WASHINGTON. The United States is facing a “worrisome” semiconductor shortage, a government survey of more than 150 companies that make and buy chips reveals; The situation threatens US industrial production and fuels inflation, Commerce Secretary Gina M. Raimondo said in an interview Monday.
She said the results show a critical need to support domestic manufacturing and called on Congress to pass legislation aimed at making the US more competitive with China by expanding US manufacturing.
“It’s really alarming the situation we’re in as a country and how urgently we need to act to increase our domestic capacity,” Ms Raimondo said.
The results show that demand for chips for automobiles, electronics, medical equipment and other products far outstrips supply, even as the world’s chip makers approach their peak production capacity.
While demand for semiconductors increased by 17 percent from 2019 to 2021, there has not been a commensurate increase in supply. According to data compiled by the Department of Commerce, the vast majority of semiconductor factories use about 90 percent of their capacity for chip production, meaning they have little room to increase production immediately.
The need for chips is expected to grow as technologies that use massive amounts of semiconductors, such as 5G and electric vehicles, become more common.
A combination of growing demand for consumer products containing chips and manufacturing disruptions associated with the pandemic has led to shortages and a sharp rise in prices for semiconductors over the past two years.
Understand US Inflation
The shortage of chips has forced some factories that use components to manufacture their products, such as American automakers, to slow down or suspend production. This has undermined economic growth in the US and driven up car prices, which is an important factor behind the skyrocketing inflation in the United States. The price of a used car rose 37 percent last year, pushing inflation up to a 40-year high in December.
In September, the Department of Commerce sent out a request for information to global chipmakers and consumers to gather information on stocks, production capacity and backlogs to understand where industry bottlenecks exist and how to address them.
The results of that poll, released by the Commerce Department on Tuesday morning, show just how scarce global chip supplies have become.
The median inventory among buyers has fallen to less than five days from 40 days before the pandemic, meaning that any disruption in chip production — due to a winter storm or another coronavirus outbreak, for example — could cause shortages that will force U.S. factories to close. and one day destabilize supply chains again, Ms. Raimondo said.
“We have no margin for error,” she added.
To help address the issue, Biden administration officials banded together to pass a sweeping bill that the Senate passed in June in response to some of the country’s supply chain problems.
The bill, known in the Senate as the U.S. Innovation and Competition Act, would allocate nearly a quarter trillion dollars in research and development to improve competitiveness against China and support semiconductor manufacturers by providing $52 billion in emergency subsidies.
Momentum for legislation stalled amid ideological wrangling between the House and Senate over how to channel funding. In June, House lawmakers passed their own narrower bill, ditching the Senate’s focus on technology development in favor of funding basic research.
But administration officials led by Ms. Raimondo have begun pushing lawmakers behind the scenes in an attempt to help bridge their differences and pass the bill quickly, emphasizing the need for decisions to be signed into law quickly.
“There is no getting away from this. There is no other solution,” Ms. Raimondo said. “We need more facilities.”
A study by the Department of Commerce found that in some cases it takes companies twice as long to stock certain in-demand chips, sometimes as long as a year. Survey respondents also said they don’t see the industry’s supply/demand mismatch disappearing in the next six months.
Frequently Asked Questions About Inflation
What is inflation? Inflation is the loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as an annual change in the prices of everyday goods and services such as food, furniture, clothing, transportation, and toys.
The shortage affected larger legacy chips needed for automated manufacturing as well as the most advanced chips needed to support technologies such as artificial intelligence.
Ms. Raimondo said she spent “an enormous amount of time” talking about the chip shortage to CEOs, some of whom personally went hunting around the world for a small number of chips critical to their supply chains.
She added that the poll also revealed a worrying degree of the United States’ dependence on Taiwan for its most advanced chips. A Taiwanese semiconductor company has become the preferred contract manufacturer for many companies that may design their chips in the United States but turn to Asia to manufacture them.
China considers its claims to Taiwan non-negotiable and is taking an increasingly aggressive military stance towards the island, which could jeopardize the supply of advanced chips to the US.
At a briefing with reporters on Tuesday, Ms Raimondo said the study also revealed unusually high prices for semiconductors sold through brokers and that the Commerce Department was investigating the practice.
The Biden administration has set up an early warning system to notify government and industry of an impending chip shortage, and has convened company executives to try to fix the problem, among other things. He also welcomed industry investment, acknowledging that any new construction of chip manufacturing facilities in the United States would take several years and would not address the shortage immediately.
On Friday, Intel announced that it will invest $20 billion in an Ohio facility that will consist of two chip factories and directly employ 3,000 people. Construction on the first two factories is expected to start this year, but production won’t begin until 2025, Intel says.