U.S. President Joe Biden is pressing American manufacturers to close the gap in computer chip production with China and other global competitors.
“We need to build the infrastructure of today, not repair the one of yesterday,” said President Biden to a group of tech, chip manufacturing and automotive executives. “China and the rest of the world is not waiting and there’s no reason why Americans should wait.”
The global chip shortage has had an increasing negative effect on the global economy and the supply chain, resulting in a delayed iPhone and the temporary shuttering of automotive factories while manufacturers wait for the chips they’ve ordered.
The pandemic has wreaked havoc on the global chip supply. Many factories were forced to close due to public health measures, and since most chips are made overseas, American companies had little choice but to wait for the factories to start up again.
COVID-19 has also boosted demand for personal computers as more and more workers and students found themselves working or studying remotely. By the time those chip factories reopened, they struggled to meet the sharply increased demand. The auto industry has been particularly affected by the chip shortage, as chip factories focused on production for consumer electronics, which is more lucrative than making components for auto companies.
The pandemic has exposed American vulnerability when it comes to getting the chips it needs. In fact, the U.S. only accounts for 12 percent of global semiconductor factories—whereas it made up 37 percent of the sector in 1990. Since then, Asian economies like China, Taiwan, South Korea and Japan have outpaced the American industry—and it’s been easier and cheaper for American companies to simply outsource chip production to overseas manufacturers (a notable exception is Intel, which still produces most of its own chips in-house). The current problems have been decades in the making.
But despite the president’s wishes, revitalizing a domestic chip sector faces significant challenges. It’s not cheap to build a semiconductor factory in the U.S.—which can cost well over $20 billion. And there will be a significant need for trained skilled workers to produce the chips. In addition, the big-picture supply chain will also need an overhaul. All this would need to be accomplished while staying competitive with foreign factories that can produce the chips much cheaper.
“Trying to reconstruct an entire supply chain from upstream to downstream in a single given location just isn’t a possibility,” said David Somo, senior vice president, ON Semiconductor. “It would be prohibitively expensive.”
While it’s encouraging that the Biden administration intends to make the U.S. more self-reliant when it comes to computer chips, it’ll be a long, drawn-out struggle to catch up with its global competitors. But doing so could be essential for the country’s economic—and political—future.
“Chips are like the new steel industry; it’s the core of everything we do,” said James Lewis, director of the Strategic Technologies Program at the Center for Strategic and International Studies. “It’ll be the crucial industry going forward for the rest of the century.”
Read more about the state of American chip manufacturing at U.S. Bolsters Domestic Microchip Manufacturing.