Updated Feb 5, 2022 - Technology

The next microchip crisis will be bigger

Illustration of an empty bag of potato chips with small bits of circuit computer chips leftover.
Illustration: Aïda Amer/Axios

The global chip shortage that's kept automobiles, iPads and game consoles in short supply is nothing compared to what could happen if the global economy's key maker of high-end microchips, based in Taiwan, is jeopardized.

Why it matters: Till now, Washington's focus on the semiconductor shortage has centered on keeping products on shelves and car dealership lots stocked — but U.S.-China tensions, along with the threat of natural disasters, provide a recipe for an even broader economic crisis.

What's happening: Right now, no U.S. company can manufacture the most advanced leading edge chips used in smartphones, laptops, servers, supercomputers, gaming consoles and other products.

  • Instead, most of the supply for those chips are made by Taiwan Semiconductor Manufacturing Company (TSMC), and is concentrated in Asian countries.
  • A Chinese ambassador to the U.S. recently warned of potential military conflict over Taiwan, calling the issue the "biggest tinderbox" between China and the U.S. Plus, the self-governing island also faces risks from earthquakes, flooding and climate change.
  • The current chip shortage has caused lengthy delays for new car orders, and was blamed in part for U.S. GDP remaining 1% lower than pre-pandemic.

What they're saying: "It's extreme concentration of some of the most strategically important chips in the world, and no capacity in the United States in the case of major disruptions," Will Hunt, a research analyst at Georgetown's Center for Security and Emerging Technology, told Axios.

  • "The current shortage pales in comparison to the economic impact of what might happen if the United States lost access to chips in Taiwan," Hunt told Axios.

Yes, but: Intel recently announced plans to invest $20 billion in two leading-edge chip factories in Ohio, while TSMC is building a facility to make its five-nanometer chips in Phoenix.

  • Industry observers say Intel has not yet successfully built chips that can rival TSMC's 5-nanometer product.
  • "We are completely in that game, and that's not slowing down," Al Thompson, Intel vice president of U.S. government relations, told Axios. "From a manufacturing and technological development standpoint, we're on track to be making leading-edge chips here within the next couple of years."

Meanwhile, the chip shortage experienced by the auto industry is for older, less advanced chips and is being fueled by a mismatch in demand and supply.

  • At the start of the pandemic, "there was a sense that auto demand was going to fall off a cliff, so they stopped producing," Ed Mills, Washington policy analyst with Raymond James, told Axios.
  • "[D]emand came back much faster than they were able to restart production of semiconductors."

What's next: House lawmakers introduced legislation that could see a vote as early as this week that would in part dedicate $52 billion in funding for domestic semiconductor production.

  • Intel's Thompson tells Axios the funding will allow the company to accelerate its U.S. projects and potentially expand them, but it will take time to build.

Between the lines: The funding, which the Senate approved last year, is meant to address long-term chip challenges, not the short-term crisis.

  • “This is about ensuring more of the chips that are so critical to our country and our economy are researched, designed, and manufactured domestically over the long term, so we can make our supply chains more resilient and avert the next chip shortage," Dan Rosso, spokesperson for the Semiconductor Industry Association, told Axios.
  • Demand for semiconductors is rising, and that trend is likely to continue.
  • "That is why the funding is so critical, because it will at least help incentivize and reduce some of that cost differential between doing it in the United States and other parts of the world," Thompson said. "And you get the benefit of resiliency."

Editor's note: This story was originally published on Jan. 31.

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