Don’t Put All Your Eggs in Someone Else’s Basket
As we come out of the holiday season and the supply chains remain tight, frustrating many as they finish their holiday shopping, I wanted to raise awareness of a somewhat esoteric problem, with society-wide implications. Semiconductor chips. If you’re not in computer science, you may not know precisely what they are or do. But if there is one thing I’ve learned throughout COVID-19, it’s that these little guys seem to be as crucial to our modern world as currency, food, and oxygen. Semiconductors are integral components of almost all of our consumer goods. We expect them to be in laptops, gaming consoles, and cell phones, but they find themselves in trucks, laundry machines, fridges, garage doors, and blenders too. One would imagine that the industry to create something so necessary would have reserves, decentralized production, and domestic facilities. However, this is not the case. The semiconductor shortage is a textbook geopolitical lesson in the importance of resource sovereignty. There was a time when the United States was a world leader in semiconductor production, but several trade deals later, the US has shifted roles from the world’s leading producer to one of its leading purchasers. This is a story of globalization’s risks.
The Cost of Cutting Expenses
American corporations wanted cheaper semiconductors, and for this, they looked abroad. In South Korea, China, and most notably, Taiwan, they found what they were looking for. A mix of heavy government subsidies to the semiconductor industry and looser regulations on worker compensations meant that shifting production (and jobs) from American soil to the far east ensured lower production costs and higher profits.
This all ran smoothly (unless, of course, you were an American worker in the semiconductor industry) until the black swan event of COVID-19 threw a monkey wrench into the engine of global trade. Like the shortage in Personal Protective Equipment (PPE), the semiconductor shortage resulted from a tightening of international trade as factories shut down and nations claimed semiconductors for their own domestic use rather than imports. The U.S., however, had little to no domestic industry to claim.
Globalization and its Discontents
Now, American industry is suffering writ large. General Motors has had to close three plants due to a shortage in semiconductors and halted the production of 10,000 vehicles. Ford, is slimming back production, most notably of its new electric F-150. The auto industry overall is expected to lose $61 billion due to chip shortages.
During its April conference, Apple stated that it expects third-quarter revenues to be reduced by $3–4 billion, citing “supply chain constraints. Sony and Microsoft have been hit especially hard by the shortage, given that this is the first actual year of sales of the Xbox Series X and Playstation 5. Frustrated customers longing to get their hands on the new gaming consoles either have to wait or pay ridiculous prices to scalpers. The cost of the Series X should be around $500 but has gone for as high as $1,200. PC gamers have faced similar obstacles obtaining graphics cards.
Through the lens of national security, this is an unmitigated disaster — and a warning. The world’s largest semiconductor facilities either reside in China or are easily within the range of Chinese firepower. If you thought these chips were crucial to the consumer market — they’re just as integral to the military-industrial complex. A war with China, or even just an Asian war in which the US is not involved, could result in a chip shortage that dwarfs the one we are currently in. It would essentially shut down the American consumer market. As small as it is, semiconductor manufacturing in America is mainly owned by foreign entities, meaning its funding and operations are not guaranteed against the tides of international politics.
Make Semiconductors Great Again
To make matters worse, semiconductor manufacturing is not something that can be switched on or off easily. It would require years and hundreds of billions of dollars in government and private investment to get the US into a relatively self-sufficient state. So we better start now. This problem is not the sexiest, headline-grabbing story, but it is one of the biggest. It requires a World War Two level of investment into domestic production of semiconductors and other industries necessary to modern life, such as pharmaceuticals, food, medical equipment, and renewable energy.
For all of former President Trump’s rhetoric on jobs, American manufacturing, and standing up to China, his administration largely ignored this Achilles heel. President Biden, on the other hand, has acknowledged it. Still, there is little to signify he will take action on the scale needed to address the need for the domestic production of semiconductors adequately.
We are not out of the woods yet. We may be nowhere close. When polled, macrovo members are divided on how long the shortage will last. As of this writing, both “1 year” and “greater than six months” have received 30% of the votes each. 20% believe it will be over in less than six months (from May 18th), 10% believe longer than two years, and 5% believe two years.
What do you think? Vote Here.
