Credit: Public domain.
Rory Green of TS Lombard made an important observation in his February 10 report: if semiconductors are the new oil as it is often claimed, Taiwan and South Korea - who form a duopoly at the fabrication stage of the production process - are the new OPEC: “supply, demand and bottlenecks to global growth will revolve around Taiwan and SK chip production.”
The pandemic is boosting the demand for semiconductors as there is a greater demand for consumer electronics and automobiles (as people seek to avoid public transit). But because it takes years to increase the production capacity, there is currently a shortage of semiconductors which particularly affects automakers - to a point that auto-making economies that lack semiconductor production capacities such as Germany and Mexico are taking a hit on their GDP.
Green notes: “chip manufacturing dominance means they can leverage their increased strategic importance for economic and political gains. Recent wins include a new trade deal for Korea and weapons sales to Taiwan.” In a follow-up report, Green notes the New OPEC will remain durable for the next several years, because semiconductor production will “require years of significant political and financial investment before making a dent in the Taiwan-Korea manufacturing duopoly. Semiconductor nationalism is here to stay.”