WASHINGTON — The United States is facing an “alarming” shortage of semiconductors, according to a government survey of more than 150 companies that make and buy chips; the situation threatens US factory production and helps fuel inflation, Commerce Secretary Gina M. Raimondo said in an interview on Monday.
She said the findings showed a critical need to support domestic manufacturing and called on Congress to pass legislation aimed at strengthening U.S. competitiveness with China by allowing for more U.S. manufacturing.
“It is really alarming what situation we are in as a country and how urgently we need to move to increase our domestic capacity,” said Ms Raimondo.
The findings show that demand for chips that power cars, electronics, medical devices and other products far exceeds supply, even as global chip makers approach maximum production capacity.
While demand for semiconductors grew 17 percent between 2019 and 2021, there was no commensurate increase in supply. A vast majority of semiconductor manufacturing plants use about 90 percent of their capacity to produce chips, meaning they have little immediate opportunity to increase their output, according to data collected by the Commerce Department.
The need for chips is expected to increase as technologies using 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 production shutdowns has resulted in shortages and skyrocketing prices for semiconductors over the past two years.
Understanding inflation in the US
Chip shortages have forced some factories that rely on the components to make their products, such as those of US automakers, to slow or halt production. This has affected economic growth in the US and led to higher car prices, a major driver of rising inflation in the United States. The price of a used car rose 37 percent last year, pushing inflation to a 40-year high in December.
The Commerce Department sent an inquiry in September to global chip makers and consumers to gather information on inventories, production capacity and backlogs in an effort to understand where industry bottlenecks exist and how to fix them.
The results of that survey, which the Ministry of Commerce published Tuesday morning, show how scarce the global supply of chips has become.
The median supply among buyers had fallen to less than five days from 40 days prepandemic, meaning any hiccup in chip production — for example, due to a winter storm or other coronavirus outbreak — could cause shortages that would close U.S. factories and destabilize supply chains once again, said Ms Raimondo.
“We have no room for error,” she added.
To address the problem, officials of the Biden administration have united behind a comprehensive bill passed by the Senate in June in response to some of the problems in the country’s supply chain.
The bill, known in the Senate as the U.S. Innovation and Competition Act, would pump nearly a quarter of a trillion dollars into scientific research and development to boost its competitiveness against China and support semiconductor manufacturers by providing $52 billion in emergency subsidies.
Momentum for the legislation faltered amid ideological disputes between the House and Senate over how to arrange funding. In June, House lawmakers passed their own narrower bill, avoiding the Senate’s focus on technology development and funding basic research.
But government officials, led by Ms. Raimondo, have begun urging lawmakers behind the scenes in an effort to bridge their differences to pass the bill quickly, emphasizing the urgency of signing solutions quickly in the law.
‘You can’t get around this. There is no other solution,” said Ms Raimondo. “We need more amenities.”
The Commerce Department’s investigation found that in some cases, companies are taking twice as long to buy certain high-demand chips, sometimes as long as a year. Survey respondents also said they didn’t see the supply-demand mismatch in the industry disappear over the next six months.
Frequently asked questions about inflation
The shortages have impacted larger legacy chips, needed for car manufacturing, as well as the most advanced chips needed for technologies like artificial intelligence.
Ms Raimondo said she had spent “an enormous amount of time” talking about the shortage of chief executives, some of whom had personally gone on to hunt the world for a small number of chips critical to their supply chains.
She added that the study also revealed the worrying extent to which the United States relies on Taiwan for the most advanced chips. Taiwan Semiconductor Manufacturing Company has become the contract manufacturer of choice for many companies, who may design their chips in the United States but turn to Asia to manufacture them.
China views its claim to Taiwan as unquestionable and is adopting an increasingly aggressive military stance on the island, potentially jeopardizing the US supply of advanced chips.
In a briefing with reporters on Tuesday, Ms Raimondo said the investigation also revealed unusually high prices for semiconductors sold through brokers, and that the Department of Commerce would investigate these practices.
The Biden administration has set up an early warning system to notify government and industry of impending chip shortages and has convened business leaders to address the issue, among other things. It has also welcomed industrial investment, but recognizes that any new chip manufacturing facility construction in the United States will take several years and will not provide an immediate solution to the shortfalls.
On Friday, Intel announced it would invest $20 billion in an Ohio facility that would contain two chip plants and provide direct employment for 3,000 people. Construction of the first two plants is expected to start this year, but production will not start until 2025, Intel said.