Building resilient semiconductor supply chains amid global tensions

The semiconductor sector, essential for powering devices from smartphones to advanced computing systems, faces mounting pressures from global disruptions in August 2025. US tariffs have created widespread disruptions across global commodity markets, with effects varying significantly by sector and timing. The implementation of extensive trade measures under the Trump administration has reshaped international trade flows and introduced substantial price volatility across several industries.

Global trade patterns are undergoing permanent shifts, creating a "chessboard" environment where companies must navigate rapidly changing trade rules and market fragmentation. While some regions benefit from trade diversion, the overall impact appears negative for global economic growth. Price volatility has become the new normal across commodity markets, with geopolitical uncertainty and trade conflicts serving as fundamental drivers of this volatility.

This volatility extends beyond semiconductors, affecting broader commodity markets. Throughout August 2025, energy and agricultural commodities are experiencing significant price fluctuations. Copper prices have proven especially erratic, falling over 21% in the 30 days prior to August 20, even while remaining 5.5% higher year-over-year, and the entire commodities market is contending with instability fuelled by new tariffs and geopolitical friction. This marks a shift from previous periods, where volatility drivers were more often related to traditional supply and demand dynamics rather than the severe, direct impact of such targeted trade policies.

US tariffs have created a complex web of price adjustments, trade diversions, and supply chain adaptations that vary significantly across sectors, including the semiconductor industry. While some producers in non-targeted countries benefit from trade diversion, the overall impact appears to be higher prices for consumers and increased market uncertainty globally.

The Trump administration's recent imposition of 100% tariffs on chips manufactured outside the U.S. has amplified existing vulnerabilities, prompting industry leaders to reassess supply chain strategies. Exemptions for companies investing in domestic production offer some relief, but the policy underscores broader concerns over trade barriers, regional dependencies, and regulatory shifts.

The vulnerabilities exposed

Semiconductor supply chains function as intricate global networks, with raw materials sourced from diverse regions, fabrication concentrated in specialized hubs, and assembly distributed worldwide. A However, this structure creates a critical vulnerability due to the industry's heavy reliance on Taiwan. The island manufactures around 90% of the world's most advanced logic chips. This output includes most processors with feature sizes of 5 nm or less, which power demanding applications such as AI data centres, the latest smartphones, and advanced computing systems. Concentrating this vital production in one geographic location leaves the entire global technology sector exposed to disruptions from natural disasters or geopolitical conflicts.

The new U.S. tariffs, which waive fees for domestically produced semiconductors, aim to bolster local jobs and protect intellectual property amid escalating tensions with nations such as China and India. While intended to encourage onshoring, these measures have immediate repercussions, including elevated costs and logistical complexities for importers.

This policy aligns with a wider trend of protecting national industries, potentially accelerating U.S. factory expansions but at the expense of short-term supply delays and higher prices for end-users. A central dilemma for businesses is balancing the push for domestic production with the collaborative, cross-border nature of semiconductor manufacturing. Geopolitical frictions, combined with past events like the COVID-19 pandemic, highlight how quickly issues such as export controls or supply shortages can cascade through the ecosystem.

Diversification as a core defence

A primary strategy for mitigation involves diversification, reducing overdependence on single regions or suppliers. Geographically, this means expanding fabrication footprints to areas like the U.S., Europe, Vietnam, and Mexico, where investments can hedge against concentrated risks. Key considerations include reliable infrastructure, such as stable energy supplies and skilled workforces, alongside protections for intellectual property.

For suppliers, companies are working to secure multiple sources for essential components, incorporating modular designs that allow for easier substitutions without extensive retooling. However, diversification introduces trade-offs. It can increase operational complexity and costs, sparking debates on maintaining lean efficiencies versus building redundancies for security. While these efforts may strain budgets, they are vital for long-term stability in the semiconductor sector, which is prone to volatility.

Proactive risk management

Beyond diversification, effective risk handling is essential to counter threats from political instability, environmental events, or cyberattacks, issues that have previously disrupted global operations, as seen during the pandemic. Companies are increasingly adopting digital twins for simulating scenarios and predictive analytics to detect emerging problems. Flexible contracts with suppliers, including adjustable capacity terms, and maintaining strategic inventories provide buffers against interruptions.

Challenges persist, particularly for smaller firms lacking resources for advanced tools, potentially widening gaps with larger competitors. In an increasingly divided global landscape, cross-border collaborations, such as joint R&D initiatives, offer promise but must navigate regulatory hurdles. Public-private partnerships and alliances, like those under the U.S. CHIPS Act, are helping to distribute costs and foster shared innovation.

Technology's role in adaptation

Technological integration is transforming supply chain dynamics, enabling real-time oversight to identify issues early and adjust logistics dynamically. Tools such as AI-driven platforms and blockchain enhance transparency and traceability, mitigating risks such as counterfeit components.

Yet, overreliance on these systems introduces new vulnerabilities, including critical cybersecurity threats such as ransomware targeting factory operations and complex integration errors. Discussions around substantial investments, potentially trillions by 2030, highlighted by Intel’s $20 billion project in Ohio and TSMC’s $40 billion fabs in Arizona, emphasize the need for sustainable practices. This is ensuring that these massive expansions prioritize concrete efficiency goals, such as advanced water reclamation systems and commitments to renewable energy, addressing both operational and environmental considerations from the outset.

Industry investment and geographic diversification

Semiconductor manufacturing is poised to gain greater resilience in the coming years, with projections indicating that total semiconductor industry capex will reach $192 billion in 2028, and accumulated CapEx from 2024-28 will be $912 billion, according to Omdia's semiconductor research group. Globally, the pure-play foundry industry will continue to invest heavily in advanced technology nodes such as 3nm, 2nm, 1.6nm and below in the coming years. Advanced wafer production capabilities will expand significantly outside of Taiwan and South Korea, incorporating substantial growth in the US, Europe, and Japan.

This massive investment trend directly addresses the geographic concentration risks highlighted earlier and demonstrates the industry's commitment to building more resilient supply chains. The expansion of advanced manufacturing capabilities across multiple regions will help mitigate the vulnerabilities associated with overreliance on specific countries, creating a more balanced global semiconductor ecosystem that can better withstand geopolitical shocks and natural disasters.

Path Forward Amid Uncertainty

Strengthening semiconductor supply chains requires an integrated mix of diversification, risk strategies, and technological advancements. The August 2025 tariffs, while challenging, may catalyze a shift from outdated models toward more robust frameworks. Sustained dialogue among industry executives, policymakers, and technologists will be crucial to align priorities and address evolving demands.

To stimulate ongoing discussion, consider these points:

• For smaller semiconductor firms, what cost-effective methods can enable diversification without excessive financial strain?

• In the future, how might international collaborations evolve to manage tariffs like those introduced in August 2025?