US govt survey uncovers 'alarming' shortage of chips

WASHINGTON • The United States is facing an "alarming" shortage of semiconductors, a government survey of more than 150 companies that make and buy chips has found, and the situation is threatening US factory production and helping to fuel inflation, said Commerce Secretary Gina M. Raimondo in an interview on Monday.

She said the findings showed a critical need to support domestic manufacturing and called on Congress to pass legislation aimed at bolstering US competitiveness with China by enabling more American production. "It's alarming, really, the situation we're in as a country, and how urgently we need to move to increase our domestic capacity," said Ms Raimondo.

The findings show demand for the chips that power cars, electronics, medical devices and other products far outstripping supply, even as global chipmakers approach maximum production capacity.

While demand for semiconductors has increased 17 per cent from 2019 to 2021, there was no commensurate increase in supply. A vast majority of semiconductor fabrication plants are using about 90 per cent of their capacity to manufacture chips, meaning they have little immediate ability to increase their output, according to data by the Commerce Department.

The need for chips is expected to increase as technologies that use vast amounts of semiconductors, such as 5G and electric vehicles, become more widespread. The combination of surging demand for consumer products that contain chips and pandemic-related disruptions in production have led to shortages and skyrocketing prices for semiconductors over the past two years.

Chip shortages have forced some factories that rely on the components to make their products, like those of US carmakers, to slow or suspend production. That has dented US economic growth and led to higher car prices, a big driver of the soaring inflation in the country. The price of a used car grew 37 per cent last year, helping to push inflation to a 40-year high last month.

The Commerce Department sent out a request for information in September to global chipmakers and consumers to gather information about inventories, production capacity and backlogs, in an effort to understand where bottlenecks exist in the industry and how to alleviate them.

The results of that survey, which the Commerce Department published on Tuesday morning, reveal how scarce global supplies of chips have become. The median inventory among buyers had fallen to fewer than five days from 40 days pre-pandemic, meaning that any hiccup in chip production - because of a winter storm, for example, or another coronavirus outbreak - could cause shortages that would shut down US factories and once again destabilise supply chains, Ms Raimondo said. "We have no room for error," she added.

To help address the issue, Biden administration officials have coalesced behind a sprawling Bill that the Senate passed in June as an answer to some of the nation's supply chain woes. The Bill, known in the Senate as the US Innovation and Competition Act, would pour nearly a quarter-trillion dollars into scientific research and development to bolster competitiveness against China and prop up semiconductor makers by providing US$52 billion (S$70 billion) in emergency subsidies.

On Tuesday evening, House Democrats unveiled a sweeping, 2,900-page Bill that lawmakers said they hoped would be a starting point for negotiations with the Senate, in an effort to ultimately pass a manufacturing and supply chain Bill into law. In a statement minutes after the Bill's text was made public, President Joe Biden hailed both proposals and encouraged "quick action to get this to my desk as soon as possible".

NYTIMES