Massive Chip Shortage Fuels Calls to Bring Production Back to US

February 16, 2021 Updated: February 17, 2021

WASHINGTON—The pandemic has exposed the fragility of global supply chains, with the latest disruption being a global shortage of computer chips that has forced some automakers to cut or halt production.

Western governments are learning hard lessons from these disruptions, pushing to create more resilient and diverse supply chains. The Biden administration has pledged to take “immediate actions,” including potentially providing incentives for domestic production.

The demand for consumer electronics has gone through the roof during the pandemic, leading to the shortage of semiconductor chips. Automakers have been hit especially hard from this supply shock; General Motors and Ford have temporarily shuttered some of their plants in response.

Building new semiconductor factories is an extremely complex and expensive process, which makes it difficult for chipmakers to scale new capacity rapidly.

“COVID-19 pandemic dislocations disrupted the supply and demand patterns for many industries, and we’re starting to see the results of it,” according to Stephen Ezell, vice president at the Information Technology and Innovation Foundation (ITIF), a technology think tank.

“As vehicle demand rebounded more quickly than anticipated, automakers hadn’t placed sufficient orders for chips last summer, and with as much as a 26-week historical lag between order and delivery, automakers now find themselves in a pinch,” he told The Epoch Times.

The core of the problem is that the automotive sector demands chips built from 200 mm wafers, he said, which is a one-generation older technology than chips built from 300 mm wafers. Automakers prefer mature and slightly lower-cost chips. Many semiconductor companies, however, have focused on the production of chips at the more-profitable leading edge, and that has caused a supply shortage for automakers.

The Biden administration announced that it would take “immediate actions” to address the problem, however, it would first conduct a “comprehensive review” of critical supplies, according to White House press secretary Jen Psaki.

“The administration is currently identifying potential choke points in the supply chain,” Psaki told reporters on Feb. 11.

President Joe Biden is expected to sign an executive order in the coming weeks requiring the government to review vulnerabilities in U.S. supply chains.

Following the review, the administration could explore various policy options, including boosting domestic production and working with allies to develop a coordinated response to similar supply shocks in the future, she added.

Some media reports have speculated that Trump-era policies have exacerbated the chip shortage. The Trump administration in December 2020 added China’s top chipmaker, SMIC, to the export blacklist.

“The sanctions the U.S. has placed on SMIC have very little to do with the problem,” Ezell said.

“If anything, it’s the rampant Chinese innovation mercantilism in this sector that is upsetting innovation dynamics in the industry and harming its ability to continue to innovate at an exceptionally rapid rate. That U.S. sanctions on SMIC are part of the problem here is a total canard.”

Instead of rolling back China sanctions, industry executives and experts call for implementing and fully funding the CHIPS Act, which is included in the 2021 defense bill signed into law in January. The law authorizes federal incentives for domestic semiconductor manufacturing.

The chief executives of big U.S. semiconductor companies on Feb. 11 sent a letter to Biden, urging him to provide substantial incentives for domestic production “in the form of grants and/or tax credits, and for basic and applied semiconductor research.”

“We believe bold action is needed to address the challenges we face. The costs of inaction are high,” the group warned.

The U.S. share in global semiconductor manufacturing has dropped to 12 percent from 37 percent in 1990, according to the letter, mainly because of significant incentives and subsidies provided by other governments that reduced U.S. competitiveness.

Taiwan: A Chip Powerhouse

The global shortage of auto chips has elevated the strategic importance of Taiwan to Western governments. Taiwan’s semiconductor sector is the world’s second-largest by revenue after the United States. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, and other Taiwanese companies have already started to ramp up the production of vital chips to resolve the global crunch.

Despite the diplomatic isolation by China, Taiwan has “brilliantly built up a concentration of expertise, intellectual property, and importance globally in the semiconductor industry,” Rupert Hammond-Chambers, president of the U.S.–Taiwan Business Council, told The Epoch Times.

The United States can see the benefits of new economic initiatives and dialogues with Taiwan that started during the final year of the Trump administration, he said.

In May 2020, TSMC announced that it would build the world’s most advanced 5-nanometer chip fabrication facility in Arizona, an important step for bringing production and jobs to the United States.

Other Taiwanese companies that are “small relative to TSMC but still relatively large businesses are also announcing that they’re coming to the United States. So there is a domino effect,” Hammond-Chambers said.

The shortage of chips has affected many other car brands, including Volkswagen, Toyota, and Nissan. According to experts, the supply shortage couldn’t come at a worse time. The industry is struggling to make up for all the losses of production from last year and the consumer demand has been rebounding worldwide.

The chip shortage could go on until the end of September, according to Paul Eisenstein, publisher of TheDetroitBureau.com, an automotive web magazine.

“Everybody’s frantic right now there’s a bidding war between manufacturers across the world and within individual markets,” he told NTD Business.

Alice Sun contributed to this report.

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