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Pervasive and persistent, the global semiconductor chip shortage is impacting auto manufacturers, computer makers, mobile phone producers and pretty much any other industry that relies on chips to make its end products.
“Initially the problem was only a temporary delay in supplies as factories shut down when the coronavirus pandemic first hit,” The Guardian reports. “However, although production is back to normal, a new surge in demand driven by changing habits fueled by the pandemic means that it is now reaching crisis point.”
General Motors (GM) is among the latest to announce a shutdown due to the chip shortage. Last week, GM said it would halt production at several North American factories and extend shutdowns at some others because of a protracted shortage of semiconductor chips that is disrupting the auto industry’s hopes for a bounce-back this year, WSJ reports.
“The auto maker said Thursday that three plants previously unaffected by the chip shortage will be idled or have output reduced for one or two weeks, including a factory in Tennessee and another in Michigan that make popular midsize sport-utility vehicles,” WSJ adds. “Vehicles affected include the Chevrolet Traverse SUV, and the Cadillac XT5 and XT6 SUVs.”
Halting Production
It’s been widely reported that manufacturers worldwide have been throttling or stopping production completely as the chip shortage continues. Several factors led to the shortage of chips, which reportedly first surfaced in the fourth quarter of last year, TechRadar reports. “Manufacturing unit shutdowns owing to the COVID-19 pandemic are largely blamed as the trigger for the crisis that rapidly depleted vendors’ inventories.”
Hoping to alleviate the chip shortage and other supply chain disruptions that companies are grappling with, President Biden is calling on Congress to invest $50 billion to create a new office at the Department of Commerce dedicated to monitoring domestic industrial capacity and funding investments to support production of critical goods. The president also is asking Congress to invest $50 billion in semiconductor manufacturing and research, as called for in the bipartisan CHIPS for America Act (which was introduced to the House of Representatives in June of 2020).
According to WSJ, Biden has broad bipartisan support for aiding the semiconductor industry, including from Republican lawmakers who say China is spending heavily to build its own chip-making capacity, threatening the U.S. lead in advanced chip technology. These efforts are part of a $2 trillion U.S. infrastructure plan introduced in late March.
Supporting the Manufacturing Sector
The CHIPS Act (H.R. 7178) establishes investments and incentives to support U.S. semiconductor manufacturing, research and development, and supply chain security.
More specifically, the bill provides an income tax credit for semiconductor equipment or manufacturing facility investment through 2026. The bill also establishes a trust fund to be allocated upon reaching an agreement with foreign government partners to promote (1) consistency in policies related to microelectronics; (2) transparency in microelectronic supply chains; and (3) alignment in policies towards nonmarket economies.
“The Department of Commerce shall, through the National Institute of Standards and Technology (NIST), carry out a program of research and development investment to accelerate the design, development and manufacturability of next generation microelectronics,” Congress.gov explains, “including through the creation of a Manufacturing USA institute for semiconductor manufacturing.”
Commerce will also establish a program to match state and local government incentives offered to private entities for the purposes of building fabrication facilities relating to semiconductor manufacturing. “Further, Commerce shall assess the capabilities of the U.S. industrial base to support the national defense in light of the global nature of supply chains and interdependencies between the industrial bases of the U.S.,” it continues, “and foreign countries with respect to the manufacture and design of semiconductors.”
Through the act, the Department of Defense (DoD) will prioritize the use of specified available amounts for programs, projects and activities in connection with semiconductor and related technologies. Finally, President Biden will establish within NIST a subcommittee on matters relating to U.S. leadership in semiconductor technology and innovation (which, in turn, will develop a national strategy on semiconductor research).
More to Come
President Biden sees these efforts as critical to improving the U.S. manufacturing environment and the supply chains that support it. “We’re one of the few major economies where we’ve seen public investment, as a share of GDP, decline over the past 25 years,” the president said in a recent briefing call.
“We’re seeing China and other countries significantly increase their investments,” he continued, “and we have a moment of opportunity now, particularly as we lay bare the vulnerabilities in our own supply chains and technology infrastructure to do a transformational investment in R&D and domestic incentives to manufacture the innovations that come from the R&D in the United States and all across America.”
