The UK government has unveiled its 20-year semiconductor strategy to establish the country as a semiconductor design, research, and advanced manufacturing leader. The strategy intends to protect supply chains, ensure national security, and support the energy transition to a net-zero economy. However, concerns persist regarding how the plan will address economic security and environmental objectives amidst increasing geopolitical tensions.

Taiwan, mainly Taiwan Semiconductor Manufacturing Company (TSMC), dominates the market, supplying over half the global demand. Presently, the UK, along with the US, Europe, and China, heavily relies on Taiwan for cutting-edge semiconductors. The contract manufacturing model, however, has become increasingly uncertain due to disruptions caused by the pandemic and the escalating rivalry between the US and China. The potential for a trade blockade or military conflict involving Taiwan could jeopardize global economic security and the energy transition, as Taiwan's semiconductor industry plays a vital role in various high-tech supply chains.

To mitigate geopolitical risks and supply disruptions, TSMC has announced plans to expand its manufacturing capacity in the US. The UK's semiconductor strategy aims to develop specific domestic semiconductor design and manufacturing aspects. Still, it will continue to rely on Taiwan for high-performance chips shortly. The government has pledged £1 billion to support the strategy, but this amount is considerably smaller than the US and EU funding for their semiconductor industries.

Semiconductors are crucial for achieving net-zero targets as they underpin technologies like electric vehicles and renewable energy systems. However, the UK must ensure its semiconductor strategy aligns with environmental objectives. Semiconductor fabrication is energy- and water-intensive, generating toxic waste and contributing to carbon emissions. New fabrication facilities must incorporate state-of-the-art pollution control and circular water systems to minimize environmental impact.

The UK government places great importance on science, technology, security, and economic resilience. The semiconductor strategy aims to position the UK as a valued participant in global supply chains, acknowledging that the country cannot develop a fully self-sufficient semiconductor industry. The strategy emphasizes areas where the UK excels, such as semiconductor design. Stable global supply chains remain crucial for the UK, and the strategy includes efforts to improve supply chain resilience through agreements with allies.

As countries seek to manage global supply chain risks, subsidies for critical sectors and restrictions on foreign ownership are becoming more common. The UK has implemented the National Security and Investment Act to prevent foreign entities from acquiring sensitive UK businesses. However, questions arise about how the UK government can ensure economic resilience while lacking significant subsidy capacity. Private investment is necessary to secure the UK's desired role in global supply chains, but the prospect of government intervention may deter outside investors. The review process and uncertainty surrounding the Newport Wafer Fab deal in Wales have raised concerns about job security.

The UK's science and technology strategy, including its semiconductor strategy, will significantly affect its economy and foreign policy. The government faces challenging economic security, prosperity, and foreign investment decisions. The UK in the World at Chatham House provides analysis and recommendations on the critical decisions the UK government needs to make in the coming years.

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