US Semiconductor Chip Shortage Poses Economic, National Security Risks: Commerce Dept.
US Semiconductor Chip Shortage Poses Economic, National Security Risks: Commerce Dept.

By Katabella Roberts

The United States is facing a chronic shortage of semiconductor chips and a long-term solution is desperately needed to avoid economic and national security risks to the nation, according to a new report by the U.S Department of Commerce.

A government survey of more than 150 companies that produce and buy chips—aimed at providing insight into the complex and global semiconductor supply chain—found that urgent action needs to be taken to resolve the crisis as soon as possible as demand for chips could exceed supply for the next six months.

The White House in September asked both foreign and domestic chip makers to submit supply chain information, including inventory data, demand, and delivery dynamics, by Nov. 8 in an effort to boost transparency and help understand where bottlenecks may exist in the semiconductor chip industry.

Specifically, the survey found that the median inventory held by chip consumers, which includes automakers or medical device manufacturers, has fallen from 40 days in 2019, prior to the COVID-19 pandemic, to less than five days in 2021.

Meanwhile, demand for semiconductors has increased by as much as 17 percent in 2021 compared to 2019, yet consumers aren’t seeing a corresponding increase in the available supply, creating a major supply and demand mismatch.

The survey also found that the majority of semiconductor manufacturing facilities are operating at or above 90 percent of their capacity to manufacture chips, meaning they are limited in their ability to produce more without building new facilities.

Supply chain bottlenecks that are mostly hampering the semiconductor industry include the need for more plants, as well as the lack of raw materials needed for both semiconductors and the other components paired with semiconductors to assemble sub-parts for electric devices.

The Department of Commerce warned that if another severe COVID-19 outbreak were to happen, or indeed a natural disaster or political instability was to disrupt a foreign semiconductor facility for even just a few weeks, this could have potentially detrimental consequences in the United States, and see a manufacturing facility within the nation shut down, leaving American workers and their families at risk.

“The semiconductor supply chain remains fragile, and it is essential that Congress pass chips funding as soon as possible,” said Secretary of Commerce Gina M. Raimondo. “With sky-rocketing demand and full utilization of existing manufacturing facilities, it’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities.”

House Democrats on Tuesday unveiled legislation that would provide $52 billion in funding for semiconductor chips, including $2 billion set aside for chips used by automakers.

The legislation, titled the US Innovation and Competition Act, or USICA (pdf), aims to boost the country’s ability to compete with Chinese technology, and funding was approved by Senate in June.

However, the passing of the legislation has been hindered by disputes between the House and Senate over how to direct the funding.

“President Joe Biden has proposed $52 billion to revitalize our domestic semiconductor industry, and every day we wait on this funding is a day we fall further behind. But if we address this problem, we can create good jobs, rebuild American manufacturing, and strengthen our supply chains here at home for years ahead,” Raimondo said.

Last week, Intel announced it is investing $20 billion to build two new “leading-edge” chip factories in Ohio in an effort to help boost production and meet the surging demand for advanced semiconductors.

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