February 17, 2022

Where the U.S. Chips Fall: Fault Lines and Big Breaks in the Global Semiconductor Industry

By Hannah Kelley

Semiconductor chips are integral to every facet of contemporary life. COVID-19 related shortages have rocked critical supply chains. The international community’s chip reliance has raised economic and national security concerns. Congress should take immediate action to mitigate the current shortage, enacting policies to improve supply chain resiliency and bolster the U.S. economy, but Washington must also address the greatest threat to the global chip industry and the free and open emerging technology market of tomorrow—an authoritarian China’s pursuit of technological dominance.

Modern life hinges on reliable access to semiconductor chips. Recent shortages have shaken critical supply chains, highlighting how precarious the global semiconductor industry is and how reliant the international community is on chips for their economic and national security.

Semiconductor chips are the backbone of home appliances, medical devices, transportation, and telecommunications.

Taiwan stands at the center of this dynamic. As the third-largest producer of silicon-based hardware and foremost leader in chip fabrication, jeopardizing Taiwan’s production would threaten the stability of the global information technology economy. Taiwan uses its economic indispensability to generate foreign interest in maintaining the status quo with China in the Taiwan Strait, a strategy dubbed its “silicon shield.” How the United States engages with Taiwan and the global semiconductor industry at large—whether prioritizing its own domestic capabilities or seeking increased bilateral and multilateral cooperation—will not only impact global supply chain resiliency but set the tone for future technology competition with China and other illiberal actors.

They fuel e-commerce, spur industry innovation and job creation, and underpin defense technologies. Recent U.S. chip shortages amid an increased, pandemic-induced demand for work-from-home consumer electronics have resulted in extended wait times, spiking prices, and compounding inflation. COVID-19 labor shortages further complicate matters, especially for the automobile industry, as factories suffer temporary closures for lack of chips and personnel. A recent Department of Commerce survey of 150 semiconductor-reliant U.S. manufacturers and companies found that before the pandemic, sites were able to comfortably maintain a forty day inventory of key chips. Now, most are only able to scrounge a less than five day supply.

Read the full article from The Georgetown Journal of International Affairs.

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