Antton Haramboure
OECD Directorate for Science, Technology and Innovation
Guy Lalanne
OECD Directorate for Science, Technology and Innovation
Lea Samek
OECD Directorate for Science, Technology and Innovation
Angela Attrey
OECD Directorate for Science, Technology and Innovation
Semiconductors are fundamental building blocks of digital technology. They not only play a crucial role in fields such as artificial intelligence (AI) and quantum computing, but also are embedded in a myriad of everyday products. For example, a modern car might contain up to 3,000 semiconductor chips, which control everything from battery management and fuel injection to infotainment systems (Ewing and Boudette, 2021[1]). The semiconductor shortages that occurred following the COVID‑19 pandemic underscored that access to these critical components cannot be taken for granted. In this context, a number of countries have recently adopted policy initiatives to strengthen domestic production of semiconductors (Box 2.1).
The US CHIPS and Science Act
The CHIPS and Science Act, introduced in the United States in 2022, aims at strengthening US competitiveness, innovation, national security in the semiconductor sector and increasing a science, technology, engineering and math (STEM) workforce. The main measures involve tax credits for investment in manufacturing, sectoral research and development (R&D) funding, and funding for education and skills. The act appropriated around USD 53 billion (0.2% of GDP) over five years for these objectives, including around USD 39 billion of incentives for building semiconductor plants and around USD 13 billion for supporting R&D and workforce in this area. It provided a 25% tax credit for building and equipping the plants initiated before 2027. The credit is estimated to cost USD 24.3 billion over ten years. It also significantly increased authorised spending for federal science and technology R&D programmes, administered by multiple federal agencies (amounting to around USD 174 billion through fiscal year 2027, equivalent to 0.7% of 2022 GDP).
The CHIPS and Science Act also involves measures to hinder the expansion of semiconductor manufacturing in China or any other countries that pose a threat to US national security. With limited exceptions, it prohibits recipients of its funding and investment tax credits from expanding semiconductor manufacturing in countries posing national security threat for ten years. The act also includes several provisions related to research security.
At the same time, the United States has implemented measures to regulate the export of advanced semiconductors and chipmaking equipment to China. In October 2022, export controls were introduced to prohibit the transfer of cutting-edge chips and manufacturing tools to Chinese firms with government ties. These restrictions were expanded in 2023 and 2024 to close gaps, limit sales to data centres, and target additional companies.
The European Chips Act
The European Chips Act came into force in September 2023. It aims at fostering semiconductor production in the European Union, reducing external dependencies, and doubling the EU’s global market share to 20% in 2030. The act is based on a three-pillar structure: the “Chips for Europe” initiative which seeks to support research, development and innovation in the EU chips ecosystem and improve the transition ”from lab to fab”; the second pillar focusing on improving supply security with a new framework to attract large-scale investments in production capacities; and the last pillar aiming at setting up a co-ordination mechanism between member states and the Commission to monitor market developments and anticipate crises. The act provides derogations to state aid rules for key facilities, reallocates EUR 3.3 billion (0.02 % of GDP) from existing EU funds to relevant projects, complemented by EUR 2.9 billion, and seeks to rationalise investment by member states. The European Commission intends to mobilise EUR 43 billion (0.3% of GDP) in public and private funds through the act, with EUR 11 billion coming from repurposing existing funds. EU subsidies are provided for investment in new, first-of-their kind facilities.
Japan’s “Strategy for Semiconductor and the Digital Industry”
In June 2021, the government announced a new “Strategy for Semiconductor and the Digital Industry”, seeking to increase domestic development and production of advanced semiconductors as well as other advanced technologies critical for the digital and green transitions. The revised strategy (in June 2023) has a goal to reach more than JPY 15 trillion sales of domestically produced semiconductors by 2030. The strategy relies on tax breaks and subsidies for companies investing in semiconductors, data centres or other critical technologies, but does not provide precise budget costing of these measures. In the context of this strategy, Japan supported the creation of a new chip venture called Rapidus Corp, with public financial support worth JPY 330 billion.
This special focus aims to shed light on the semiconductor industry's position in global value chains (GVCs) and to identify some of the critical features of the semiconductor value chain itself. It makes use of the OECD semiconductor‑augmented Inter-Country Input-Output (ICIO) tables built by Haramboure et al. (2023[2]). Together with highly detailed trade data, they help to map various stages of semiconductor value chains, revealing potential vulnerabilities from the fragmentation of this complex large-scale production process.1
The analysis shows that the semiconductor industry is positioned well upstream in GVCs, with its production highly concentrated in a few key economies, predominantly in Asia. A granular description of the semiconductor value chain reveals its considerable fragmentation, wherein various countries exhibit strong leadership at different stages of production. This configuration creates substantial interdependencies across countries, introducing potential vulnerabilities. Disruptions in any leading economy within this value chain could lead to widespread shortages, significantly impacting numerous downstream industries and economies worldwide.
The resilience of semiconductor GVCs can be enhanced through increased diversification, particularly by establishing new manufacturing facilities. This expansion will require substantial investments and rely on the availability of a skilled workforce and robust infrastructure. The OECD supports policies to develop semiconductor talent and address worker shortages through enhanced science, technology, engineering and mathematics (STEM) education and industry-education collaboration. It also helps design public policies to support the semiconductor industry by ensuring access to ultraclean water, reliable energy sources, and robust transport infrastructure for seamless production and distribution.
Metrics from the OECD semiconductor-augmented ICIO tables underscore the unique position of semiconductors in GVCs. ICIO tables provide detailed economic data on the interconnections between industries and countries and facilitate the analysis of GVCs. Semiconductors are key inputs for many industries, with their production situated upstream and heavily concentrated in Asia across all semiconductor types.
The semiconductor industry is a critical supplier for several key manufacturing sectors (Figure 2.1). Semiconductors are at least as important as primary energy in the production of manufacturing sectors such as ICT and electronics, motor vehicles and machinery manufacturing sectors. For instance, electrical equipment production requires the same amount of value added from the semiconductor industry as from primary energy. The manufacturing of ICT and electronics is particularly reliant on semiconductors, with semiconductor value added accounting for 8% of final demand, significantly exceeding the 2% contribution from the primary energy sector. This suggests that a disruption in semiconductor supply could have significant negative effects on the ICT and electronics industry and semiconductor supply should be considered as important (if not more) than primary energy supply. Moreover, unlike energy, semiconductors are highly heterogeneous and often specific to the product or application of the electronic device, reducing their substitutability.
Share of semiconductor and primary energy value added in final demand, 2018
Note: The sample is restricted to the leading semiconductor purchasing economies: Brazil, Canada, China, France, Germany, Hong Kong (China), Ireland, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, the Philippines, Singapore, Switzerland, Chinese Taipei, Thailand, the United Kingdom and the United States. Primary energy includes coal, oil and gas.
Source: Haramboure et al. (2023[2]) based on OECD semiconductor-augmented ICIO tables.
The semiconductor industry is the most upstream industry in the ICIO database (Figure 2.2). Once manufactured, semiconductors are integrated as intermediary inputs that can pass through numerous intermediary production stages before being incorporated into final consumer products, comparable to industries which supply raw materials, like mining and basic metals. Because semiconductors are a highly upstream input, disruptions in semiconductor production could impact a multitude of downstream industries that directly or indirectly depend on chips.2
The semiconductor industry is also the most geographically concentrated industry in the semiconductor‑augmented ICIO tables, with approximately 75% of its value-added generated by five economies – four of which are in Asia (Figure 2.2 and Figure 2.3). This significant concentration in Asia stems from a gradual redistribution of value-added generation since 1995, moving from Japan and the United States to China, Korea and Chinese Taipei. This shift notably coincided with many US semiconductor companies adopting a “fabless” production model, whereby foundry and packaging tasks are outsourced, and the fabless firm focuses on chip design. Additionally, the increasing importance of economies of scale has driven greater industrial and geographical concentration within the sector. Consequently, a few leading firms, mainly operating in a few economies, account for a larger share of the industry's profits (McKinsey & Company, 2021[3]).
Concentration (share of top five economies in global value added) and upstreamness (distance to final demand), 2018
Note: Geographical concentration of production is measured as the share of the top five economies in global value added of an industry. Upstreamness of an industry is measured as the distance to final demand (Antràs et al., 2012[4]).
Source: Haramboure et al. (2023[2]) based on OECD semiconductor-augmented ICIO tables.
In addition, semiconductor chips are diverse, serving different purposes, and are produced using different manufacturing processes. As a result, concentration is even higher for some specific types of semiconductors, as illustrated by trade data for 2021 in Figure 2.3, which separately measures export value and concentration for logic, memory and DAO (“Discrete, Analog and Others”) chips.3 Memory chips, which account for about a fifth of semiconductor export value, exhibit a particularly high concentration, with the top three exporting countries – all located in Asia – capturing over 80% of the exports. Although the top three exporting economies differ by semiconductor type, they are also located in Asia and account for over 55% for logic and DAO chips. Concentration is particularly high among the most advanced logic chips, which are crucial for AI development. According to 2022 data, these chips are only produced by Samsung in Korea and TSMC in Chinese Taipei (BCG and SIA, 2024[5]).
Note: Logic, memory and DAO semiconductor segment group goods under headings 8541 and 8542 of the Harmonised Systems.
Source: Haramboure et al. (2023[2]) based on COMTRADE, and OECD calculations.
Altogether, these features demonstrate that, while semiconductors are widely used across many industries, their production is concentrated in a narrow set of economies. This underscores a significant vulnerability: a disruption in semiconductor production within a single leading economy could precipitate widespread shortages affecting diverse downstream industries and economies worldwide.
More comprehensive data are required to better understand the complex value chain for semiconductors, including potential bottlenecks, vulnerabilities and substitutability. A technical paper by the OECD (2024[6]) sets out a common taxonomy for semiconductor types, distinguishing between four broad categories, namely: Logic, Memory, Analog and Others, as well as sub-categories based on their prevalence and specific functions (Figure 2.4). The taxonomy also characterises semiconductor front‑end facilities by the detailed category of chips produced and the technologies and equipment available. This taxonomy provides the basis for a living semiconductor production database to better understand the wider landscape of semiconductor production.
Note: IC stands for integrated circuit; CPU central processing unit, MCU microcontroller unit; MPU microprocessor unit; DSP digital signal processors; GPU graphics processing unit; IPU intelligent processing unit; ASIC application-specific integrated circuits; FPGA field programmable gate array; FPLD field programmable logic device; DRAM dynamic random-access memory; ROM read-only memory; SRAM static random-access memory; NVRAM non-volatile random-access memory; NAND Not And; NOR Not Or.
Source: OECD (2024[6]).
A structured definition of the semiconductor industry can clarify essential interdependencies within the industry itself, as well as with the key inputs, technologies and capital goods necessary for the semiconductor production.
In the OECD semiconductor-augmented ICIO tables, the semiconductor industry is delineated into three fundamental stages of production: chip design, wafer fabrication, and assembly, test and packaging (ATP). The industry showcases a variety of business models, with certain firms integrating all production stages, while others specialise in only one. Countries have specialised in distinct segments according to their comparative advantages. As already mentioned, US firms have, for example, retained a substantial share of the design activities (McKinsey and Company, 2022[7]; BCG and SIA, 2024[5]). This specialisation has fostered significant complementarities between leading economies, notably between US fabless firms and Chinese Taipei's pure-play foundries (McKinsey and Company, 2022[7]).4
The interdependencies within the semiconductor industry extend beyond its three core production stages, reaching upstream steps. Alongside dominating the design of chips, US firms also hold a substantial lead in the technologies that enable this process. More precisely, in the Electronic Design and Automation (EDA) tools and Intellectual Property (IP) market, US headquartered firms held a substantial 72% of global sales in 2020 (McKinsey and Company, 2022[7]) and 68% of global revenue in 2022 (BCG and SIA, 2024[5]).
There is also a strong concentration in the exports of raw materials and capital goods necessary for the production and fabrication of semiconductors. Exports of silicon, for instance, are highly concentrated, with the United States, Germany and China playing the leading roles. Trade data also show that both exports of machines to manufacture semiconductors and the fabrication of wafers are more concentrated than exports of most types of semiconductors (Figure 2.5.). Anecdotal evidence suggests an even greater concentration for machines required to manufacture leading-edge chips (less than 10 nm feature size).5 The United States, Japan and Malaysia lead the exports of other equipment tools used for the inspection and testing of semiconductors and wafers. However, the level of aggregation of Figure 2.5 obscures that although not among the leading economies in semiconductor production, some economies like Czechia, Israel, and the Netherlands are leading exporters of various specialised equipment used to manufacture and check semiconductor and wafers (Haramboure et al., 2023[2]). This highlights a niche area of expertise and significant export capability within these countries despite their smaller role in broader semiconductor production.
Note: The plot represents the share of top three exporters in total exports for several goods of the semiconductor value chain.
Source: Haramboure et al. (2023[2]) based on COMTRADE, and OECD calculations.
Disruptions may have different effects depending on which part of the value chain is affected. Disruption at the production stage may result in significant short-term negative impacts on many industries, as semiconductors are not easily substituted, and adjusting supply is slow and costly. Increasing manufacturing capacity requires large upfront investments, long lead times and access to a highly specialised talent pool, implying slow supply adjustment. Building a manufacturing plant for leading-edge semiconductors, for instance, requires an upfront investment of USD 10-20 billion (Shih, 2021[8]). In contrast, disruption in the supply of machines may take more time to affect semiconductor production.
The semiconductor value chain is characterised by high segmentation and specialisation of countries in some production stages following their comparative advantage. As a result, no country is currently involved in all the steps of the value chain, nor is it able to produce all types of semiconductors needed by downstream industries. This combined segmentation and concentration not only expose leading semiconductor economies to vulnerabilities from potential disruptions affecting other participants in the value chain, but also create a high level of interdependence. This pattern is especially significant for the production of the most advanced semiconductors.
With an increasing number of policy actions targeting semiconductors around the world (Box 2.1), sharing information, identifying best practices, and enhancing international dialogue and collaboration will be key to increasing the resilience of semiconductor value chains. Accordingly, the OECD convened the Semiconductor Informal Exchange Network (SIEN) in June 2023, bringing together senior policymakers in the semiconductor industry to promote information and data exchange and policy dialogue. The SIEN led to, among other things, the adoption of the common taxonomy described earlier (OECD, 2024[6]). It is also working on enhancing transparency across different segments of the value chain to establish a mechanism for anticipating and managing value chain disruptions. In addition, it aims to bring together policymakers to share their experiences with semiconductor policies, including lessons learned and best practices.
The OECD also supports the design of policies that foster the emergence of local semiconductor ecosystems, thus contributing to a more diverse and resilient global semiconductor value chain. Recognising the significant investment required for new manufacturing capabilities, particularly in advanced chip production which can often reach tens of billions of dollars (Shih, 2021[8]), several OECD countries are introducing ambitious incentives such as subsidies and tax breaks to stimulate industry investments.
The success of new manufacturing facilities depends heavily on the availability of a skilled workforce and access to critical infrastructure. The OECD supports policies to develop skills and semiconductor talent to address the growing shortage of qualified workers (Deloitte, 2023[9]; McKinsey & Company, 2024[10]). The global shortage in semiconductor skills, requires renewed efforts in STEM education from an early age, together with enhanced collaboration between industry and education institutions to design appropriate curricula for both higher education and vocational education and training institutions. Finally, the OECD helps design public policies that support the semiconductor industry by ensuring access to critical infrastructure, including water, reliable and clean energy, as well as robust air and sea transport infrastructure.
[4] Antràs, P. et al. (2012), “Measuring the Upstreamness of Production and Trade Flows”, American Economic Review, Vol. 102/3, pp. 412-416, https://doi.org/10.1257/aer.102.3.412.
[5] BCG and SIA (2024), Emerging resilience in the semiconductor supply chain.
[9] Deloitte (2023), The global semiconductor talent shortage.
[1] Ewing, J. and N. Boudette (2021), A Tiny Part’s Big Ripple: Global Chip Shortage Hobbles the Auto Industry.
[2] Haramboure, A. et al. (2023), “Vulnerabilities in the semiconductor supply chain”, OECD Science, Technology and Industry Working Papers, No. 2023/05, OECD Publishing, Paris, https://doi.org/10.1787/6bed616f-en.
[11] Martins Guilhoto, J., C. Webb and N. Yamano (2022), “Guide to OECD TiVA Indicators, 2021 edition”, OECD Science, Technology and Industry Working Papers, No. 2022/02, OECD Publishing, Paris, https://doi.org/10.1787/58aa22b1-en.
[10] McKinsey & Company (2024), How semiconductor companies can fill the expanding talent gap.
[3] McKinsey & Company (2021), Value creation: How can the semiconductor industry keep outperforming?.
[7] McKinsey and Company (2022), Strategies to lead in the semiconductor world.
[6] OECD (2024), “Chips, nodes and wafers: A taxonomy for semiconductor data collection”, Technical paper series OECD Publishing.
[8] Shih, W. (2021), Why the global chip shortage is making it so hard to buy a PS5, https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-shortage-tsmc-samsung-ps5-decoder-interview (accessed on 25 February 2022).
← 1. The ICIO tables measure economic interrelatedness for 67 countries and 45 industries between 1995 and 2021 (Martins Guilhoto, Webb and Yamano, 2022[11]). They are the main building block to the Trade in Value Added (TiVA) data. In the basic ICIO tables, manufacturing of semiconductors is part of a larger “Computer, electronic and optical equipment” industry (D26 in ISIC Rev.4). Relying on bilateral trade data and five domestic input-output tables that are sufficiently granular to identify semiconductors, Haramboure et al. (2023[2]) estimate a semiconductor-augmented ICIO table, where the industry is split into two sub-industries, namely “Semiconductors” and “ICT and electronics (excluding semiconductors)”. The augmented data are derived from the 2021 version of the ICIO tables and cover the 1995-2018 period.
← 2. A direct dependency in an industry refers to the direct purchase of semiconductor inputs. Indirect dependency, on the other hand, accounts for semiconductors purchased by the industry's suppliers and embedded within the intermediate goods supplied to the industry.
← 3. Export concentration only measures inter-country flows concentration and does not consider domestic production.
← 4. A pure-play foundry focuses its activities on manufacturing semiconductor devices designed by other companies.
← 5. These advanced lithography machines are almost exclusively produced by a single Dutch firm, which relies on specialised optical instruments from one German firm, as reported by BCG and SIA (BCG and SIA, 2024[5]).