On Where Oh Where Did My Little Chip Go?
On Where Oh Where Did My Little Chip Go?: We drive by those near-empty car lots every day. The tip of a global semi-conductor chip shortage that is costing the auto industry an estimated $210 billion this year. Underneath that are the full range of our electronic goods market, that is straining the production of everything from cell phones to remote controlled toys. It is slowing our economic recovery and the most optimistic estimates say it will be a problem for the coming twelve to twenty-four months.

What happened to our chips? Well…just about everything. Its roots go back to the offshoring of domestic chip manufacturing, coupled with extreme investments in chip manufacturing by other nations seeking to dominate this growing economic sector. Deeper in the weeds is the shifting technology in semi-conductors. The older generation of chips, that automakers and others use, has been competing for factory space with newer chip designs driven by the emerging “5G” technology. Then came the global pandemic with its lockdowns. Asian workforces, where most of the chips are now being made, were decimated and still haven’t recovered. At this point, few know what the real need is, what kinds of chips should take priority and which customers to supply first.

At a second industry summit in five months was held at the White House this week, the major American chip manufacturers were asked to cooperate in defining exactly where the shortages were most acute, so the government could help target solutions. The Senate has passed a $52 billion-dollar chip investment bill, which awaits action in the House. However, when you consider that each chip manufacturing facility costs tens of billions, this is more incentive for private investment, than funding a significant number of chip factories. Several chip manufacturers say if that money becomes law, they will build at least two semi-conductor plants in the United States. It takes about two years to build a chip factory and train its workforce. Those positive capacity increases help reestablish a critical domestic supply chain, but do nothing to alleviate the short-term shortages.

Its not too hard to see that our domestic disinvestment in an industry we invented and led, has come home to roost. All the grandiose claims of a cheap and seamless global supply chain, that justified the pursuit of higher profits overseas, was a bad bet. We shouldn’t be surprised. A number of manufacturing experts, businesses and unions have been very vocal and specific about the dangers of giving up control of our critical materials and processes.

While its good to see new domestic semi-conductor capacity being planned, there are some real-world attitudes we have to confront, for them to be successful. First is that American-made chips will be more expensive. The way Asian nations have lowered the price, is by exploiting workforces and natural resources. Additionally, much of the offshore chip production is subsidized. Are we willing to pay higher prices and subsidize an industry, to assure an uninterrupted supply? This isn’t just a question about chips. There’s a pretty extensive list of critical goods that face the same dilemmas. We are dependent on a list that ranges from latex gloves to rare-earth minerals. That list grows as the “green” revolution requires new technologies and processes currently emerging in other nations. The news flash is that if we want to keep those car lots full and bring our economic security back within our control, we’re going to have to stop pretending it won’t cost us. We’ll get good jobs and stability out of reshoring policies and a manufacturing strategy. But we can’t have both cheap goods and the security we seek.

ihg 9-24-2021

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