Why is there so much fuss about the chip war if, at the end of the day, it’s just another trade battle between the United States and China? someone asked the other day.
What I didn’t know is that the country that dominates the semiconductor industry will practically have the international economy in its hands.
Chips are the soul of the modern economy and the brain of all electronic systems in mass consumer products such as cars, phones or computers, even fighter planes.
“The military industry has become increasingly dependent on advanced semiconductors for computing systems, sensors, and the ability to communicate,” Chris Miller, associate professor of International History at Tufts University (Massachusetts), specialized in in economic, technological and political matters.
Semiconductors are also the driving force behind innovations that will revolutionize the way we live, such as artificial intelligence and quantum computing.
While the United States remains a leader in chip design, most manufacturing is done abroad. In fact, most of the most technologically advanced chips are made in Taiwan.
And as political tension has increased in recent years over the possibility that China decides to invade the island, concern has also grown in the US about the vulnerability of the supply of semiconductors.
Furthermore, when the pandemic caused cuts in supply chains and companies understood that, despite having low costs, they could not depend exclusively on China, they began to look to other countries with the idea of relocating their operations.
“And why not in Mexico?” says Chris Miller.
Many firms have begun to establish themselves in other Asian countries, but Mexico is also in the race to attract these investments.
“There is a great opportunity for Mexico,” The author of books like “The Chip War” argues in this interview with BBC Mundo.
Let’s talk about Mexico. What role can this country play in the midst of this semiconductor war that exists in the United States and China?
There are many parts to the semiconductor manufacturing process. You have the design, the production of tools, the manufacturing of the chips themselves, the packaging before they are sent to the final consumer. No country particularly focuses on all phases.
Mexico can play an important role in assembly and packaging. The country already has a developed assembly industry in the automotive sector or in the medical devices sector.
That is why Mexico can expand that advantage towards the chip assembly and packaging industries.
What do the companies that manufacture semiconductors say?
If you listen to manufacturing technology companies, their interest is in rebalancing their supply chain to not be so dependent on East Asia.
Currently, most of the chip industry’s assembly and packaging is done in East Asia, in countries such as China and Taiwan.
There are many companies that would like to see more chip assembly and packaging in North America.
But so far it hasn’t happened…
So far it hasn’t happened. I believe that Mexico has the geography, the industrial base, the cost structure to make assembly and packaging viable.
Even if it is not part of the countries that stand out for manufacturing advanced technology?
The thing is that semiconductors are advanced technology, but they require manufacturing and it is in that part where Mexico has advantages.
In addition to cars and medical devices, servers and computers are also assembled in Mexico.
As companies are looking to shift the supply chain away from China, more computers and servers assembled in Mexico will be needed in the future. All of those products need semiconductors.
So, I don’t think it is correct to say that Mexico does not have the technological base to join the change. There are several industries that use a lot of semiconductors and would be very excited to see Mexico play a larger role in assembly and packaging.
How is Mexico going to attract investments from manufacturing firms in the chip industry if it does not have a plan specifically designed to achieve that objective?
Mexico needs to do more in developing a strategy. Ultimately, companies will make investment decisions motivated by business logic, but the government can help by ensuring that tax incentives are designed in the best possible way to make them attractive to companies.
The second is that the government can help by ensuring that companies have the electricity, water and clean energy supplies they need to attract long-term investments.
And the last thing, probably the most important part, is that there is an ecosystem extensive enough for the development of economies of scale that reduce costs, as China, Vietnam or Taiwan have done.
Mexico has it in certain industries such as the automotive industry, but it does not have it in semiconductor industries or in the production of certain electronic components.
The government can do more to make companies realize that there is interest in developing this industry and solving the problems that companies face. The more investments you can attract, the more interest there will be in the future for new investments to come.
In the midst of this chip war between the United States and China, would you say then that Mexico has a great commercial opportunity?
Yes, there is a great opportunity for Mexico. And the opportunity not only has to do with the race for semiconductors between the US and China, I think that every multinational company that is in China is evaluating what to do with its manufacturing.
It’s not just American companies, Japanese, Korean, and Taiwanese companies are also doing it, interested in shifting their manufacturing production to other countries.
In the last two decades, Mexico has lost opportunities because many companies have set up shop in China, but that era is over.
Now there is a race between Southeast Asia and Mexico to attract companies that are going to leave China. It’s one of those once-in-a-generation opportunities.
What benefits can Mexico achieve if it manages to enter the semiconductor supply chain?
Creating high-quality, well-paying jobs that are relatively high-tech. There is a reason why all countries try to compete to attract these investments.
The semiconductor industry can have an impact on the economic growth of the country. The chips have high added value, it is advanced technology.
Certainly a supply chain focused on North America would be less vulnerable to potential disruptions.
As tensions rise between China and Taiwan, there is greater concern from big business.
What challenges does Mexico face to enter the game?
The main challenge that Mexico faces is that there are many countries competing to attract investments for the semiconductor industry, including some countries that have developed large electronic ecosystems and that are more focused on attracting investments that are leaving or will leave China.
The Mexican government has to be more strategic in attracting companies and has to demonstrate that the country is the right place for this type of industry.
Is it possible for the country to achieve it?
It is possible that Mexico will play a larger role in electronic supply chains, but I am no expert on Mexican politics.
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