Why US-China Rivalry Might Be Good for Singapore’s Semiconductor Industry

James Guild

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In June, the major U.S.-based semiconductor manufacturer GlobalFoundries announced that it would be investing $4 billion to expand its chipmaking facilities in Singapore, with the new capacity expected to be up and running by 2023. Singapore – with its favorable tax and regulatory environment, and pool of competent, high-skilled workers – has long been an attractive destination for investment in high value-added manufacturing. But this announcement by GlobalFoundries is about more than just dollars and cents and return on investment. It’s about diversifying global supply chains as geopolitical competition between the U.S. and China heats up.

As reported by Bloomberg, in announcing the investment CEO Tom Caulfield felt it necessary to note that around “70 percent of all foundry manufacturing takes place in Taiwan, a couple of hundred miles away from China, from one company. It’s put a huge risk to the world economy.” China’s increasingly aggressive geopolitical posturing, President Donald Trump’s bumbling trade war, and the COVID-19 pandemic have underscored certain realities of global supply chains that maybe we weren’t really paying attention to a few years ago.

During the heyday of the Washington Consensus, there was a kind of shared delusion (at least among many mainstream economists and policymakers) that globalization was this benign and inexorable force that would raise all boats through the inertia of economic interdependence. But lately, the nakedly political nature of global trade and financial flows has reentered the discourse, and we can see it materializing in everything from the Australian lobster industry to Chinese tech companies being thrashed by regulators when they list in the United States. And now, we are seeing it in computer chip manufacturing.

As Caulfield notes, Taiwan has dominated semiconductor manufacturing for quite a while, with companies like TSCM being the main suppliers for Apple and other huge global brands. But not that long ago, Singapore was also in the running. In 1987, Charted Semiconductor was founded. One of its backers was ST Engineering, a high-tech conglomerate majority owned by sovereign wealth fund Temasek Holdings. Chartered Semiconductor was meant to help turn Singapore into a global manufacturing hub for semiconductors and computer components and for a while things were going pretty well. In 2000, Singapore produced S$84 billion worth of computer, electronic, and optical products, including semiconductors. This represented 52.7 percent of all manufacturing output in that year.

After the dot com bubble burst, the industry went into decline. In 2009, Chartered Semiconductor (which at the time was about 62 percent owned by Temasek) was sold to Abu Dhabi’s Advanced Technology Investment Company for $1.8 billion in cash. Advanced Technology Investment Company is the parent of GlobalFoundries, so that is how the chipmaker first established a presence in Singapore. The Edge, in its reporting on the deal back in 2009, noted that Chartered Semiconductor had been struggling for some time to turn a profit against fierce Taiwanese competition.

It was a shrewd time to exit, as the electronic and computer component manufacturing industry in Singapore remained moribund for several more years. By 2014, the sector again produced S$84 billion worth of goods, the same nominal figure as 14 years earlier only this time it accounted for a much smaller share of overall manufacturing at only 28.96 percent. But after 2015, something changed dramatically. By 2018, Singaporean manufacturers were producing S$139.6 billion worth of computer and electronic parts, and by 2020 the sector accounted for 46.3 percent of total manufacturing output. That is a pretty remarkable recovery in just a few years.

I expect we will see more reshuffling of global supply chains like this in the future where countries like Singapore with the right infrastructure, regulatory architecture, and other factor endowments will stand to benefit significantly. And while there are many factors driving this trend, from the price of intermediate inputs to investment incentives and shipping costs, we know that a major factor is the geopolitical imperative to diversify global supply chains in critical industries because the CEO of GlobalFoundries explicitly said it was.