Chip Armageddon Reveals How Terrifyingly Fragile the U.S. Supply Chain Actually Is

Chip Armageddon Reveals How Terrifyingly Fragile the U.S. Supply Chain Actually Is

In 2021, the supply-chain problem was severe, but we had no idea how severe. It was actually a five-days-from-emergency kind of bad.

According to a new report issued Tuesday by the Department of Commerce, the average inventory of semiconductor chips has decreased from 40 days in 2019 to less than five days in 2021. Certain critical industries were particularly strained.

This has a significant influence on manufacturers of automobiles, consumer electronics, LED lighting, and even wind turbines. For example, the global car sector would lose around $210 billion in sales in 2021 as a result of a global semiconductor shortage that led corporations to reduce output. Additionally, the chip scarcity increased inflation since both new and old automobiles were prohibitively costly, as automakers require chips to manufacture new vehicles. In December, the price of new vehicles and trucks increased by an astounding 11.8 percent year over year.

Tuesday's study is based on replies from more than 150 organizations to a September Request for Information from Commerce, which requested data on inventory, demand, and delivery trends from anybody involved in the semiconductor supply chain.

"That means that if a COVID epidemic, a natural disaster, or political instability interrupts a foreign semiconductor factory for even a few weeks, it has the potential to close a manufacturing plant in the United States, endangering American employees and their families," Commerce warned Tuesday.

Not only were firms working with extremely tight inventories, but demand for semiconductors was at least 20% greater last year than in 2019. Industry analysts anticipate that the chip scarcity will last till 2022.

Due to the semiconductor industry's persistent vulnerability and the supply chains that support it, Commerce Secretary Gina Raimondo has urged Congress to approve the CHIPS for America Act. The plan, which cleared the Senate last summer, would offer $52 billion in subsidies to assist semiconductor businesses in establishing manufacturing operations in the United States.

"The semiconductor supply chain is unstable, and Congress must act swiftly to support CHIPS," Raimondo said in a statement Tuesday.

Raimondo is not alone in this regard. The Biden administration has supported the plan, and almost 60 CEOs of large corporations—including Apple, Microsoft, Alphabet, Toyota Motor North America, and Verizon—sent an open letter to the United States House of Representatives last month pushing it to adopt the CHIPS Act. "The chip scarcity threatens the whole economy, and time is running out," the CEOs warned.

According to the White House, the United States currently produces less than 12% of the world's semiconductors. That may change, though, if more corporations follow Intel's path. The technology behemoth said this week that it would invest $20 billion in Ohio to establish chip-making facilities. Intel anticipates that the New Albany facilities will be operational by 2025.

Intel CEO Pat Gelsinger stated Friday that the CHIPS Act was a factor in the company's decision to proceed with the Ohio facility. "Now Congress must complete the task," he stated.

However, the measure is not without detractors. Senator Bernie Sanders argued in November that the proposal amounted to encouraging bad conduct, stating in a floor address that chipmakers have the financial means to construct the required facilities.

Nonetheless, proponents such as Raimondo argue that boosting US chip manufacturing capability is the prudent course of action. "With demand skyrocketing and existing production capacity fully used, it is evident that the only long-term answer to this dilemma is to strengthen our domestic manufacturing capabilities," she stated.