip capacity.
It has to be stated at the outset that Apple supplier TSMC believes where such US efforts to rebuild her semiconductor industry by reshoring her chip manufacturing at home-bases are doomed to fail, as the tech entity finds itself sandwiched between China and the United States in a tech cold war.