Why the Semiconductor Supply Shortage Is Here to Stay
The Biden administration has made strong efforts to strengthen U.S. semiconductor production. However, major issues still need to be addressed.
Before the supply chain woes suffered from COVID-19, now-National Security Advisor Jake Sullivan and now-high-level White House official Jennifer M. Harris argued that the United States needed to implement an industrial policy to be more economically resilient for the coming global challenges in the twenty-first century. In addition, bipartisan calls in 2020 to strengthen the U.S. supply chain made it clear that national industrial policy legislation would be inevitably introduced. Immediately after taking office, the Biden administration signed an executive order aimed at improving the resilience of U.S. supply chains. The White House also hosted a global summit attended by leaders from fourteen countries and the European Union to discuss semiconductor supply chain vulnerabilities. During the summit, the Biden administration urged European countries to work with the United States in developing resilient semiconductor supply chains that minimize dependencies on non-Western actors. Most notably, the Biden administration signed the CHIPS and Science Act of 2022, providing $52 billion in federal subsidies to encourage domestic semiconductor manufacturing.
But though the Biden administration has recognized and made necessary changes to strengthen U.S. supply chains, there remain three pressing issues: the mapping of supply chains to determine existing vulnerabilities, persistent labor shortages, and the need for improved human capital. As long as the three problems persist, U.S. supply chains cannot be secure from geopolitical changes.
If the United States wants to secure its supply chains, it must map its supply chains for manufacturing to determine existing vulnerabilities. Mapping these is difficult, involving numerous inputs, suppliers, and so forth. For context, a Japanese semiconductor firm took over a year to develop its supply chain. The Biden administration and multiple pieces of legislation have designated the need to identify such vulnerabilities. This is promising, but recent proposals have created more questions than answers. For instance, by their nature, corporations are always incentivized to focus on business efficiency rather than redundancy. How will the government hold companies accountable that they are properly identifying their supply chain networks? Additionally, globalization incentivizes multinational companies to source their resources and goods from various markets and locations with varying levels of transparency. Even if companies wanted to attain an accurate understanding of their supply chain, they might need help. Finally, the time needed to map these vulnerabilities meticulously is a problem with no proposed solution.
Labor shortages of essential workers mean that supply chain bottlenecks will persist. These can have compounding effects—a labor shortage in the U.S. trucker market, for instance, has aggravated some supply chain issues. The trucker industry has a staggering 94 percent turnover rate, resulting in shortages continuing to plague supply chains because goods cannot be delivered in time and will often be stuck waiting on cargo docks. The Biden administration urged ports to stay open all day in southern California to decrease congestion. This did not improve the situation, as more truckers sought to enter the ports to transport cargo. Without taking steps to alleviate this issue, such as by raising wages and improving working conditions, instability in the trucking market will continue to have cascading impacts on the U.S. economy. Large and flashy investments into semiconductor manufacturing and other industries will be futile if consumers cannot receive the goods because there is a lack of truck drivers.
While the U.S. government has provided substantial funding to domestic semiconductor manufacturing, it needs an influx of capable human capital to reach its full potential. Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company (TSMC), has stressed that the United States currently lacks a big enough talent pool capable of manufacturing semiconductors domestically. Moreover, America needs to do so with a labor pool that is talented and demands higher wages than its East Asian competitors. Even when Washington provides additional subsidies, it cannot speed up the time and energy required to train the number of workers needed to manufacture semiconductors instantaneously.
The Biden administration has correctly identified the critical role semiconductors play in U.S. national security. No one should doubt the sincerity and progress in addressing this vulnerability in the last few years. However, there is still much more work to be done. The U.S. government must tackle all three of these issues with urgency to unleash the capabilities of U.S. domestic semiconductor manufacturing.
Richard Li is an undergraduate student at Cornell University. He can be contacted at [email protected].