Commerce Dept. 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 has been found; The situation threatens U.S. factory production and is contributing to inflation, Gina M. Raymond, the trade minister, said in an interview Monday.

She said the results showed an important need to support domestic production and called on Congress to pass a law aimed at boosting US competitiveness with China by expanding U.S. production.

“The situation we are in as a country is alarming, and how urgently we need to move to increase our internal capacity,” Ms Raymond said.

The results show that the demand for chips that power cars, electronics, medical devices and other goods far exceeds supply, even as global chipmakers are approaching their maximum capacity.

While demand for semiconductors increased by 17 percent from 2019 to 2021, there was no corresponding increase in supply. The vast majority of semiconductor plants use about 90 percent of their capacity to produce chips, which means that they have little opportunity to increase production, according to data collected by the Ministry of Trade.

The need for chips is expected to grow as technologies that use more semiconductors, such as 5G and electric vehicles, become more common.

The combination of growing demand for consumer goods containing chips and pandemic-related production disruptions has led to deficits and sharp increases in semiconductor prices over the past two years.

The shortage of chips has forced some factories that make their products on components, like American automakers, to slow down or suspend production. This has damaged U.S. economic growth and led to rising car prices, which is a big factor in rising inflation in the United States. Last year, the price of used cars rose by 37 percent, which helped push inflation to a 40-year high in December.

In September, the Department of Commerce sent a request to global chipmakers and consumers for information to gather information on stocks, production capacity and backlogs to understand where bottlenecks exist in the industry and how to address them.

The results of this survey, published by the Ministry of Commerce on Tuesday morning, show how scarce global supplies of chips have become.

The average stock among buyers fell to less than five days from 40 days before the pandemic, meaning that any hiccups in chips production – such as due to a winter storm or other coronavirus outbreak – could cause a deficit that would close U.S. plants and destabilize again. the supply chain, Ms Raimondo said.

“We have no right to make a mistake,” she added.

To help address the issue, Biden administration officials have joined forces for a bill passed by the Senate in June in response to some problems with supply chains in the country.

The bill, known in the Senate as the U.S. Innovation and Competition Act, provides nearly a quarter of a trillion dollars in research and development to increase competitiveness against China and support semiconductor manufacturers by providing $ 52 billion in emergency subsidies.

The impetus in the legislation came amid ideological disputes between the House of Representatives and the Senate over how to channel funding. In June, House lawmakers passed a narrower bill, avoiding the Senate’s focus on technology development in favor of funding basic research.

But administration officials led by Ms. Raymond began pushing lawmakers behind the scenes to help bridge their differences to pass the bill quickly, stressing the need to quickly sign decisions into law.

“It simply came to our notice then. There is no other solution, ”Ms. Raymond said. “We need more facilities.”

On Tuesday night, members of the House of Representatives unveiled a comprehensive 2,900-page bill that lawmakers said would be the starting point for talks with the Senate to eventually pass a bill on production and supply chains. In a statement minutes after the text of the bill was published, President Biden welcomed both proposals and urged “to take steps to bring this to my table as soon as possible.”

A survey by the Ministry of Commerce found that in some cases, companies take twice as long to purchase certain in-demand chips, sometimes up to a year. Respondents also said they do not see a mismatch between supply and demand in the industry over the next six months.

The shortage has affected the larger older chips needed to make cars, as well as the most advanced chips needed to power technologies such as artificial intelligence.

Ms Raymond said she had spent “a huge amount of time” talking about the shortage of executives, some of whom had personally hunted around the world for a small number of chips important to their supply chains.

She added that the poll also revealed the alarming extent to which the United States depended on Taiwan for the most advanced chips. Taiwan Semiconductor Manufacturing Company has become a contract manufacturer for many companies that can develop their chips in the United States but turn to Asia for their production.

China considers its claims to Taiwan unfounded, and it is taking an increasingly aggressive military stance against the island, potentially jeopardizing the supply of advanced chips to the United States.

At a briefing with reporters on Tuesday, Ms. Raymond said the survey also found unusually high prices for semiconductors sold through brokers, and that the Commerce Department would investigate the practice.

The Biden administration has set up an early warning system to alert the government and industry to the impending chip shortage, and has convened company executives to try to address the issue, among other actions. He also welcomes investment in the industry, recognizing that any new construction of chip production facilities in the United States will take several years and will not lead to an immediate correction of the deficit.

On Friday, Intel announced it was investing $ 20 billion in a facility in Ohio that would contain two chip factories and directly employ 3,000 people. Construction of the first two plants is expected to begin this year, but production will only begin in 2025, Intel said.

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