Why in the News?
During the ongoing U.S.-China tariff war, the Trump administration announced that smartphones, computers, and some electronics would be excluded from the 125% tariffs, easing concerns for firms like Apple.
What decision did the Trump administration make regarding smartphones and computers in the tariff war with China?
- Exemption from High Tariff Slab: The Trump administration decided that smartphones, computers, and certain other electronics would not be subjected to the 125% reciprocal tariffs on China. Eg: Apple products like iPhones and MacBooks were spared from the highest tariff bracket.
- Reclassification to Lower Tariff Bucket: These items were instead moved to a lower tariff category of 20%, which was presented as a strategic decision, not a full exemption. Eg: Laptops and other consumer electronics faced a reduced tariff rate instead of the originally proposed higher one.
Why are semiconductors considered critical for the United States’ national security and economy?
- Foundation of Modern Technology: Semiconductors power essential devices from smartphones and laptops to defense systems and AI tools, making them indispensable to both daily life and strategic operations. Eg: Military drones and radar systems rely on advanced microchips for data processing.
- Supply Chain Vulnerability: Heavy reliance on a few countries, especially Taiwan, for chip manufacturing exposes the U.S. to supply disruptions and geopolitical risks. Eg: The COVID-19 pandemic highlighted global chip shortages, affecting car and electronics industries.
- Need for Technological Sovereignty: Boosting domestic semiconductor production ensures technological leadership, economic resilience, and reduces dependence on potentially hostile nations. Eg: New tariffs and subsidies aim to encourage U.S.-based chip manufacturing to reduce reliance on China.
Where is most of the world’s semiconductor manufacturing currently concentrated?
- Taiwan: Taiwan leads global semiconductor manufacturing, especially in advanced chips, due to companies like TSMC (Taiwan Semiconductor Manufacturing Company). Eg: TSMC produces over 50% of the world’s advanced semiconductors.
- South Korea: A major player in memory chip production, with giants like Samsung and SK Hynix dominating the market. Eg: Samsung is a global leader in DRAM and NAND flash memory chips.
- China: Rapidly expanding its semiconductor industry through state support, though still dependent on foreign technology for advanced manufacturing. Eg: SMIC (Semiconductor Manufacturing International Corporation) is China’s largest chipmaker but faces U.S. export restrictions.
When did the US’s share in global semiconductor manufacturing decline significantly?
- Since the 1990s: The U.S. share fell from 37% in 1990 to 12% by 2020, as production increasingly shifted to Asia due to lower costs and better infrastructure. Eg: Companies like TSMC (Taiwan) and Samsung (South Korea) became dominant players.
- Post-globalization era: With the rise of global supply chains and outsourcing, the U.S. focused more on chip design than manufacturing, leading to a production gap. Eg: Firms like Intel design chips in the U.S. but get them manufactured overseas.
Can India grab the semiconductor supply chain?India has strong potential to become a major player in the global semiconductor supply chain.
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Way forward:
- Accelerate Ecosystem Development: Strengthen infrastructure for fabs, ensure reliable electricity and water supply, and support R&D and design capabilities to build a complete semiconductor ecosystem.
- Foster Global Collaborations: Partner with global semiconductor leaders for technology transfer, workforce training, and joint ventures to fast-track domestic capability and integration into the global supply chain.
Mains PYQ:
[UPSC 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?
Linkage: The basic idea behind a tariff war is protectionism, where countries impose taxes on imports to shield their own industries from foreign competition. In this case, India’s manufacturing sector could benefit from the trade war between the USA and China.
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