Global Semiconductor Crisis Spurs Action by US, the EU — and Chip Makers Themselves

Geopolitical tensions, decades of trade policy and the massive chip needs of a growing connected economy are converging as the semiconductor shortage hits alarming levels, laying the groundwork for business and regulatory changes coming to this essential sector.

Chip makers were on Capitol Hill Wednesday (March 23) pressing for subsidies and tax credits to energize action as chip inventories fall to precipitous lows while lawmakers cited cybersecurity concerns and spoke about problems that chip shortages are creating for consumers.

In January, the Commerce Dept released results of a report on risks to the semiconductor supply chain, finding the median inventory companies have on hand (including automakers or medical device manufacturers, as examples) fell from 40 days in 2019 to less than five last year.

“If a COVID outbreak, a natural disaster, or political instability disrupts a foreign semiconductor facility for even just a few weeks,” the report cautioned, “it has the potential to shut down a manufacturing facility in the U.S., putting American workers and their families at risk.”

CHIPS Waits for Funding

See also: No End in Sight for Global Chip Shortage

Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act in January of 2021 but has yet to fund a requested $52 billion to shore up the semiconductor supply chain by reshoring more production to the U.S. and less volatile regions.

In his remarks to Senate committee members on Wednesday, chip maker Micron Technology’s CEO, Sanjay Mehrotra, noted that China is investing more than $100 billion in its  semiconductor.

“It is extremely important that U.S. does play catch-up with CHIPS Act, with investment tax credits, he said. “Timing is of the essence. Other countries are moving forward. We need to catch up in this area to get a level playing field.”

A tangle of related bills has been proposed to support U.S. chip makers, including a proposed 25% tax credit for investments in semiconductor manufacturing infrastructure, including booth equipment and new factories.

The Semiconductor Industry Association (SIA) endorsed that bill, stating in March that “semiconductor manufacturing capacity located in the U.S. has decreased from 37% in 1990 to 12% today. This decline is largely due to substantial manufacturing incentives offered by the governments of our global competitors, placing the U.S. at a competitive disadvantage in attracting new construction of semiconductor manufacturing facilities, or ‘fabs.’”

In January, Intel announced plans to invest $20 billion building “two new leading-edge chip factories in Ohio” as part of a broader expansion of domestic production capacity.

“Digital transformation has led to unprecedented demand for chips, made more acute by the COVID pandemic and global disruptions in our supply chain,” Intel Corp. CEO Patrick Gelsinger told the Senate Committee on Commerce, Science, and Transportation on Wednesday. “The chip shortage cost the U.S. economy $240 billion last year. We now expect the shortage to continue into at least 2024.”

Global Consumer Impacts

See also: Automakers Announce Agreements to Improve Supply of Semiconductor Chips

In opening remarks, committee chair U.S. Sen. Maria Cantwell (D-Wash.) brought the discussion down to earth, connecting chip shortages to price increases for consumers.

“It’s the person whose radiator blew out last week and just needs anything on four wheels to get them to their job,” she said. “And that’s a basic used car that might have gone up [from] $5,000 in cost, an additional 41%. And an extra $2,000, taking that to $7,000, is just a trip the family doesn’t get to take or maybe next month’s rent that can’t get paid.”

The European Union (EU) is taking steps too, announcing the European Chips Act in February.

Per an EU statement, “Recent global semiconductors shortages forced factory closures in a wide range of sectors from cars to healthcare devices. In the car sector, for example, production in some Member States decreased by one third in 2021. This made more evident the extreme global dependency of the semiconductor value chain on a very limited number of actors” at a time of global instability.

See also: European Chips Act Brings $12.6B to Companies Producing in EU