When representatives from China and the United States convened in London in June to head off yet another escalation of the trade tensions that have rattled global markets and supply chains, the semiconductor industry once again found itself at the center of the talks — and between a proverbial rock and a hard place.
Designed ostensibly to shift semiconductor production and jobs away from China and to the United States, the recent wave of Trump tariffs have exposed the faulty premise behind these trade policies. Reshoring production to the U.S. may seem like a good idea. However, bringing new chip manufacturing capacity online comes with a high cost of capital and lead times that can stretch from several years for smaller assembly and packaging installations to a decade for full-blown production facilities.
To further complicate matters, there are few, if any, apparent “safe havens” to dodge recently-proposed policies, even for high-tech companies that took steps eight years ago to diversity their supply chains in response to the previous exchange of trade policy blows by the two countries during the first Trump administration.
Tariffs and the semiconductor industry
Lately we’ve heard from a number of high-tech companies that believed they were well positioned in terms of supply chain, profit margin, etc., prior to the latest round of tariff volleys. They previously diversified their supply options beyond China into other parts of Asia, Europe and even South America, only to find themselves struggling to preserve that balance in light of the new trade tensions.
As hungry as participants in the semiconductor value chain are for clear signals to inform their decision-making around developing new manufacturing capacity and cultivating new supply sources, few if any such indicators have been forthcoming.
And that underscores a sobering reality, not only for the semiconductor industry, but for any industry or company that relies on a global supply chain: Flashpoints like this occur regularly nowadays — a trade conflict or blocked global trade route here, a weather disaster or regional conflict there.
So companies would be wise to realize that the best way to mitigate the impact of unpredictable, disruptive events and conditions is to focus on things they can control, operationally and in how they manage their supply chain.
Controlling the controllables
One thing high-tech companies and members of the semiconductor value chain can do is take steps to maximize flexibility in their supply chains by shifting from a single-threaded approach to one that enables them to turn not just to second, but also to their third, fourth, or fifth options.
To do so, they’ll need to create business networks/supplier ecosystems in which they’re connected to and sharing information with multiple tiers of primary, secondary and tertiary contract manufacturers, mature node producers, assembly and packaging companies and other suppliers in real time.
Then they can feed the data they’re collecting from the network into intelligent predictive tools that can show them optimal pathways (from a cost, volume and reliability standpoint, factoring in tariffs, export controls, etc.) to secure the components and materials they need in a timely way.
Intelligent demand-sensing and demand-forecasting capabilities are also critical to responding to fast-shifting trade policy and market conditions.
Semiconductor companies must have the ability to collect fresh customer demand information, overlay that data with other market signals, then use advanced scenario planning that accounts for the latest tariffs and export controls to gain a clearer picture of expected demand in specific markets. Then they can mobilize their manufacturing capacity and suppliers accordingly.
Connected systems, modeling, and AI
For semiconductor-reliant high-tech companies and their suppliers, all this is predicated on interconnectedness among their internal digital systems.
Managing supply chain risk and responding to rapidly shifting market signals and supply chain conditions is tremendously difficult when data is scattered across spreadsheets, disparate systems, and disconnected processes.
On the other hand, when critical finance, procurement, supply chain, planning, manufacturing, warehousing, and logistics systems and processes are connected and integrated, data can flow in a timely way to decision-makers and the intelligent analytics and modeling tools that support them.
That in turn enables a company to respond faster to disruptions and fast-shifting conditions, which can translate into a competitive advantage.
Using generative AI capabilities embedded in their supply chain management platform, for example, a company can query the system with specific questions about which suppliers on which they should lean more or less heavily based on the latest tariff and policy developments and current market conditions.
From reactive to proactive
The same kinds of modeling tools can support high-tech companies and electronic component manufacturers in their capacity expansion planning. They analyze a broad range of data from internal and external sources to help companies determine where it makes the most sense to invest in new manufacturing capacity, given prevailing trade policies, equipment availability, capital cost, and the like.
For example, might it make sense for a chipmaker to develop manufacturing capabilities in India in light of new incentives there, or would investing to build more capacity in the U.S. make more sense based on specific parameters? Maybe it turns out that the best — or least painful — option is to forego building new capacity elsewhere for now and instead pay the tariffs, then count on the steps you’ve taken to run a leaner, more efficient operation to at least partially offset tariff-related costs.
Ultimately, this kind of timely, data-derived insight can help high-tech companies and the semiconductor value chain shift from a reactive to a proactive supply stance, where flashpoints like a new tariff or a tsunami look much less like existential threats and much more like opportunities to gain a competitive edge.