Biden official reveals failure of epic US chip shortage

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“It’s a huge problem,” Commerce Secretary Gina Raimondo told CNN before leading a White House meeting with chip makers and users. “Everything in your life that has an on-off switch requires semiconductors. Your phone, your car, all the electronics around you.”

While the global shortage of computer chips is primarily due to Covid, extreme weather conditions, and other factors, this lack of a critical component also exposes glaring vulnerability in America’s complex supply chain that s has been poisoned for many years.

“The reason we’re really in this mess is because for a long time we haven’t invested,” said Raimondo, a former venture capitalist and governor of Rhode Island. “We looked away from the bullet. We used to be the world’s leading semiconductor manufacturer and now we don’t do it anymore. We just divested.”

Indeed, the United States’ share of global semiconductor manufacturing fell to just 12% last year, according to the Semiconductor Industry Association. This is down from 37% in 1990. The trade group blamed “substantial” subsidies offered by foreign governments that put the United States at a “competitive disadvantage”.
The Biden administration pushed Congress to enact a $ 52 billion bill that would push for more semiconductor production and research in the United States. This bill, called the CHIPS for America Act, was passed by the US Senate in June but was not passed in the House.

“It’s pretty simple. We need to make more chips in America,” Raimondo said.

Chip Shortage Means “Higher Prices, Fewer Options”

Yet passing this legislation would have little immediate effect on the current chip shortage, which is contributing to America’s high inflation and sticker shock to consumers.

Raimondo acknowledged that semiconductor issues will be a challenge this holiday shopping season, when demand for smartphones, tablets, video game consoles, personal speakers and other gadgets increases.

“I hope it doesn’t feel horribly,” she said, adding that electronics companies have mostly been able to keep up with the demand. “But that will be more of what we’re seeing: essentially higher prices and fewer options.”

“We have never seen this”

The auto industry is being hit hard by the chip shortage.

At the beginning of September, General Motors (DG)shut down production at most of its factories in North America for a week or two due to chip shortages. A spike in Covid cases, especially in Southeast Asia where semiconductor factories are located, has exacerbated supply problems.
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Hit by production shutdowns, car dealerships have few vehicles in stock and consumers are paying more for cars than they can find.

Take for example a Ford dealership in Mahwah, New Jersey, which normally has 300 new cars on its lot. Today, it only has ten because of production stoppages.

“We’ve never seen this. It’s definitely a first for all of us,” Aaron Ringus, sales manager at Mahwah Ford, told CNN.

The lack of new cars has also contributed to a surge in used car prices, as well as the fact that car rental companies hold onto their fleets rather than sell them.

Raimondo: chip shortages will last at least until end of 2022

Federal Reserve Chairman Jerome Powell cited the chip shortage as one of the many challenges facing the U.S. economy as the pandemic reopens.

“In some industries, short-term supply constraints are restricting activity,” Powell said at Wednesday’s press conference. “These constraints are particularly acute in the automotive industry, where the global semiconductor shortage has sharply reduced production.”

Unfortunately, the semiconductor supply issues are not going to go away anytime soon.

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“Honestly, I think we’re going to have a hard time with that next year until we can really alleviate some of these bottlenecks,” Raimondo said. “It won’t be that bad, but I don’t think it’ll be back to normal until much of 2022.”

Intelligence (INTC) CEO Pat Gelsinger has warned that the shortage could last even longer, potentially extending into 2023.

Raimondo acknowledged that the timeline was “not out of the question”, adding that officials “will work hard to do better than that”.

“We ask nicely”

In an effort to resolve supply issues, the Commerce Department and the White House have summoned chipmakers and chip buyers as Apple (AAPL), Microsoft (MSFT) and GM Thursday.
In a statement, the Semiconductor Industry Association praised the Biden administration for taking a “series of decisive steps to strengthen chip production and innovation in the United States,” including speaking with industry leaders and by defending the CHIPS for America Act. “We appreciate their continued efforts.”

Biden officials are also launching a rapid response hotline that will allow businesses to immediately alert the government of disruptions caused by Covid outbreaks, extreme weather or wildfires.

During the virtual White House summit, Raimondo also called on the industry to give the federal government more information on their complex supply chains. The aim of the voluntary survey is to ensure that computer chips get where they are needed and have greater visibility into potential bottlenecks.
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“We need more information on what’s going on, where the chips are going, where the bottlenecks are, so that we can predict problems before they happen,” Raimondo said.

White House officials say the data can also attract new private investment to build new factories by providing demand information.

“Now at this point it’s voluntary. We kindly ask and hope they comply,” Raimondo said. “If they don’t, we’ll have to take a tougher stance.”

– Chris Isidore of CNN Business contributed to this report.

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