The first microchip-integrated circuit was invented by engineers back in 1958, an invention that has revolutionized all technology and changed the world drastically since then. In our era, microchips are building blocks of technology from phones to video game consoles, fridges to space exploring rockets, and our path to virtual reality and artificial intelligence. Microchip production took a hit on the last couple of years, but that’s largely due to an increased demand, one that won’t be going down any time soon and the world is working on producing more to supply it.
Back in 2020, with Covid-19 pandemic lockdowns, working and studying remotely become the new normal and the time spent using our screens is higher than ever. This new reliance on computers has skyrocketed the demand to technological devices such as our smart watches, phones, tablets, and computers.
This stark and sudden increase in our screen time spurred by the pandemic has accelerated the need for microchips, also known as semiconductors. However, due to supply chain disruptions, manufacturing slowdowns, a contentious trade wars between the US and China, and now the Russian invasion of Ukraine – we are now facing a global microchip crisis.
One of the most critical manufacturing disruptions to the global microchip supply has been Taiwan’s worst drought in over half a century. Taiwan is the world’s biggest manufacturer of microchips, staking claim to roughly 30% of the industry’s market share. The drought in Taiwan has affected semiconductor production critically, as semiconductor production requires a huge amount of water. In addition, a severe snowstorm in Texas in 2021 forced the closure of two factories due to loss of electricity, followed by a fire in a semiconductor factory in Japan also negatively affected the semiconductor industry.
In September 2021, because of the trade wars between the U.S. and China, the U.S. Government imposed restrictions on China’s largest chip manufacturer, which made it harder to sell their products to the American companies. These restrictions made American companies get their supplies from other countries, like Taiwan, which are at maximum capacity and already struggling to meet the demand.
Last, but certainly not least, the war between Russia and Ukraine has also affected semiconductor production as Ukraine is a major exporter of neon. Ukraine produces more than half of the global neon supply as a byproduct of the Russian steel industry, and as much as 90% of the semiconductor-grade neon used in the United States historically. Russia also exports metals used in certain chip components, which now are affected by trade sanctions from western governments.
With these issues in mind, the production capacity couldn’t keep up with the demand and has made a global microchip crisis inevitable. Automotive and consumer electronics industries are the ones most effected and most struggled industries among many others. Microchips are used in almost every electronic device we use today, including smartphones, gaming consoles, cars, and medical equipment, not to mention weaponry. It’s no surprise that all the manufacturers are having troubles because of global microchip crisis.
Changes to the Changing Landscape
While it has been almost two years since the global microchip shortage has started, the U.S. House of Representatives passed a historic bill on last Thursday, July 27th, which will accelerate and strengthen the manufacturing of semiconductors in America by providing billions of dollars in subsidies to the domestic microchip manufacturing companies.
The CHIPS for America Act, short for the Creating Helpful Incentives to Produce Semiconductors for America Act, will incentivize domestic microchip companies to design, research, develop, and manufacture semiconductors. It aims to increase the supply of microchips and market share of the U.S. in the global market. The Act will also provide billions of dollars in tax credits to encourage investment in chip manufacturing.
The legislation which also aims to make the U.S. less reliant on other countries such as China for manufacturing, was passed hours after Biden had a telephone call with Chinese President Xi Jinping. It sets up to be another move from the U.S. in its ongoing trade war with China. Biden has also tweeted the sentiment of this act, seen below, stating that from now the U.S. Government will work for bringing microchip manufacturers back home.
It “is exactly what we need to be doing to grow our economy right now,” Biden said in a statement after the vote. “I look forward to signing this bill into law.” The legislation is on Biden’s desk now, just awaiting for his signature to become law.