The Commerce Department’s investigation reveals ‘alarming’ chip shortages

WASHINGTON – US faces an “alarming” shortage of semiconductors, a government survey of more than 150 companies that manufacture and buy chips found; the situation threatens US factory production and helps boost inflation, Gina M. Raimondo, secretary of trade, said in an interview Monday.

She said the results showed a critical need to support domestic production and called on Congress to pass legislation aimed at strengthening US competitiveness with China by enabling more US production.

“It’s really alarming, the situation we’re in as a country and how urgent we have to move to increase our domestic capacity,” Raimondo said.

The results show that the demand for the chips that drive cars, electronics, medical devices and other products far exceeds the supply, even as global chip manufacturers approach their maximum production capacity.

While the demand for semiconductors has increased 17 percent from 2019 to 2021, there was no corresponding increase in supply. A large majority of semiconductor factories use about 90 percent of their capacity to manufacture chips, which means they have little immediate ability to increase their output, according to data compiled by the Ministry of Commerce.

The need for chips is expected to increase as technologies that use large amounts of semiconductors, such as 5G and electric vehicles, become more widespread.

The combination of rising demand for consumer products containing chips and pandemic-related disruptions in production has led to shortages and sky-high prices for semiconductors over the past two years.

Chip shortages have forced some component-dependent factories to slow down or stop production, like US automakers. It has weakened economic growth in the US and led to higher car prices, a major driver behind rising inflation in the US. The price of a used car grew by 37 percent last year, which helped push inflation to its highest level in 40 years in December.

In September, the Department of Commerce issued a request for information to global chip manufacturers and consumers to gather information on inventory, production capacity and backlogs in an attempt to understand where bottlenecks exist in the industry and how they can be remedied.

The results of this study, released by the Department of Commerce on Tuesday morning, reveal how scarce global supplies of chips have become.

The median stock of buyers had dropped to less than five days after a 40-day prepandemic, which means that any hiccups in chip production – for example due to a winter storm or another coronavirus outbreak – could cause shortages that would shut down US factories and once again destabilize supply chains, said Ms. Raimondo.

“We have no room for error,” she added.

To help solve the problem, officials in the Biden administration have rallied behind a far-reaching bill that the Senate passed in June in response to some of the country’s problems in the supply chain.

The bill, known in the Senate as the US Innovation and Competition Act, would pour nearly a quarter of a trillion dollars into scientific research and development to strengthen competitiveness vis-à-vis China and support semiconductor manufacturers by providing $ 52 billion in emergency aid.

Momentum on legislation stalled amid ideological disputes between Parliament and the Senate over how to manage funding. In June, House lawmakers passed their own narrower bill, avoiding the Senate’s focus on technology development in favor of funding basic research.

But administration officials, led by Ms Raimondo, have begun encouraging lawmakers behind the scenes in an effort to help bridge their disagreements so they can pass the bill quickly, stressing the urgency of signing solutions quickly. the law.

“There is no one around this. There is no other solution,” Ms. Raimondo said. “We need more facilities.”

The Ministry of Trade’s investigation showed that in some cases, companies take twice as long to obtain certain in-demand chips, sometimes as long as a year. Survey respondents also said they did not see the supply-demand mismatch in the industry disappearing over the next six months.

The shortage has affected larger older chips needed for car production, as well as the most advanced chips required to power technologies such as artificial intelligence.

Raimondo said she had spent “an enormous amount of time” talking about the lack of top executives, some of whom had personally gone on hunts around the world for a small number of chips that were essential to their supply chains.

She added that the study also revealed the worrying extent to which the United States is dependent on Taiwan for the most advanced chips. Taiwan Semiconductor Manufacturing 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 claim on Taiwan irreplaceable, and it has taken an increasingly aggressive military stance toward the island, potentially jeopardizing the U.S. supply of advanced chips.

In a briefing with reporters on Tuesday, Raimondo said the investigation had also revealed unusually high prices for semiconductors sold through brokers, and that the Department of Commerce would investigate this practice.

The Biden administration has set up an early warning system to notify the government and industry of impending chip shortages and convened business leaders to try to solve the problem, among other actions. It has also welcomed industrial investment, while acknowledging that any new construction of chip-making facilities in the United States will take several years and will not provide an immediate remedy for the shortage.

On Friday, Intel announced it would invest $ 20 billion in a facility in Ohio that would house two chip factories and directly employ 3,000 people. Construction of the first two factories is expected to begin this year, but production will not start until 2025, Intel said.

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