Reality check: Assessing the UK’s Semiconductor Strategy
The UK’s long awaited national semiconductor strategy was released last week, outlining a twenty-year plan for the UK's semiconductor sector. The strategy commits up to £200 million of government investment over the next two years, with up to £1 billion over the subsequent decade until 2025.
Our response analyses the three objectives identified in the UK’s semiconductor strategy: growing the domestic sector, mitigating the risk of supply chain disruption and protecting the national interest.
Growing the domestic sector
In many ways this the UK’s strategy reflects that called for in our paper published in January this year, Securing the UK’s Semiconductor Supply Chain in an Era of Geopolitical Uncertainty. We recommended that the UK play to its strengths as a leading chip designer, rather than committing huge resources to unfeasible attempts to ‘on-shore’ large scale semiconductor production. The semiconductor supply chain cannot be built from scratch, no matter how much capital input. Instead, the UK’s approach of focussing on advanced research and development, while supporting the UK’s world leading capabilities in compound semiconductors and design, is the correct one.
The question that remains is the long term sustainability of the UK’s funding model for these initiatives. Earlier this year, the South Korean government also launched a grand plan to create the world’s biggest semiconductor cluster in the Gyeonggi province. There is a big difference between the British and Korean initiatives. Though the Korean government’s plan is equally if not more ambitious, the funding will not come from the government. The drivers of this ambitious plan are Samsung and SK Hynix, two leading semiconductor conglomerates. To really bolster the UK’s domestic sector, government finance alone will not be sufficient. Yet raising private sector investment remains challenging when the UK’s once most important semiconductor firms – such as Cambridge headquartered ARM – have been taken over by foreign owners and even refuse to be listed on the London Stock Exchange.
Mitigating the risk of supply chain disruption
There are also encouraging signs that the UK government is taking up our suggestion of bolstering ‘friendshoring’ initiatives to mitigate the risk of supply chain disruption. The Hiroshima Agreement, which pledges UK-Japan joint research and collaboration in semiconductor technologies, is an encouraging step in the right direction. However, like the UK, Japan’s strategic advantage in the semiconductor supply chain is as a chip designer, and even here it is second to the US. Japan’s contribution to global semiconductor production is relatively minimal. In 2022, Japan only accounted for 9% of global semiconductor production. In contrast, Taiwan’s TSMC has a 58.5% share of the global chip market, with South Korea’s Samsung taking 15.8%. Building an effective friendshore will require the UK to reach out to a far broader set of international partners.
Protecting the national interest
The third objective of safeguarding national interest is common to what all governments want from their semiconductor strategy. Yet what the ‘national’ interest means in the context of a highly complex, globalised semiconductor supply chain is difficult to define. Neither the UK nor any other country can escape from relying on global supply chains to secure its supply of semiconductors. In this chain Taiwan plays the most indispensable role – producing over 90% of the world’s most advanced chips (defined as those of less than 10 nanometres in length). No level of domestic investment can escape this critical role that Taiwan plays in our economic security. A semiconductor strategy within a broader foreign policy which safeguards the peace and security of Taiwan is firmly within the UK’s national interest.
Chun-yi Lee is Associate Professor in the School of Politics and International Relations at the University of Nottingham. She is also Director of the university's Taiwan Studies Program, and a board member of the European Association of Taiwan Studies.