Are We Entering a New Multipolar World for Electronics?

Ally Winning, European Editor, PSD



Ally Winning, European Editor, PSD

­When I came of age in Scotland, there were lots of electronics facilities nearby. Many of these workplaces were owned by large multinationals. Digital Equipment, Compaq, Motorola, NEC, Sun Microsystems, IBM, Honeywell and others had manufacturing plants within an hour’s drive from my home in Ayrshire. When I was considering what profession to choose, electronics was an easy choice to make. After I eventually got my degree, there were very few of these companies left. The financial incentives that had brought them to Scotland had run out and they moved on to other places with cheaper labour and healthy incentives of their own. The biggest recipient of the migration of these companies and many others was China, which was then becoming the global manufacturing hub.

Since the COVID 19 pandemic caused the global supply chain to fracture, countries and trade organizations have been looking to rebuild the supply chain in a more robust way that can more easily meet their own priorities. Both the US and the EU have developed plans that are intended to boost their own chip manufacturing industries and electronics companies. However, recent moves by the US have gone beyond that and could accelerate the on-shoring of the electronics industry. The current administration had already informally placed some restrictions to sending tech to China earlier this year, predominantly for companies that provide chip manufacturing machinery. Now, it has gone even further and put in place a series of measures that will not only stop China gaining any access to chip making machinery, but also to stop all direct or indirect support to Chinese companies that manufacture advanced chips. In addition, an entity list of companies has been created that will be banned from buying technology from US companies. The reason given for the new sanctions is to stop the Chinese gaining technology that is useful to its military and internal security. To accomplish the export ban, the US will use its ‘foreign direct product’ rule to ban any US or external company from supplying companies on the entity list with any product that has US technology in its supply chain. An exception to the machinery sanction will initially be available for facilities in China that are owned by companies from the US or allied countries that manufacture chips for export.

Stopping China gaining access to the technology that can manufacture the latest chips will also have the knock-on effect on the consumer industry. Our phones, computers and other household devices also use the latest chips. Rising living standards and the automation of production means that labor costs are not quite as a big differential as they once were between China and the west. It looks like the electronics industry will now enter a new era, one of a multipolar world, where China and the west compete with totally different products in totally different markets. There will be a host of opportunities, and some great jobs created for the next generation of school leavers. Let’s hope the same mistakes are not made again.