As mentioned in previous Global Macro Insight, A new Cold War is engaged between the USA and China. The global supply chain will have to digest it and inflation is nesting in this environment.
U.S. President Joe Biden is set to sign an executive order as early as this month to accelerate efforts to build supply chains for chips and other strategically significant products that are less reliant on China, in partnership with the likes of Taiwan, Japan, and South Korea.
This executive could have a geopolitical impact. SMIC is not in great shape and China realized in 2018 that its semiconductor supply chain is far to be complete.
The U.S. has seen its share of global semiconductor manufacturing capacity plummet in recent decades, according to Boston Consulting Group. What was 37% in 1990 is now down to 12%.
While it has asked Taiwan — which tops the list at 22% — to ramp up output, plants there are already operating at full blast, and there are few options for boosting supply in the short term.
The U.S. imports about 80% of its rare earths from China, and relies on the country for as much as 90% of some medical products.