Your chips will be in short supply this July 4
If you are planning a long drive for the holiday weekend, the vehicle you are driving is likely to cost more to buy next year. The average vehicle listing price for a new vehicle was $39,833 in April, 7.9 percent more than in 2019, according to Kelley Blue Book, a vehicle valuation website. Prices for used vehicles hit an all-time high in May, averaging $22,568. And cars are getting older with demand getting stronger.
And while you are on the road, the cell phone you are using in the car will also likely go up in price, as will the video game console, laptops and other smart devices — all of which rely on the brainpower of semiconductor microchips, tiny fragments with larger-than-life effects on our electronic products.
I wrote about the chip supply problem on these pages in April, and since then, things have gotten worse, with the shortage impact on everything from automobiles to computers.
Since April, a few things have changed:
Among the new developments is a water shortage in Taiwan, which affects the supply of chip manufacturing. Because of America’s dependence on outside manufacturing of chips, particularly from Asia, what happens overseas affects us. A historic drought in Taiwan, blamed on changes in its topography, has caused electricity blackouts and cutbacks in water use at large-scale factories. Coupled with the pandemic and work shortages, the chip manufacturing is down at a time when global demand is up.
Taiwan’s drought complicates the Asia chip puzzle as China ramps up its domestic production of chips. The Chinese government has been investing, massively, in its own chip technology to avoid continued reliance on foreign suppliers, and to further its telecommunications agenda. China has been trying to leverage its economic influence through trade restrictions, cyberattacks and intellectual property theft to build up its chip manufacturing capability.
The good news is that Congress has passed “The United States Innovation and Competition Act” challenging Beijing’s growing technological power by supporting U.S. chipmakers and science research. It appropriates $52 billion to U.S. chip-making efforts and $81 billion to overhauling the National Science Foundation.
In addition to focusing on competition with China, the U.S. is looking to leverage its relationships with Japan and South Korea. The Department of Commerce has announced investment projects with both countries to boost production, especially after fires in Japan shut down that nation’s industrial capability for chips.
In addition to Congress, Silicon Valley is stepping up its game with major companies like Intel announcing the building of new chip factories in Arizona. Eventually that will begin to fill the void, especially for the automotive sector, where the chip shortages are estimated to have cost the global car industry $110 billion in 2021.
But looking ahead to the summer and beyond, America needs to go into major overdrive to produce more than the current 12 percent of the world’s semiconductors, and to boost its own production of automobile parts.
Fortunately, automakers, suppliers and government leaders are examining things like electric vehicles and where batteries and other parts come from as they push for North American production. The Department of Energy has released a National Blueprint for Lithium Batteries, and a plan to support the domestic battery production to meet growing needs as people go back to work and school in the fall
It is tempting to see the chip storage problem as just a technology story. But it also has real-world implications for our national security as so much of defense relies on computers and communications in the era of modern warfare.
As Americans celebrate our independence, we have to re-commit to being independent when it comes to reliance on others for goods and services that fuel our lives. We can’t make everything at home, but we can make more and ensure that disruptions abroad don’t reverberate, negatively, at home. As Congress continues to debate infrastructure and other major legislation, and the COVID-19 pandemic retreats, we will need to work together to ensure that we are prepared for whatever 2022 might bring.