Interdependence and specialization in the global semiconductor industry

Abstract

Interdependence between the United States (U.S.), European Union (EU) and Asia in the semiconductor industry, driven by specialization, can serve as a preventive measure against disruptions in the global semiconductor supply chain. Moreover, with rising geopolitical tensions, the cost-intensive nature of the semiconductor industry and a slowdown in demand, interdependence and partnership provide countries with opportunities and benefits. Specifically, by analyzing global trade patterns, developing the Interdependence Index within the semiconductor market, and applying the Grubel-Lloyd Index to the U.S., the EU, and Asian countries from 2011 to 2022, our findings reveal that interdependence enhances regional semiconductor supply chains, such as the establishment of semiconductor foundries in the U.S., Japan, and the EU; reduces dependence on a single supplier, such as the U.S. distancing from China; and increases market share in different semiconductor segments, as demonstrated by Taiwan in automobile chips. The evidence indicates that China heavily depends on foreign sources to meet its semiconductor demand, while Taiwan and South Korea specialize as foundry service providers with lower Interdependence Index values. The U.S., with a robust presence in semiconductor manufacturing and design, has a moderate dependence on semiconductor imports, whereas the EU demonstrates a higher level of interdependence because it lacks semiconductor foundries. The stage-specific analyses indicate that the U.S. and the EU rely on Asia for semiconductor devices, while China and Taiwan have a higher dependence on American intermediate inputs and European lithography machines.