No easy fix for broken US chip supply chains
For the automotive industry, the problem is somewhat temporary. Car manufacturers appear having been too catastrophic in their estimates of the toll that the pandemic would have on demand, so they reduced orders. This led semiconductor makers to reallocate capacity to home computer gadgets that were flying off the shelves and leaving little slack in the system when the auto industry decided it ultimately needed these chips. Without these semiconductors, cars cannot leave the factory, leading automakers to shut down unused factories. Suppliers of other auto components – including Illinois Tool Works Inc. and 3M Co. – said they expected the pile-ups to ease and automakers would make up for the slowdown in production on the rest of the year. 2021. But it won’t be the last flea crisis if current trends continue.
The demand for semiconductors will only increase as manufacturers strive to connect everything from toaster ovens to heavy-duty factory equipment. Advanced chips are also essential for the cloud computing servers that businesses rely on to keep their businesses running smoothly and essential for the effectiveness of military defense equipment. It is untenable for the United States to depend so much on international countries for their chip supplies, which puts the country at a competitive disadvantage. According to the Semiconductor Industry Association, three-quarters of global chip production is now based in East Asia. The United States’ share of global chip manufacturing fell to just 12% last year, from 37% in 1990.
The White House review could result in financial incentives, tariffs or changes in procurement policies, among other options, according to an official who spoke to Bloomberg News reporters on condition of anonymity. A recent defense policy bill authorized federal incentives for semiconductor manufacturing and research in the United States, but failed to appropriate money for grants or tax credits. Earlier this month, a group of chipmakers including Advanced Micro Devices Inc., Intel Corp., Nvidia Corp. and Texas Instruments Inc., sent a letter to Biden asking him to include such funding in his Covid recovery and infrastructure plans.
An increase in public spending is needed to relaunch the process. If the United States wants more domestic chip manufacturing, it will have to be worth it for business. A September report by the Information Technology & Innovation Foundation found that US research and development grants lag significantly behind other countries, ranking 24th out of 34 major economies. China’s subsidy is 2.7 times more generous, the report says. For a country that spends around $ 700 billion a year on national defense, ensuring reliable access to a nationwide supply of advanced chips seems like a good use of funds and should be given a higher priority.
But the practice of swapping tax incentives for manufacturing commitments has a tricky history in the United States recently at Taiwan Semiconductor Manufacturing Co. secured a package of financial incentives and government support from Phoenix officials to build a $ 12 billion chip factory. The city will provide around $ 200 million to develop infrastructure around the chosen site, with the bulk of the funds going to waterworks; at least $ 500,000 is budgeted for a traffic light. In total, the plant is expected to create 1,900 jobs over five years, but the development agreement “is not conditional on the exact total job creation nor on the jobs created by the company”, according to the report. an opinion of the local municipal council. The plant will represent a fraction of TSMC’s overall production capacity and capital budget. The risk is that the Biden administration will throw billions into similar projects with similar results.