Why the president can’t quickly solve the computer chip shortage

President Joe Biden faces an inconvenient reality as he tackles the political and economic headaches caused by a global shortage of chips needed to build computers, medical devices and automobiles: There’s no immediate fix.

Biden on Monday told CEOs gathered virtually at the White House for a meeting on the problem that he has bipartisan support to boost funding for U.S. semiconductor manufacturing. But the results of that effort would take years to manifest and would do little to address the crunch in the near term.

“We've been falling behind on research and development and manufacturing,” Biden told the business leaders. “We have to step up our game.”

The Biden administration previously pledged to enlist the help of foreign allies that produce semiconductors, such as Taiwan and Japan. The White House has confirmed that Biden will broach the subject on Friday with Japanese Prime Minister Yoshihide Suga during his visit to Washington.

But U.S. relations with another leading chipmaker, China, remain deeply strained and the Biden administration has so far kept in place Trump-era trade restrictions on Chinese tech firms, including Semiconductor Manufacturing International Corp., one of the country’s largest chip makers.

“In the short term, government should refrain from intervening as industry works to correct the current supply-demand imbalance causing the shortage,” said John Neuffer, the president and CEO of the Semiconductor Industry Association. That could take many months, industry officials have said.

“The role we see for government is to ensure the long-term strength and resilience of America’s semiconductor supply chain by acting now to invest in domestic chip manufacturing and research,” he added.

At Monday’s meeting, Biden read from a letter sent by 23 senators and 42 representatives who support funding for domestic semiconductor production. But wrangling over the amount of money likely lies ahead and the bipartisan support for chips could be sidelined by the infrastructure plan’s more divisive provisions.

“We've talked about whether or not we're doing anything in terms of bipartisanly. Well, we are,” Biden said. “Both sides of the aisle are strongly supportive of what we’re proposing, and I think we can really get things done for the American people.”

The U.S. in recent decades has largely ceded its role as a manufacturer of computer chips to Taiwan, South Korea, Japan and China. American companies therefore rely on a global chain of suppliers, producers and traders that have all come under unprecedented strain during the coronavirus pandemic.

That dependence on foreign companies to sustain critical U.S. industries such as automobiles, telecommunications, consumer electronics and defense poses a potential threat to national security and the economy.

And with thousands of autoworkers partially idle as plants await new semiconductor shipments, it also presents a political challenge for a White House that since the campaign trail has positioned itself as a fierce ally of unions.

Biden’s sweeping infrastructure proposal includes $50 billion to fund the industry-backed CHIPS for America Act H.R. 6396 (116), a measure passed this year that aims to boost U.S. semiconductor manufacturing. Another $50 billion would establish a Commerce Department office targeted at strengthening supply chains in the U.S.

“What today's meeting shows is the need for industry and government to continue to partner to ensure that the U.S. is going to increase its manufacturing capacity, while maintaining its leadership capability,” said Al Thompson, the head of U.S government relations for Intel. “It's another positive step forward to getting the CHIPS Act funded this year.”

But the $2 trillion infrastructure plan is already facing pushback from Republicans who argue the package is too expensive and extends far beyond traditional infrastructure. Even provisions related to the supply chain for semiconductors, which both parties recognized is a problem, will likely face wrangling over the price tag.

“I think people are still hoping we can stay ahead of China without spending any money, and it's just not going to work,” said James Lewis, director of strategic technologies program at the Center for Strategic and International Studies.

If the U.S. intends to compete with China and other countries on infrastructure and semiconductor research and production, Lewis continued, then “you need to spend money and Congress has not quite shifted out of a peacetime mode of thinking.”

The Alliance for Automotive Innovation, which represents the world’s car makers, told the Commerce Department last week that it would be “regrettable” if none of the CHIPS for America Act money was used to specifically buoy the U.S. auto industry.

“This could be accomplished by, for example, specifying that a particular percentage – that is reasonably based on the projected needs of the auto industry – be allocated for facilities that will support the production of auto grade chips in some manner,” John Bozzella, the group’s president and CEO, wrote in public comments.

But manufacturers of other goods that require chips — such as computers and mobile phones — oppose recommendations that favor one industry over another.

“Unprecedented demand skyrocketed across nearly all semiconductor-consuming industries at the beginning of the pandemic and continues to outstrip global supply, demonstrating the importance of sustained investments in this critical supply chain,” Jason Oxman, president and CEO of the Information Technology Industry Council, said in a statement. “The government should ensure that this critical technology is available to all industries, without picking winners and losers.”

Home-bound consumers have flocked to electronics for school, work and entertainment during the pandemic, creating an abrupt increase in demand for computer chips that power laptops, game consoles and phones.

The resulting shortage has put a pinch on the broad range of industries that rely on them for high-tech products, particularly the automotive industry, which slashed its semiconductor orders at the onset of the pandemic in anticipation of a prolonged lull. Semiconductor manufacturing is a complex process that can take months to change, so overnight fixes aren’t an option.

And the demand won’t fade anytime soon.

“Chips are like the new steel industry; it's the core of everything we do,” Lewis said. “It'll be the crucial industry going forward for the rest of the century.”