COVID-19 accelerated demand for semiconductor chips, overwhelming supply and bringing supply chain challenges into sharp focus.
Semiconductor chips are the critical building blocks in almost every part of our modern lives. Automobiles, smartphones, Internet service, financial services, healthcare – practically every piece of technology utilizes chips to function and spur further innovation. When the COVID-19 pandemic forced Americans to move their lives, work, and businesses online, global semiconductor manufacturers struggled to meet an historic spike in demand.
Chip production over the past year is at an all-time high and many manufacturers have been operating their factories above 100% of normal capacity—24 hours a day, seven days a week, 365 days a year. Still, a wide range of U.S. businesses that rely on semiconductors were hit hard. Apple reportedly lost the equivalent of $6 billion in sales and is set to cut iPhone production goals worldwide by as many as 10 million units. For automakers, the shortage forced factories around the world to close and is projected to cost the industry $210 billion in revenue. With the industry’s pivot to electric vehicles, each of which can have up to 3,000 chips, the shortage is particularly damaging.
These are just a few examples of the widespread disruptions to the global economy. Today, the semiconductor shortage is nearing a year, and while industries have done their best to provide short-term solutions to ameliorate the issue, structural deficiencies with the supply chain must be addressed now to avoid prolonging the current crisis and protect against a more severe one in the future. To address these issues long-term, Congress can build resilience into the supply chain by passing the U.S. Innovation and Competition Act (USICA), which would provide $52 billion to fund the CHIPS Act and support increasing domestic semiconductor capacity.
The U.S. semiconductor industry has long led the world, consistently accounting for 45% to 50% of global revenues, and we need to preserve the strength of the entire semiconductor ecosystem from design to tools to manufacturing. The U.S. share of semiconductor manufacturing capacity dropped from 37% in 1990 to 12% today. A handful of production locations account for 75% of the global capacity while without improvements only 6% of new global capacity is expected to be located in the U.S. This geographic concentration of manufacturing creates numerous supply chain risks and creates a cost disadvantage for the U.S. of at least 30% compared to the region. Funding the CHIPS Act would be critical to alleviating supply chain constraints and increasing our economic security.
In addition to creating an incentive to increase capacity, the CHIPS program – and the complimentary investment tax credit being considered in Congress – will allow the U.S. to better compete for the hundreds of billions of dollars in investments that semiconductor firms will deploy over the next decade. Without these programs, only 6% of new capacity over the next ten years is expected to be placed in service in the United States, as governments around the world are also investing heavily to attract global semiconductor companies to their shores. It is critical that the United States capture more of the new capacity coming online – to reinvigorate high-tech manufacturing, build greater resiliency into global supply chains, and lay the foundation for decades of collaboration with innovative partners around the world.
An increase in domestic production capacity would also address critical national security concerns and boost U.S. competitiveness. While U.S. domestic manufacturing flatlined, China, South Korea and others are investing heavily in their own industries, aiming to ensure global manufacturing leadership and leave the United States behind. Having secure sources for the myriad industrial, commercial, and military systems that our government depends on is a major national security priority. According to a report from the National Security Commission on Artificial Intelligence, “If a potential adversary bests the United States in semiconductors over the long term or suddenly cuts off U.S. access to cutting-edge chips entirely, it could gain the upper hand in every domain of warfare.”
Clearly, the U.S. Innovation and Competition Act is a bipartisan initiative that deserves the utmost attention, and Congress should act expeditiously to pass its many necessary components. Chief among those is the CHIPS Act. Passing the Biden administration’s flagship infrastructure bill set the stage to start rebuilding America, but to really get our nation’s economic growth back on track, secure America’s innovative future, and guarantee our future national security, the Congress must pass core elements of USICA, most critically the CHIPS Act.
The Weekly Download
Subscribe to receive a weekly roundup of the Chamber Technology Engagement Center (C_TEC) and relevant U.S. Chamber advocacy and events.
The Weekly Download will keep you updated on emerging tech issues including privacy, telecommunications, artificial intelligence, transportation, and government digital transformation.