Microchip Shortage Posing “Imminent Risk” Of US Manufacturing Shutdowns

Joe Biden’s Commerce Department sent up alarms this week with a report that the supply of semiconductor microchips is so low that many US manufacturers are at a heightened risk of being forced to halt production.

Manufacturers’ average inventory of semiconductors has plummeted to five days of supply. The average inventory in 2019 was 40 days. As the global supply chain crisis continues to choke the flow of semiconductors, demand is skyrocketing in all industries using chips, including auto manufacturing, consumer electronics, and medical devices.

The “Risks in the Semiconductor Supply Chain” report issued on Monday was based on surveys of 150 producers who use microchips dating back to last September. In the press release accompanying the report, the Commerce Department said that under current conditions, a “COVID outbreak, natural disaster, or political instability” affecting foreign semiconductor manufacturing for even a few weeks could cause US manufacturing shutdowns.

Biden’s Commerce Secretary Gina Raimondo said of the supply crisis that there is “essentially no room for error.”

The industries most at risk using “legacy logic chips,” analog chips, and optoelectronic chips. Those chips are essential to producing almost all electronic devices, power management, sensors, and switches.

The Biden White House is currently urging Congress to pass the CHIPS Act, a measure that would allocate around $52 billion of federal funds to boost domestic microchip manufacturing. Raimondo said in a press statement that the funding is essential to stabilize the “fragile semiconductor supply chain.” She added that surging demand makes it clear that the only viable solution is to “rebuild” domestic semiconductor production capabilities, adding that every day the funding is delayed a day “we fall further behind.”

Many industry executives have expressed skepticism about the immediate value of the funding contemplated by the CHIPS Act, in as much as it will take years to build domestic production facilities to meet semiconductor demand.

The domestic chip consumers that were part of the Commerce Department survey estimated that current chip shortages will not subside until as far out as 2023, even if regular supply is restored. Surging price inflation will also add to the burden placed on American consumers due to diminished supply.