Government Takes Stock of Global Chip Shortage with Aim of Finding a Cure
President Biden is taking steps to address the global supply chain weaknesses made apparent by the COVID-19 pandemic. On February 24, 2021, President Biden signed an Executive Order announcing strategies to repair supply chain vulnerabilities in four industries, including semiconductor chip manufacturing. The Executive Order requires the Secretary of Commerce, along with the leaders of other relevant agencies, to assess the risks and weaknesses associated with the manufacturing of these chips within 100 days. President Biden also asked for recommendations regarding how to strengthen the supply chain and boost its reliability in the face of outside pressures, such as economic downturns. Although it is unclear how the Administration will respond to the outcome of the investigation, the Biden Administration could pressure companies producing these chips to move their plants from Asian countries to the United States or U.S. allied countries.
The Executive Order comes in part as a response to the global semiconductor chip shortage which has been continually increasing in severity. Modern society relies heavily on semiconductor chips, which perform many processing functions of the electronics we use daily, including data storage and automated task-performance. The chip shortage can be felt far and wide. For example, the lack of graphics chips made finding a Playstation 5 or Xbox Series X in stores or online nearly impossible following their releases in November 2020. Car and smartphone manufacturers are also feeling the pressure, as both have forgone the release of newer model products that cannot be made without these chips.
This shortage was triggered by the abrupt stoppage of manufacturing due to COVID-19 outbreaks in factories, increased demand and reliance on technology resulting from more time being spent at home, and longer shipping times as mail carriers tackled the uptick in deliveries. The United States sells 47 percent of the world’s chips but controls only 12 percent of the manufacturing market for such chips. This overreliance on foreign manufacturing has left the United States largely powerless to mitigate supply chain disruptions occurring overseas and has subjected the domestic availability of these chips to the complexities of global politics, like the recent restrictions placed on manufacturers due to trade disputes with China.
The Executive Order is only one of several efforts made by the federal government to resolve this crisis. Earlier this year, Congress passed the National Defense Authorization Act of 2021. Title XCIX of the Act includes authorization to establish a Department of Commerce program that would use federal funds to encourage domestic manufacturing of semiconductor chips. Additionally, at the end of March, President Biden announced the American Jobs Plan, which seeks to address shortcomings in U.S. infrastructure and increase competition with China. In the plan, President Biden echoes the aims of the unpassed CHIPS Act from the prior Congress, and asks Congress to allocate $50 billion to the manufacturing of semiconductor chips and related research. Just a few days after the Executive Order was signed, eight state governors pressed President Biden to encourage chip manufacturers to reapportion their efforts to making “auto-grade” chips as a number of U.S.-based vehicle manufacturers have recently been forced to stop production. Governors Gretchen Whitmer, Kay Ivey, Laura Kelly, Mike Parson, Henry McMaster, Andy Beshear, Mike Dewine, and Eric Holcomb spearheaded the charge, putting strong emphasis on the need to save jobs in the auto industry. Unfortunately, it can take up to six months for manufacturing plants to increase production capacity and in any event, many manufacturers already operate at or close to 100 percent capacity. As a result, any changes in allocation could exacerbate existing problems for other areas of business as supply is so scarce.
Efforts to resolve the shortage have also been made in the private sector. In December, Intel transformed some of its unused office space into manufacturing centers for its 10nm chips and recently announced that it will be investing $20 billion into building two chip-manufacturing plants in Arizona. Last year, Taiwan Semiconductor Manufacturing Company also expressed intent to build a plant in Arizona, and this March, it announced it would be spending $100 billion to boost manufacturing volume at its existing plants.
Despite the current focus on resolving the supply shortage, the demand for semiconductor chips is expected to grow exponentially as continued technological advances result in electronic devices requiring more and more chips. As a result, the technology community will need to focus on long-term solutions, such as internalized reliance on production, to ensure the supply chain is not disrupted on such a broad scale again. If the chip supply crisis is not resolved, expect to see increased prices for many products requiring these chips in the future.
GLTR Staff Editor; Georgetown Law, J.D. expected 2022; George Mason University, B.S. 2016. © 2021, Dacey Gilligan.