Major projects to increase the United States’ manufacturing capacity for semiconductors have been put on hold as supporting legislation has been delayed in Congress.
Many Asian economies implemented harsh lockdown measures in response to COVID, creating bottlenecks in the global semiconductor supply chain. As a result, American consumers and businesses have faced a shortage of products that require computer chips. Some automotive companies, for example, have been forced to limit or pause production, worsening inflationary pressures as vehicle prices surge at the highest rate in decades.
In response, lawmakers proposed the $52 billion CHIPS for America Act. However, because the funding has not yet reached chipmakers, Intel, TSMC, and GlobalFoundries issued “public warnings” that they might “scale back their plans to make semiconductors” in the United States, according to the Department of Commerce.
Intel CEO Pat Gelsinger, for example, said at a recent panel event that he might increase chip production in Europe due to legislative delays in the United States. “The rest of the world is moving rapidly despite the inability of Congress to get this finished,” he remarked, noting that Asian countries are also passing new incentives.
Steven Grasso, GlobalFoundries’ managing director of global government affairs, told The Washington Post that the CHIPS Act “makes the U.S. semiconductor industry more competitive globally,” while the “passing of CHIPS funding would affect the rate and pace at which we invest in expanding our U.S. manufacturing capacity.”
The United States represents 12% of global semiconductor manufacturing and 25% of global semiconductor demand, according to Radford University management professor Zachary Collier, while every worker in the semiconductor industry supports an additional 5.7 jobs elsewhere in the economy. A Commerce Department analysis of the semiconductor industry revealed that the United States’ gross domestic product (GDP) was slashed by $240 billion last year due to widespread computer chip shortages.
Indeed, Tesla CEO Elon Musk has pointed to the semiconductor shortage as the company’s “biggest challenge” and said he has “never seen anything like it.” Musk more recently lamented the automaker’s factories becoming “gigantic money furnaces” due to supply chain issues.
“Just been trying to keep the factories operating the last couple years has been a very difficult thing, like supply chain interruptions have been severe, like extremely severe,” Musk said during a Tesla Owners Silicon Valley interview published Wednesday, per CNBC. “The past two years have been an absolute nightmare of supply chain disruptions, one thing after another, and we are not out of it yet.”
Earlier this year, Gelsinger said that the semiconductor shortage could last two more years amid a lack of availability for manufacturing tools.
“That’s part of the reason that we believe the overall semiconductor shortage will now drift into 2024, from our earlier estimates in 2023, just because the shortages have now hit equipment and some of those factory ramps will be more challenged,” Gelsinger explained.
In a survey from the National Association of Manufacturers, 59% of business leaders said inflationary pressures “make a recession more likely in the next 12 months.” Likewise, more than 90% of respondents pointed to higher raw material costs as one of the “primary business challenges” in the second quarter of 2022.