Between sanctions and subsidies: reshaping the semiconductor ecosystem

Semiconductors are crucial to the modern economy, enabling economic and social interactions and supporting future growth and national security. Amid growing geopolitical tensions, the industry has become a focal point for policy intervention. This paper provides a comprehensive assessment of these policies, discussing their potential economic and international impact. Over the next 5-10 years, the US, the EU, China, Japan, South Korea and Taiwan will inject over $400 billion into the industry, catalyzing more than $700 billion in private investment. At the same time, an unprecedented bout of export controls is fragmenting the market. These policies will likely reshape the sector profoundly. Given the complexity of the semiconductor value chain, these measures reduce but do not eliminate external dependencies. Additionally, heavy-handed government intervention could unintentionally jeopardize the sector's economic health, with significant economic and security implications. The issues discussed highlight the challenge of managing security risks in an interconnected global economy without undermining its foundation.