Commerce Department Survey Uncovers ‘Alarming’ Chip Shortages
WASHINGTON — The United States is facing an “alarming” shortage of semiconductors, a government survey of more than 150 companies that make and buy chips found; the situation is threatening American factory production and helping to fuel inflation, Gina M. Raimondo, the commerce secretary, 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 bolstering U.S. competitiveness with China by enabling more American production.
“It’s alarming, really, the situation we’re in as a country, and how urgently we need to move to increase our domestic capacity,” Ms. Raimondo said.
The findings show demand for the chips that power cars, electronics, medical devices and other products far outstripping supply, even as global chip makers approach their maximum production capacity.
While demand for semiconductors has increased 17 percent from 2019 to 2021, there was no commensurate increase in supply. A vast majority of semiconductor fabrication plants are using about 90 percent of their capacity to manufacture chips, meaning they have little immediate ability to increase their output, according to the data that the Commerce Department compiled.
The need for chips is expected to increase, as technologies that use vast amounts of semiconductors, like 5G and electric vehicles, become more widespread.
The combination of surging demand for consumer products that contain chips and pandemic-related disruptions in production have led to shortages and skyrocketing prices for semiconductors over the past two years.
Understand Inflation in the U.S.
- Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.
- Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.
- What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.
- Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.
Chip shortages have forced some factories that rely on the components to make their products, like those of American carmakers, to slow or suspend production. That has dented U.S. economic growth and led to higher car prices, a big driver of the soaring inflation in the United States. The price of a used car grew 37 percent last year, helping to push inflation to a 40-year high in December.
The Commerce Department sent out a request for information in September to global chip makers and consumers to gather information about inventories, production capacity and backlogs in an effort to understand where bottlenecks exist in the industry and how to alleviate them.
The results of that survey, which the Commerce Department published Tuesday morning, reveal how scarce global supplies of chips have become.
The median inventory among buyers had fallen to fewer than five days from 40 days prepandemic, meaning that any hiccup in chip production — because of a winter storm, for example, or another coronavirus outbreak — could cause shortages that would shut down U.S. factories and once again destabilize supply chains, Ms. Raimondo said.
“We have no room for error,” she added.
To help address the issue, Biden administration officials have coalesced behind a sprawling bill that the Senate passed in June as an answer to some of the nation’s supply chain woes.
The bill, known in the Senate as the U.S. Innovation and Competition Act, would pour nearly a quarter-trillion dollars into scientific research and development to bolster competitiveness against China and prop up semiconductor makers by providing $52 billion in emergency subsidies.
Momentum on the legislation stalled amid ideological disputes between the House and Senate over how to direct the funding. In June, House lawmakers passed their own narrower bill, eschewing the Senate’s focus on technology development in favor of financing fundamental research.
But administration officials, led by Ms. Raimondo, have begun prodding lawmakers behind the scenes in an effort to help bridge their differences to swiftly pass the bill, emphasizing the urgency of quickly signing solutions into law.
“There’s no getting around this. There is no other solution,” Ms. Raimondo said. “We need more facilities.”
The Commerce Department’s survey found that it takes companies twice as long in some cases to procure 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 dissipating in the next six months.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Where is inflation headed? Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly. There are plenty of reasons to believe that the inflationary burst will fade, but some concerning signs suggest it may last.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The shortages have affected larger legacy chips, which are necessary for auto production, as well as the most advanced chips required to power technologies like artificial intelligence.
Ms. Raimondo said she had spent “an enormous amount of time” talking about the shortage to chief executives, some of whom had personally taken to hunting around the world for a small number of chips crucial to their supply chains.
She added that the survey also revealed the worrying extent to which the United States is reliant on Taiwan for the most advanced chips. Taiwan Semiconductor Manufacturing Company has become the contract manufacturer of choice for many companies, which may design their chips in the United States but turn to Asia to manufacture them.
China considers its claim to Taiwan nonnegotiable, and it has been taking an increasingly aggressive military posture toward the island, potentially putting U.S. supply of advanced chips at risk.
In a briefing with reporters on Tuesday, Ms. Raimondo said that the survey had also uncovered unusually high prices for semiconductors that are sold through brokers, and that the Commerce Department would be investigating those practices.
The Biden administration has set up an early alert system to notify government and industry of impending chip shortages and convened company leaders to try to address the issue, among other actions. It has also welcomed industry investment while acknowledging that any new construction of chip manufacturing facilities in the United States will take several years and will not provide an immediate remedy to the shortages.
On Friday, Intel announced that it would invest $20 billion in a facility in Ohio, which would contain 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.