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Semiconductor Shortage a Continuing National Concern

June 25, 2021 by Kate Michael
Semiconductors.

WASHINGTON — In our increasingly wired life, semiconductors power much of what we do, but only recently did these technical wonders — called chips — start receiving broad interest. 

All of a sudden, worries persist not only about whether there will be enough semiconductors available, but about where these chips should come. 

“Almost everything we use relies on semiconductors,” explained Debby Wu, a reporter covering tech supply chains who was surprised when this highly specialized subject became a cross-country and cross-industry story.

 “The whole chip shortage is really a watershed,” Wu said. 

She admitted that when carmakers started talking about the effects of the shortage during COVID, it became a broader interest story.

“Because in the carmakers’ case, I think they never expected there would be a day… when they would be fighting Apple for components,” Wu said.

But the recent shortage isn’t just crippling access to consumer products. And it isn’t just about supply chain disruptions during the pandemic either. 

Alex Capri, a Hinrich Foundation research fellow and author of the Asia-based non-profit organization’s recently released white paper: China’s microchip ambitions: Semiconductors advance the next phase of techno-nationalism, said the current shortage is the result of “a perfect storm” made up of COVID’s effects on supply chains worldwide and “geopolitics itself… this hybrid cold-war situation where we have strategic industries subject to decoupling — or having to diversify if nothing else.”

Capri believes that the U.S. and China are in the early stages of a historic tech war with semiconductors at its heart. Because technologies of the future, like data analytics, robotics, AI, surveillance, and 5G networks, rely on semiconductors “there is a race to dominate the Mother of all cutting-edge technologies.”

The fact that China doesn’t even have the capability of producing leading edge chips doesn’t seem to matter all that much. China wants in on the action, and the United States has finally woken up to how much of its technical advantage it has let slip over the last thirty years.

Because while American companies have sought dominance in intellectual property and at the front of the supply chain, these companies have, over the years, outsourced and off-shored the fabrication of the critical technology that runs in the background.  

The U.S. once accounted for a full third of global chip production, but now makes just 12%. Most advanced chips are manufactured abroad in Taiwan and South Korea, and this has led to a single supply chain which Capri said puts “the U.S. and anybody in a very vulnerable position.”

“Security is an important dimension,” stressed Mung Chiang, Dean of Perdue University’s College of Engineering, seeing not only the potential weaponization of supply chains but also the threats inherent in national economic security and competition. He offered that the key components of the semiconductor situation moving forward would come down to specialization, scale, and trust. 

Specialization is critical because “[semiconductors have] an extremely complicated manufacturing process,” said Chiang. 

And this complicated process is only done in a few places because, according to Capri “it is difficult to make [advanced logic chips] in commercial quantities that are error free… It’s the zenith of modern technology.” Though economies of scale do offer tremendous benefits.

But in an increasingly techno-nationalist world, trust among nations is getting harder to come by, even if the specialization and scale could be achieved. 

“As a manufacturer of many competing chips, designers need trust not only to produce the tech needed, but also that the intellectual property given to you will be guarded [and that you won’t compete against them],” said Chiang.

Commerce Secretary Gina Raimondo recently has made statements suggesting that the manufacture of semiconductors in the United States is an urgent matter of economic and national security.

So in an effort to remedy the United States’ supply chain issue with techno-nationalist diplomacy, America is looking to boost national semiconductor production by tempting current market leaders from “allied countries that share our values” [Raimondo] to make chips in the United States.

“We should continue to welcome companies like TSMC and HP to come to the U.S.,” said Chiang, though despite these companies investing in plants in states like Arizona and Texas, it will take a while to catch up to early 1990s U.S. production percentages.

“A $50 billion [investment] might get 2% of market share back,” said Capri, though he believes this race to manufacture semiconductors in the U.S is “the beginning of the next moonshot.”

“There has to be diversification of semiconductor supply chains so there isn’t dependence on one geographic location,” said Capri, and building a national pipeline of talent is also important. “Producing the engineers and intellectual capital to run [a U.S. semiconductor operation] would… be a tricky issue.”

Even with an investment toward semiconductor production in the United States, there is little to be done to increase the current supply shortage in the immediate term. The shortage is predicted to extend into 2023. 

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