In the wake of COVID-19 shocks to the global supply chain, countries are moving fast to shore up semiconductor supply chains with comprehensive strategies and major investment. Australia risks being left behind and increasingly vulnerable to supply chain shocks unless the Federal Government matches state-led efforts with a coherent and comprehensive national plan to build capability.
The COVID-19 pandemic and the recent Strait of Hormuz crisis have both exposed and deepened the fragility of global supply chains. In response, countries have been racing to strengthen their supply chains and domestic capabilities to insulate themselves from external shocks, and in particular, their access to critical products like semiconductors.
As the core ‘building blocks’ for computer chips, sensors and power controls, semiconductors have become the foundation of most of the world’s technology, including energy infrastructure, smartphones, cars, artificial intelligence, life support equipment, and the advanced systems used in defence and national security. However, Australia’s approach to shoring up its semiconductor supply chain is found wanting compared to other efforts being made overseas.
The US passed the CHIPS and Science Act in 2022 with the explicit objective of building domestic semiconductor capability. Similarly, the EU passed the Chips Act in 2023 and wants to pass Chips Act 2.0 to facilitate additional capability across the semiconductor lifecycle. The UK has not passed legislation, but it did introduce a National Semiconductor Strategy in 2023. While the Federal Government deemed semiconductors as one of several “Critical Technologies in the National Interest”, this has not provoked the development of a national strategy, nor the passing of legislation specifically focused on growing domestic semiconductor capability.
Instead, the job has been taken up by state governments working with industry and academia to drive domestic capability. For example, NSW’s Semiconductor Sector Service Bureau (S3B) plans to release its “National Semiconductor Roadmap” in October. Such efforts must spur the Federal Government into taking comprehensive action. While such State-based efforts should be commended, they also highlight a lack of national cohesiveness and commitment. This does not look good from a foreign policy perspective, especially against the backdrop of the AUKUS agreement. A fragmented, state-based approach could arguably be interpreted by the UK and the US as Australia not taking the issue of semiconductor supply seriously. It is therefore imperative that technology critical to both pillars is given utmost priority at a national level.
In developing a national strategy, there must be consideration of some key challenges and opportunities.
First, Australia will remain reliant on the global supply chain in the long run for the most advanced semiconductors. Australia does not, and will not, have the capability to build them. Even the US cannot and will not make these semiconductors for the foreseeable future. President Trump believes that any US semiconductor supply chain woes will be addressed by onshoring. The Taiwan Semiconductor Manufacturing Company (TSMC), which makes the most advanced semiconductors in the world, has invested US$265 billion to build numerous semiconductor fabrication facilities (known as fabs) and advanced packing facilities in the US. TSMC fabs are already operational in Washington and Arizona. However, my colleagues and I have highlighted that this will not fix the issue and the US will remain reliant on Taiwan for the most advanced semiconductors. The best Australia can do is ensure that access to these semiconductors is prioritised. The Office of Supply Chain Resilience with its “focus on critical supply chain vulnerabilities that could impact Australia’s national interest” should make every effort to foresee and mitigate disruption of supply.
Second, while there may be the inclination for Australia to concentrate its efforts on niche semiconductor creation in the pursuit of comparative advantage, niche capability is only as advantageous as it goes to meeting demand. If Australia truly wants to significantly reduce its exposure to global supply chain shocks, it needs to produce semiconductors to serve a broad spectrum of existing and emerging technologies. This means investing in something Australia does not have – fabs that can manufacture at scale. The more aspects of the lifecycle handled domestically, the better the protection from external supply chain shocks. This will build on efforts already underway regarding other parts of the semiconductor lifecycle, such as the construction of Bradfield City’s advanced semiconductor packaging facility in Western Sydney.
Third, critical technologies in the national interest demand clear timelines with vigilant oversight. Without this, it is highly likely that there will be project slippage – deadlines are missed and commitment wanes. Just building fabrication facilities takes years (if everything goes to plan) and this does not take account of the time taken getting production up to scale. Clear timelines are needed in other aspects of the supply chain. A national strategy subject to annual progress reports in addition to performance audits by the Australian National Audit Office will go a long way to maintaining momentum while ensuring transparency and accountability.
Fourth, should Australia take a leaf out of the book of other countries and attract leading global companies to our shores? These companies bring their expertise, knowledge, technology, ability to scale and existing market demand. Local companies could be focused on those aspects of the semiconductor lifecycle where they can bring comparative advantage. This could be TMSC, which is currently building a fab in Germany (in addition to those in the US). Outside of fabrication, Australia could look to the likes of the US’s NVIDIA for semiconductor design. Australia could leverage its holdings of critical minerals used to make semiconductors or provide incentives (such as R&D tax offsets) to entice bigger players onshore. Australia has been able to attract some of the biggest defence companies in the world (such as BAE Systems, Lockheed Martin, Boeing and Thales) and we can do the same in the semiconductor space.
Dr Jon Cottam is a Lecturer in National Security and Intelligence in Macquarie University’s School of International Studies and a Fellow of Macquarie University’s Geopolitical Risk Research Centre. His research focuses on the intersection of biology, national security and intelligence.
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Photo: Politechnika Łódzka, Wikimedia Commons (CC BY 4.0)
