Semiconductors are a key component of the global economy. Currently, various manufacturing industries are struggling with an ongoing shortage of semiconductors, causing domestic manufacturers difficulty when meeting their production schedules, particularly those in the Car and Automobile Manufacturing industry in the United States.
Dependence on imports
The Semiconductor and Circuit Manufacturing industry in the US experiences a very high level of import penetration, with most chip production currently completed in East Asia. While this model has been profitable for the fabless companies that have adopted it, such as Nvidia Corporation, it also creates vulnerability in supply chains for domestic manufacturers that rely on these semiconductor chip imports.
Factory shutdowns
As the COVID-19 (coronavirus) pandemic began, factories in China initially closed in response, resulting a slowdown in semiconductor manufacturing at one of the largest sources in the world. These shutdowns were the initial seed of the ongoing shortage. As the pandemic spread across the world, production remained low as factories expected less demand for semiconductors.
Electronics demand
However, demand for personal electronic devices, such as gaming systems and personal computers, has soared during the pandemic, as consumers forced to curtail social activities sought out other sources of entertainment. High demand for these electronic devices resulted in large amounts of semiconductors being supplied to device manufacturers, leaving domestic manufacturers scrambling to acquire the remaining supplies.
Automobile manufacturing
The Car and Automobile Manufacturing industry has particularly struggled with this ongoing shortage of semiconductors. After the onset of the pandemic, automakers sharply reduced their orders of semiconductor chips, with the expectation of plummeting sales.
However, automobile sales bounced back unexpectedly faster in late 2020, which caught automotive manufacturers off guard. Car manufacturers have become increasingly reliant on integrated electronic devices, many of which are manufactured by companies in the Automobile Electronics Manufacturing industry in the US. As a result, these manufacturers have struggled to acquire a range of key components to meet production schedules due to this ongoing shortage
Geopolitical context
The US government and the new presidential administration are seeking to revitalize US manufacturing as the economy slowly recovers from the coronavirus pandemic. However, this ongoing shortage of semiconductor chips represents a significant challenge. The US government is currently attempting to increase semiconductor imports from Taiwan to address the shortage, in addition to reducing dependence on imports from China due to ongoing geopolitical tensions between the two countries.
Overall, the shortage of semiconductor chips is a significant issue for domestic manufacturers, particularly automotive manufacturers, and highlights potential vulnerabilities in US supply chains.
