geoeconomy

In the early ages of hydrocarbons, when the oil companies discovered gas, they quickly abandoned the wells and moved the drilling rigs to other areas, looking for the most valuable crude oil. In those days, gas was considered as the poor relative of the fossil fuel family.

Seventeen elements in the periodic table – the so-called “rare earths” – play a major role in the calculations and strategies of various nations. In many ways, rare earths are the vitamins of industrial society in the 21st century: they are vital to key products from hi-tech items (smartphones and monitors) to energy conversion systems (wind turbines, photovoltaic panels and electrical machinery) and even military equipment (lasers and radar). The difficulties involved in replacing them with alternative materials make rare earths uniquely strategic resources.

Semiconductors are the world's fourth-most-traded product after crude oil, refined oil, and cars.

Driven by acute shortages and growing geopolitical competition, semiconductors have shot up the EU policy agenda over the past year. Caught in the crossfire of a global trade war and exposed to the vagaries of an undiversified supply chain, Europe has understood how its strategic autonomy is dependent on these chips. Looking further ahead, Europe aims to diversify its economic structure and be at the forefront of the next generation of digital technologies.

Taiwan has long been one of the most essential actors for the global semiconductor manufacturing industry, with the world’s largest and most advanced semiconductor foundry, the Taiwan Semiconductor Manufacturing Company (TSMC), and a top fabless integrated circuit (IC) design company, MediaTek. TSMC accounted for over 50% of the 2020 global semiconductor foundry market on top of being the only chipmaker that has mastered the 5nm chip production alongside its rival, South Korea’s Samsung Electronics.

The continued global chip shortage in recent months amid the COVID-19 pandemic has highlighted the role of semiconductors, their supply chain, production stages and business cycle in the global economy.

America’s 78-year-old president, Joe Biden, might not seem like the world’s most tech savvy leader. But some of his administration’s biggest policies have focused on a small but fundamentally important technology: the semiconductor. Known more prosaically as “computer chips”, semiconductors power technology of all types from vast data centers to the simplest consumer electronics. In the age of the Internet of Things, almost every electrical device has a semiconductor inside.

Semiconductors are the strategic industry of the 21st Century. They are the foundation of economic and military power.  Future industries will be based on the ability to use semiconductors and software to create new goods and services. Semiconductors are also one of the most highly advanced technologies, operating at the edge of physics and material sciences, and the product of a complex, distributed supply chain centered on the Pacific Rim.

High-tech industries, from car manufacturing to computer making, from telecommunications to robotics, are increasingly reliant on semiconductors. The relative scarcity of such components has been at the core of recent bottlenecks in global value chains. Moreover, the rising demand for semiconductors by key economic powers (namely, China, the EU, and the US) is triggering a geopolitical race for the leadership in the provision and the manufacturing of these crucial technologies.

The digitalisation of the economy is transforming business landscapes, leading to an increased scope for automation in production and a growing role of services in global value chains. On the one hand, this digital transition could boost long-term value and productivity, helping to reduce inequalities within —and between —countries. On the other hand, it also poses critical challenges for labour markets and workers’ welfare, fueling a geopolitical competition for tech supremacy.

The digital transformation changes production technologies and, as a result, it impacts labour markets and global value chains (GVCs). Technological transformations, for instance in the communication and transportation sectors, have empowered global value chains, but the digital transformation will once again change production possibilities, with unclear consequences for GVCs. Among other things, the digital transformation has increased the scope for automation in production and has led to a growing role of servicesfor GVCs.

Around the world, the COVID-19 pandemic has tested the limits of health care services, exacerbated poverty, reduced employment, disrupted businesses, and destabilized societies at extraordinary levels. While the world is still struggling to recuperate from the debilitating effects of the pandemic, digital transformation is area that has witnessed unprecedented levels of progress. To quote Satya Nadella, CEO of Microsoft, “two years’ worth of digital transformation has been achieved in two months”.