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EU hopes that a EUR43bn plan will address chip shortages and supply chain crises

As governments and businesses battle against a global supply chain crisis, the European Union announced a EUR43bn ($48bn), plan to reduce its dependence on Asian chip manufacturers.

Consumers have had to wait for months to get cars, dishwashers, and other durables due to chip shortages. The bloc’s plan is one of the most important developments as a result the tectonic shifts that the global economy has undergone since the coronavirus pandemic.

Ursula von der Leyen, president of the European Commission, stated Tuesday that “Chips are at center of the global technological race.” They are also the foundation of modern economies.

Von der Leyen stated that the pandemic had also exposed the vulnerability of its supply chain. “We saw that entire production lines were stopped. Despite increasing demand, we couldn’t deliver the required quantity of chips.

Von der Leyen stated that a “chips Act” would link research and design, testing, and coordination of EU and national investments. This plan allows state aid to help get massive investments off of the ground. It pools private and public funds.

The plan needs to be supported by the EU parliament as well as the member states.

This EU action mirrors Joe Biden’s $52bn investment in a national chip-producing industry to ensure more production in the United States. One expert stated that it showed how the pandemic was reshaping global economies.

Per Hong, a supply chain specialist and partner at the US consultancy Kearney, stated that disruptions could continue for months as the Omicron strain continues to have a significant impact on all sectors of the economy, particularly in China.

He said that “we’re still in early days of disruption from Omicron running though every stage of the systems, from suppliers to distribution and retail.” China is experiencing its largest Covid case surge since the outbreak in Wuhan. So mass lockdowns and forced quarantines are being continued by the government.

The effects were felt in Zhejiang’s manufacturing center, which is home to Ningbo, the largest cargo port in the world. Authorities closed shipping terminals, shut down shipping terminals, and placed quarantines on tens of thousands of people. This forced ships to reroute. In Xi’an Samsung’s semiconductor factory was closed and its staff was in lockdown for three weeks. The disruptions were extended by the Lunar New Year holiday that lasted a week.

He said that although supply chain managers are skilled at adapting to natural disasters like typhoons or fires, the effects of the pandemic were “far reaching” beyond what was expected.

Geopolitical shifts, rising nationalism, and climate change are all contributing factors to this mix. These changes were leading governments and companies to rethink their business models as well as governments dealing in the computer chip crisis.

Hong stated that they are looking to reduce lead times and move production closer to consumption. We are shifting from just-in time to just-in case. Restructuring the economy is complicated by many factors, which forces companies to reevaluate their activities.

Businesses continue to struggle with labour shortages due to the ongoing surges in virus and lockdowns as well as inflation that has not been seen for many decades.

A litany of references to supply chain problems was part of the recent round of company reports in the US, Europe, and Asia Pacific.

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