US targets microchip shortage
The U.S. House of Representatives on Thursday passed legislation to subsidize the domestic semiconductor microchip industry in a bid to compete with Chinese and foreign manufacturers. The final vote was 243 to 187, and with 24 Republicans backing 218 Democrats. The bill is now being sent to the White House where President Biden is expected to sign it.
The Senate passed the Chips and Science Act on Wednesday. The bill approves $52 billion in government subsidies for US production of semiconductors, which are used in everything from cars and trucks to computers and video games. It also includes a $24 billion chip factory investment tax credit.
The shortage of semiconductor chips began in 2019 at the start of the COVID-19 pandemic when demand began to outstrip supply.
Semiconductor chips are used in almost every industry as well as multiple everyday products. The materials required include silicon and are absolutely essential in building integrated circuits or microchips that drive most modern devices.
The shortage of chips is due to four reasons:
- The automobile sector : computer chips appear in most modern automobiles, including their security systems and computer panels. As the industry moved away from “dumb” versions involving wiring and an internal combustion engine, the demand for these computer chips increased dramatically.
- General increase in demand for electronics: We are in the age of the computer and that means microchips. It means integrated circuits. The advent of the COVID-19 pandemic put an end to many factors involved in the production of microchips, while people bored by the lockdown wanted to play video games and had to work from home on microchip-equipped computers. The decrease in the number of factories meant a decrease in the supply of chips while the increase in the number of computers taken off the shelves and plugged into the house meant an increase in the demand for chips.
- A broken supply chain: The pandemic has caused considerable disruption in the supply chain, from which we have not yet fully recovered. Seaports that reopened when restrictions were lifted have returned to work with new cargo restrictions and as a result many people are left without packages.
- Political Concerns: Some 80% of advanced microchips are made in Taiwan, and China is doing everything it can to make sure it swallows Taiwan whole. The United States (and Canada) doesn’t exactly have the best relationship with the People’s Republic of China, due to the trade war and Canada’s treatment of Hauwei’s chief financial officer, Meng Wanzhou. China is busy building its own chip production and the United States is doing the same.
The legislation also provides an additional $200 billion over 10 years to help U.S. scientific research better compete with China, though Congress would still be required to pass appropriations legislation to fund those investments.
It’s not particularly common for politicians in the United States to support large subsidies for private companies, but there is an inherent geopolitical trade conflict, and they recognize that China and the European Union have allocated billions to their companies. of chips. Add to that national security concerns and a huge, completely locked-in supply chain that has curtailed global manufacturing of these microchip embedded components, and it starts to make sense.