What is the State of the Global Trade in Integrated Circuits?
Category: International Trade
By: Emmanuel Wa-Kyendo,
Introduction
Integrated circuits are intermediate products. The direct consumers of integrated circuits manufacture final goods ranging from consumer electronics to aircraft. Indirect consumers of integrated circuits comprise all those who purchase goods and services that require integrated computer chips. Integrated circuits are the most important element of modern electronics. This blog post is the first in a series that explores the state of the global trade in semiconductor devices and explains why this trade is a development question. This blog explores the state of the global trade in integrated circuits and explains why least developed countries should care about the evolution of this trade.
Source: Observatory Economic Complexity
The World Bank estimates that in the year 1995, global economic output was valued at US$31.05 trillion. In that year, global trade was valued at US$6.44 trillion. The Observatory Economic Complexity estimates that global trade was valued at US$4.98 trillion. At the time of writing, the explanation for the difference in data could not be determined. World Bank data estimates that by the year 2020, the value of global economic output was $96.53 trillion while the value of global trade was $27.88 trillion. The Observatory Economic Complexity itself estimates that global trade was valued at $16.7 trillion. Importantly, the OEC data presented above is based on trade in physical goods alone. This might account for some of the difference. At the time of writing, the differences between OEC and World Bank data could not all be ascertained.
In the year 1995, the global trade in integrated circuits was the third most valuable trade in the world after the trades in cars and crude petroleum. The trade in cars took 4.71% value of global trade while the trade in crude petroleum took a 3.64% share of total trade. By the year 2020, the value of the global trade in integrated circuits accounted for a larger 4% of the value of global trade.
Chart 1 above shows that in the year 2020, the value of the trade in integrated circuits was greater than that of cars and crude petroleum. This is an indication that the trade in integrated circuits has become more important in global trade. Additionally, cars, crude petroleum and integrated circuits have complexity indices if -0.88, -2.32 and 1.42 respectively. Product complexity is a measure of the intensity of knowledge involved in the production of a given good or service. That integrated circuits have a product complexity index of 1.42 means that it takes a higher intensity of knowledge to produce integrated circuits than it does cars or crude petroleum. Finally, the integrated circuit is the most important building block of modern electronics. In addition to its value in global trade, the integrated circuit is the most complex good ever traded widely in the totality of human history.
The rise, spread and ubiquity of the integrated circuit represents a shift in the foundation of human civilization. The global trade in raw material inputs has been surpassed by a highly processed, very sophisticated good. The trade in integrated circuits will not abate. As more devices requiring integrated circuits are reimagined or introduced anew, the presence of integrated circuits in international trade is bound to grow.
Source: Observatory Economic Complexity
Chart 2 above illustrates that the export market for integrated circuits is dominated by Asian countries. This geographic concentration could be underpinned by a concentration in supply chains of IC components in Asia. Moreover, the dominant exporter is the small island of Taiwan (Chinese Taipei). This region has a comparative advantage in the production of integrated circuits. Furthermore, this region has value and supply chain linkages that have grown with concurrent growth in latent comparative advantage in integrated circuit production. Finally, economies of scale and consumer demand for a variety of inputs also explains the regional dominance. That is, these nations could be producing integrated circuits of differing qualities.
To meet a demand for these goods. It is likely that these countries and the region as a whole gained expertise in IC production by participating in different points of the value chain since the 1960s when production of ICs in the region began.
Source: Observatory Economic Complexity
Chart 3 above illustrates the demand side of the trade in ICs. The chart above reveals that Asia dominates the demand and supply side for the trade in integrated circuits. Although this is true at the regional level, the nations in Asia that dominant on the demand side are not necessary equally dominant on the supply side. For example, Taiwan (Chinese Taipei) is dominant on the supply side but is not among the top three nations on the demand side. Mexico barely features as an IC supplier but is the most important importer of ICs in North America. As China is almost as important an importer of ICs as it is an exporter of the product, China is the exception.
integrated circuits are an intermediate product. This means that they are inputs for other final goods. The trade in ICs is dominated by nations that are home to manufacturing firms that use these ICs as manufacturing inputs. It is likely, for example, that Taiwan is highly specialized in the production of ICs but does not have as many firms participating in the use of ICs as inputs. In sum, the Asian region has a comparative advantage in both production and consumption of ICs. Some nations in the East Asian region have a comparative advantage in manufacturing of ICs while others have a comparative advantage in manufacturing that uses ICs as inputs. The East Asian region is the most important region in terms of value in the global trade in ICs. Furthermore, the region is home to the bulk of the global IC value chain. The chart illustrates that the concentration of IC manufacturing in Asia has been increasing since at least the year 1996. That the shares of North American and European IC trade have been shrinking shows that the Asia has grown in comparative advantage of the production of ICs relative to Europe and North America. As the global value in the trade of ICs has grown, the comparative advantage of East Asia and the value of East Asian participation in global trade in ICs has also grown.
Source: Observatory Economic Complexity
Chart 4 above illustrates that in the year 2020, the value of African imports of integrated circuits was almost twice that of exports. This means that these nations are net consumers of integrated circuits. Nations with larger manufacturing footprints dominated the African trade in integrated circuits. These nations include Morocco, Tunisia, Nigeria, South Africa and Egypt. Maghrebian economies also have geographic proximity to Europe. This means that manufacturers who use ICs as inputs for their products have cheaper access to European markets than other African nations like South Africa that also have significant manufacturing footprints. Activities like vehicle assembly could use ICs as manufacturing inputs. In all, these nations have relatively important comparative advantages in manufacturing. This at least when compared to their counterparts across the African continent. Kenya made $2.98 million in imports of the product and $1.23 million in exports. Like other African countries, Kenya was a net importer of integrated circuits. That Kenya and the African continent are net importers of ICs and that the African footprint of the global IC value chain is insignificant are facts together reflective of the absence of comparative advantages in IC manufacture in particular and manufacturing in general. Despite this fact, African consumption of ICs in the secondary market is significant enough. This is reflected in the fact that African nations import the manufactured goods that they cannot produce.
Source: ING Group
Conclusion: Why Should Policy Makers in Developing Countries Care about the Semiconductor Trade?
Chart 4 illustrates that more than 3/4 of chips sold in the year 2019 were inputs in consumer electronics and motor vehicles. African households are indirect consumers of ICs in the form of Smartphones and other consumer electronics, personal computers, white goods and other household appliances and motor vehicles. African firms are consumers of ICs in the primary and secondary market for factor inputs. African firms are also suppliers of goods and services that require factor inputs with digital components to produce and digital, IC based devices to consume. Finally, African governments are also providing more digitized services that require IC enabled devices to access. With the continued growth in the trends towards digitization, the consumption of IC products is not falling. The IC is an important product.
Since the year 2009, Chinese per capita incomes increased at an astounding 200% to $12,556. Kenyan per capita incomes grew by a less remarkable 98% to $2,081. In that period, however, the introduction of the low cost smartphone allowed low income consumers access to computing power that was unavailable to NASA scientists conducting the moon landing. The ubiquity of other consumer electronics like flat screen televisions means that the Kenyan consumer has greater choice in what goods and services they may consume. Expansion in consumer choice constitutes an expansion in consumer welfare.
This is just one example of the way that semiconductor devices are growing in their presence in the economic lives of citizens of Kenya and the developing world at large. Although incomes are not changing dramatically, semiconductor based electronics are growing in their importance. Policy makers should be concerned about the implications of fissures in global value and supply chains of semiconductors. In the long term, any political tensions driving semiconductor value chain shocks will have increasing effects on markets whose share of semiconductor based products is only growing.
Although poorer countries cannot make them, but perturbations in semiconductor trade will affect markets in the same way that the Russian invasion of Ukraine and other oil shocks -politically induced or otherwise – had effects on local oil prices and in turn a range of interdependent products. Semiconductors are the petroleum of the future.
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What is the State of the Global Trade in Integrated Circuits?
| Post date: Wed, Mar 29, 2023 |
| Category: International Trade |
| By: Emmanuel Wa-Kyendo, |
Introduction
Integrated circuits are intermediate products. The direct consumers of integrated circuits manufacture final goods ranging from consumer electronics to aircraft. Indirect consumers of integrated circuits comprise all those who purchase goods and services that require integrated computer chips. Integrated circuits are the most important element of modern electronics. This blog post is the first in a series that explores the state of the global trade in semiconductor devices and explains why this trade is a development question. This blog explores the state of the global trade in integrated circuits and explains why least developed countries should care about the evolution of this trade.
Source: Observatory Economic Complexity
The World Bank estimates that in the year 1995, global economic output was valued at US$31.05 trillion. In that year, global trade was valued at US$6.44 trillion. The Observatory Economic Complexity estimates that global trade was valued at US$4.98 trillion. At the time of writing, the explanation for the difference in data could not be determined. World Bank data estimates that by the year 2020, the value of global economic output was $96.53 trillion while the value of global trade was $27.88 trillion. The Observatory Economic Complexity itself estimates that global trade was valued at $16.7 trillion. Importantly, the OEC data presented above is based on trade in physical goods alone. This might account for some of the difference. At the time of writing, the differences between OEC and World Bank data could not all be ascertained.
In the year 1995, the global trade in integrated circuits was the third most valuable trade in the world after the trades in cars and crude petroleum. The trade in cars took 4.71% value of global trade while the trade in crude petroleum took a 3.64% share of total trade. By the year 2020, the value of the global trade in integrated circuits accounted for a larger 4% of the value of global trade.
Chart 1 above shows that in the year 2020, the value of the trade in integrated circuits was greater than that of cars and crude petroleum. This is an indication that the trade in integrated circuits has become more important in global trade. Additionally, cars, crude petroleum and integrated circuits have complexity indices if -0.88, -2.32 and 1.42 respectively. Product complexity is a measure of the intensity of knowledge involved in the production of a given good or service. That integrated circuits have a product complexity index of 1.42 means that it takes a higher intensity of knowledge to produce integrated circuits than it does cars or crude petroleum. Finally, the integrated circuit is the most important building block of modern electronics. In addition to its value in global trade, the integrated circuit is the most complex good ever traded widely in the totality of human history.
The rise, spread and ubiquity of the integrated circuit represents a shift in the foundation of human civilization. The global trade in raw material inputs has been surpassed by a highly processed, very sophisticated good. The trade in integrated circuits will not abate. As more devices requiring integrated circuits are reimagined or introduced anew, the presence of integrated circuits in international trade is bound to grow.
Source: Observatory Economic Complexity
Chart 2 above illustrates that the export market for integrated circuits is dominated by Asian countries. This geographic concentration could be underpinned by a concentration in supply chains of IC components in Asia. Moreover, the dominant exporter is the small island of Taiwan (Chinese Taipei). This region has a comparative advantage in the production of integrated circuits. Furthermore, this region has value and supply chain linkages that have grown with concurrent growth in latent comparative advantage in integrated circuit production. Finally, economies of scale and consumer demand for a variety of inputs also explains the regional dominance. That is, these nations could be producing integrated circuits of differing qualities.
To meet a demand for these goods. It is likely that these countries and the region as a whole gained expertise in IC production by participating in different points of the value chain since the 1960s when production of ICs in the region began.
Source: Observatory Economic Complexity
Chart 3 above illustrates the demand side of the trade in ICs. The chart above reveals that Asia dominates the demand and supply side for the trade in integrated circuits. Although this is true at the regional level, the nations in Asia that dominant on the demand side are not necessary equally dominant on the supply side. For example, Taiwan (Chinese Taipei) is dominant on the supply side but is not among the top three nations on the demand side. Mexico barely features as an IC supplier but is the most important importer of ICs in North America. As China is almost as important an importer of ICs as it is an exporter of the product, China is the exception.
integrated circuits are an intermediate product. This means that they are inputs for other final goods. The trade in ICs is dominated by nations that are home to manufacturing firms that use these ICs as manufacturing inputs. It is likely, for example, that Taiwan is highly specialized in the production of ICs but does not have as many firms participating in the use of ICs as inputs. In sum, the Asian region has a comparative advantage in both production and consumption of ICs. Some nations in the East Asian region have a comparative advantage in manufacturing of ICs while others have a comparative advantage in manufacturing that uses ICs as inputs. The East Asian region is the most important region in terms of value in the global trade in ICs. Furthermore, the region is home to the bulk of the global IC value chain. The chart illustrates that the concentration of IC manufacturing in Asia has been increasing since at least the year 1996. That the shares of North American and European IC trade have been shrinking shows that the Asia has grown in comparative advantage of the production of ICs relative to Europe and North America. As the global value in the trade of ICs has grown, the comparative advantage of East Asia and the value of East Asian participation in global trade in ICs has also grown.
Source: Observatory Economic Complexity
Chart 4 above illustrates that in the year 2020, the value of African imports of integrated circuits was almost twice that of exports. This means that these nations are net consumers of integrated circuits. Nations with larger manufacturing footprints dominated the African trade in integrated circuits. These nations include Morocco, Tunisia, Nigeria, South Africa and Egypt. Maghrebian economies also have geographic proximity to Europe. This means that manufacturers who use ICs as inputs for their products have cheaper access to European markets than other African nations like South Africa that also have significant manufacturing footprints. Activities like vehicle assembly could use ICs as manufacturing inputs. In all, these nations have relatively important comparative advantages in manufacturing. This at least when compared to their counterparts across the African continent. Kenya made $2.98 million in imports of the product and $1.23 million in exports. Like other African countries, Kenya was a net importer of integrated circuits. That Kenya and the African continent are net importers of ICs and that the African footprint of the global IC value chain is insignificant are facts together reflective of the absence of comparative advantages in IC manufacture in particular and manufacturing in general. Despite this fact, African consumption of ICs in the secondary market is significant enough. This is reflected in the fact that African nations import the manufactured goods that they cannot produce.
Source: ING Group
Conclusion: Why Should Policy Makers in Developing Countries Care about the Semiconductor Trade?
Chart 4 illustrates that more than 3/4 of chips sold in the year 2019 were inputs in consumer electronics and motor vehicles. African households are indirect consumers of ICs in the form of Smartphones and other consumer electronics, personal computers, white goods and other household appliances and motor vehicles. African firms are consumers of ICs in the primary and secondary market for factor inputs. African firms are also suppliers of goods and services that require factor inputs with digital components to produce and digital, IC based devices to consume. Finally, African governments are also providing more digitized services that require IC enabled devices to access. With the continued growth in the trends towards digitization, the consumption of IC products is not falling. The IC is an important product.
Since the year 2009, Chinese per capita incomes increased at an astounding 200% to $12,556. Kenyan per capita incomes grew by a less remarkable 98% to $2,081. In that period, however, the introduction of the low cost smartphone allowed low income consumers access to computing power that was unavailable to NASA scientists conducting the moon landing. The ubiquity of other consumer electronics like flat screen televisions means that the Kenyan consumer has greater choice in what goods and services they may consume. Expansion in consumer choice constitutes an expansion in consumer welfare.
This is just one example of the way that semiconductor devices are growing in their presence in the economic lives of citizens of Kenya and the developing world at large. Although incomes are not changing dramatically, semiconductor based electronics are growing in their importance. Policy makers should be concerned about the implications of fissures in global value and supply chains of semiconductors. In the long term, any political tensions driving semiconductor value chain shocks will have increasing effects on markets whose share of semiconductor based products is only growing.
Although poorer countries cannot make them, but perturbations in semiconductor trade will affect markets in the same way that the Russian invasion of Ukraine and other oil shocks -politically induced or otherwise – had effects on local oil prices and in turn a range of interdependent products. Semiconductors are the petroleum of the future.
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Introduction The matatu metaphor can be used to analytically frame Kenya’s budget as a system that is subject to binding constraints, evolving expectations, and continuous adjustment to shocks. Like the matatu sector, fiscal policy reflects a balancing act between efficiency and quick action seeking to respond to public service delivery while constrained by competing sector […]
NTSA Should Not Regulate Public Service Vehicle Fares
Introduction Imagine paying the same fare to travel at 6 a.m. as you would at 6 p.m., even though the matatu is half-empty in the morning and packed in the evening. At 6 a.m., there may be more seats available than passengers willing to pay for them. By 6 p.m., the situation is reversed. Hundreds […]
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Absurd hypotheticals are useful precisely because they stress-test a system until its constraints become visible. This note asks what would break first if SpaceX, now a public company following its record-breaking Nasdaq debut in June 2026, with a post-IPO market value of approximately US$ 2.5 trillion, sought a secondary cross-listing on the Nairobi Securities Exchange. […]
The Arithmetic of Ambition: What Kenya’s First-World Dream Really Requires?
Kenya’s proposed post-2030 Vision commits the country to high-income status “within a generation.” One positive issue that should be emulated is that the document seeks to solve the most important policy decision and the foundational problem in economics, which is to expand output and labour. Skeptics ask the most important question, why would this plan […]
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According to the Annual Debt Report 2024/25, as shown in Chart 1 below, Kenya today is such that for every one hundred shillings the Kenyan government raises in tax revenue, approximately ksh71 goes directly into servicing existing debt before a single hospital is staffed, a classroom is built, or a kilometre of road is constructed. […]