Chip armageddon reveals how terrifyingly fragile the U.S. supply chain actually is

The supply-chain crisis was terrible in 2021, but we didn’t know just how bad. It was actually a five-days-from-emergency kind of bad.

A new report from the Department of Commerce released Tuesday found that the typical inventory of semiconductor chips fell from 40 days in 2019 to less than five days in 2021. Some key industries were especially strapped.

That had a big impact, particularly for automakers, consumer electronics, LED lights, and even wind turbine producers. The global auto industry, for example, lost about $210 billion in revenues in 2021 thanks to the global chip shortage that forced companies to scale back production. What’s more, the chip shortage also drove up inflation because both new and used cars got so expensive, as automakers need chips to make new vehicles. The price of new cars and trucks in December was up a shocking 11.8% year-over-year.

Tuesday’s report is based on responses from more than 150 companies that responded to a Request for Information that Commerce sent in September, asking for information about inventories, demand, and delivery dynamics from anyone involved in the semiconductor supply chain. 

“That means if a COVID outbreak, a natural disaster, or political instability disrupts a foreign semiconductor facility for even just a few weeks, it has the potential [to] shut down a manufacturing facility in the U.S., putting American workers and their families at risk,” Commerce said Tuesday. 

The data also showed that not only were companies operating with very lean inventories, but demand for chips last year was at least 20% higher than 2019. Industry experts expect the chip shortage to continue into 2022

The continued vulnerability of the semiconductor sector and the related supply chains has Commerce Secretary Gina Raimondo calling for Congress to pass the CHIPS for America Act. The legislation, which the Senate passed in summer, would provide $52 billion in subsidies to help semiconductor companies to build production facilities in the U.S. 

“The semiconductor supply chain remains fragile, and it is essential that Congress pass CHIPS funding as soon as possible,” Raimondo said in a statement Tuesday. 

Raimondo is not alone. The Biden administration has backed the bill and last month, nearly 60 CEOS from major corporations—including Apple, Microsoft, Alphabet, Toyota Motor North America, and Verizon—sent an open letter urging the U.S. House of Representatives to pass the CHIPS Act. “The chip shortage poses risks to our entire economy and time is of the essence,” the executives wrote. 

Currently, U.S. manufacturers only produce about 12% of the world’s semiconductors, according to the White House. However, that may change if companies follow Intel’s lead. The tech giant announced last week it planned to spend $20 billion to build chip-making facilities in Ohio. Intel expects the New Albany plants to be operational in 2025. 

Intel CEO Pat Gelsinger said Friday that the company’s decision to move forward with the Ohio factory was motivated by the CHIPS Act. “Now Congress needs to finish the job,” he said.  

The legislation is not without its critics, however. In November, Senator Bernie Sanders contended the legislation was akin to rewarding bad behavior, saying in a floor speech that chipmakers have the wherewithal to build the necessary facilities.

Still proponents like Raimondo contend expanding U.S. chip manufacturing capabilities is the practical way forward. “With sky-rocketing demand and full utilization of existing manufacturing facilities, it’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities,” she said.

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