U.S. Moves to Intervene in Semiconductor Supply Chain

Apr. 27, 2021

A global shortage in semiconductors has rocked supply chains across a variety of industries as semiconductors are the fourth most traded product among imports and exports, after crude oil, refined oil, and cars. The shortage is the result of a confluence of factors, not the least of which is the COVID-19 pandemic and a volatile market. The ongoing U.S.-China trade friction has further frustrated the current chip crisis. The shortage has also led policy makers in the United States to focus on existing supply chains for semiconductors.

The range of industries impacted by the chip shortage has been broad. For instance, the recent resurgence of demand for cars in anticipation of a post-pandemic recovery has the auto industry scrabbling for chips that are just not available, in large part because the semiconductor makers had given priority to consumer electronics manufacturers. Some anticipate that the supply crunch could lead to a potential 1.3 million vehicle shortfall in U.S. production this year.

Similarly, the chip shortage has extended to makers of smartphones, televisions and home appliances. Earlier last week there were reports from Samsung entities that the company recently began to reduce orders for smartphone components and the launch of its latest high-end smartphone will likely be delayed. According to the CEO of Intel, the largest by-revenue semiconductor company in the U.S., even medical equipment suppliers have voiced concerns about a lack of semiconductors. Across all industries, prices for these chips are surging as the wait time for their availability also increases.

In light of the semiconductor shortage the supply chain has come under closer scrutiny. Data from the Semiconductor Industry Association estimates that the U.S. only accounts for about 12.5% of semiconductor manufacturing. More than 70% of the semiconductor manufacturing market is controlled by Taiwan’s TSMC and South Korea’s Samsung. To spur the prioritization of domestic manufacturing, the U.S. firm, Intel has recently announced plans to spend $20 billion to build two new chip factories within the U.S.

In addition, the U.S. government has begun to explore steps to shore up supply chains in general, and the semiconductor industry in particular. President Biden has called for bipartisan support to strengthen the U.S. semiconductor industry. On March 1, 2021, the President signed an executive order that addressed made it U.S. policy to make supply chains, including the semiconductor supply chain, diverse, secure, and resilient. Beyond the Executive Order , the President has also earmarked $50 billion of the $2 trillion economic stimulus package for semiconductor manufacturing and research. Many within the industry have stated that much more financial support will be needed if the U.S. is serious about doubling down on its manufacturing capabilities. There is also a bill making its way through Congress known as CHIPS for America Act, which aims to incentivize advanced research and development in the U.S. and secure the supply chain. The bill has received widespread support across parties and industries.

While it is not yet clear how implementing diverse, secure, and resilient supply chains will impact trade, it is very likely there will be an impact. Should you have any questions on the current semiconductor shortage or supply chain changes generally, please call an attorney at Barnes, Richardson & Colburn LLP.